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Pathways - Citizen's Dividend to replace UK Personal Allowance

UK tax system personal allowance is complex, confusing and costly

Ask any employer, self-employed person, or someone with several part time jobs, and they will tell you that the PAYE (Pay As You Earn) tax system is ridiculously complex.

When starting a new job, an employee must present an employer with their P45 to show their earnings to date so that the correct tax can be calculated.  If they have two jobs or more, they get multiple tax coding notices to hand to their multiple employers.  Employers must maintain complex arrangements for dealing with tax coding, as do HMRC.

HMRC must employ countless staff to deal with tax coding management and enquiries alone.  HMRC have to maintain software to cope with the changes to this system each year and track the multiple jobs.

Abolishing the personal allowance will save money and incentivise work

The answer is to extend the simplifications to the benefits system further, and instead of a plan for a £12,500 personal tax, make it zero
and introduce a Citizen's Dividend of £2,500.  All benefits would be reduced by £2500/yr to match.  (The figure could be higher if we did the
same thing for national insurance contributions, but that could be left as a rainy day policy for the future).

The benefits:

  • UK citizens would gain around a £1.20 per hour advantage over non citizens
  • It would be clear that every hour of work gives a 80p in the pound incentive to work (after 20% Income Tax is taken out)
  • The HMRC would save a significant amount in dealing with tax allowance coding
  • Employers would applaud in not having to deal with tax coding, especially difficult for short term workers needed in an agile economy
  • It is EU-compatible - it applies equally, without discriminating between EU, non-EU or other boundaries.

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