Magna Carta, the Sheriff of Nottingham and the Boston Tea Party

It's just over 800 years since rebel English barons demanded that King John and his government should not be above the law. The dispute arose in the context of the King demanding taxes from his nobles. The legend of Robin Hood grew around the unfair taxation of those who could least afford to pay (it was also the very first film I saw at the cinema at the age of 5!). Fast forward to 1773 and overzealous taxation resulted in the American War of Independence. Has the UK government learned anything over the last 250 years?

It was announced today by the shady cabal entrusted with extracting money with menaces (HMRC) is now going to be stealing pocket money from small children and helping itself to a share of any income people get from selling off their possessions to make ends meet (one of these is true). This is all about trading and making sure that tax is collected on any profits from trading. The concept of 'trading' is one that has been established over many, many years and court cases. There is another test used by the taxman around whether someone is 'trading with a view to a profit' to make sure they are not pretending to trade (so as to get tax deductions for any expenditure incurred - this catches out anyone dressing up a hobby which loses money as a business so they can offset losses elsewhere). More often than not individuals will do their best to have any increase on the value of the item being sold dealt with under Capital Gains Tax rules (as CGT is lower than income tax), but the taxman is alert to this and will bend over backwards to make sure things are taxed as income.

It seems that HMRC, much like the Terminator and other scary sci-fi robots, is intent on carrying out its mission once programmed. Invariably this means collect more tax. Once programmed it can't deviate and is largely out of control. Governments initially set the parameters, but then it runs away with itself. I suspect the latest turn of events around taxing people selling items on Ebay and Vinted was well intentioned. There are probably individuals doing this as a full time trade and making good money (which they hopefully declare on their tax returns - but just in case HMRC is now acting more and more like big brother). If you really want to reduce your tax burden move to somewhere like the Isle of Man and make sure you don't forget to make generous donations to the political party of your choice (ideally the one in government that won't look too closely at your tax affairs and hands out lucrative contracts to VIPs).

I think being 800 years on from Magna Carta we might be due a reset for the anachronistic way in which HMRC operates. They have even managed to subvert the universally accepted legal premise of innocent until found guilty (this occurred in 2014 when George Osborne found himself short of funds, having had to bail out all his banking chums after the 2008 financial crisis and went through Parliament with little or no scrutiny) with the much loved concept of Accelerated Payment Notices. Basically if HMRC says you owe money you have to cough up - no right of appeal, no day in court. HMRC, not subject to any kind of statute of limitations itself, then can take its own sweet time to determine whether you actually owe money or not. If it turns out you don't owe money they can simply change the law retrospectively (ask any of the individuals impacted by the #loancharge or their loved ones in the case of those driven to suicide). The usual strategy is to try and outspend / out manoeuvre the taxpayer (in the case of #ir35 and #filmtax) although very occasionally justice prevails. The current Chancellor of the Exchequer (shout out to my MP Jeremy Hunt - who refuses to meet with his constituent to discuss his issues with HMRC) famously said that authorities "close ranks around a lie" - as we have seen in the case of the Sub-Postmaster scandal.

I suspect most people understand the need for and benefits from taxation, but it needs to be fair. The current tax legislation is massively overcomplicated and the people in charge of collecting taxes and implementing the rules seem to be largely unaccountable and out of control. Many taxpayers will be struggling to complete their returns ahead of the 31 January deadline, but don't expect any help from HMRC. If you get it wrong or are late it is entirely your own fault and expect them to be merciless.

I wanted to give an example of how ludicrous the current system is. Let's take the case of three couples - Hamish and Rachel, Blake and Ryan, Sam and Lois. Hamish and Rachel are career civil servants with good, secure jobs working for the UK government (we can't say which bit - its very hush-hush - no names, only anonymous PO Boxes etc - no not MI5/6 - we all know where they are - HMRC!). Blake and Ryan work in the entertainment industry, but Ryan is taking time out to raise the kids (an old fashioned concept and one the government would very much like to discourage it would seem, but still a popular choice). Sam and Lois have been a couple for a few years. Sam also works in entertainment (in this instance Lois looks after the kids). The household income of all three couples works out, on average, identically as ￡100k gross per year.

Hamish and Rachel value their free time and the lack of responsibility / accountability their civil service job offers. They each earn ￡50k per annum. After tax and NI this nets out at a combined ￡77.5k take home pay (they also get help with child care and are entitled to child benefits - both of them can contribute to a pension scheme and enjoy higher rate tax deductions which effectively increase their take home pay even further).

Blake is doing well and earns ￡100k gross. Her take home pay works out at ￡67.8k - sadly child benefit is not allowed for someone earning this much and Ryan is not able to benefit from any tax relief on pension contributions - they will both have to rely on Blake's pension.

Sam had an amazing year and earned ￡200k, but that is going to have to last him and Lois a bit longer because his earnings are very much up and down and over two years this averages back to ￡100k per annum between them. In the good year his take home pay was a measly ￡117k which averages out at ￡58.5k per annum when you take into account no earnings in one of the two years. They also lose out on child benefit and pension relief for the stay at home partner.

Three households with identical gross incomes and effective tax rates of 22.5%, 32.2% and 41.5% - let's not even discuss non-doms and people buying several flats all in one go to get around pesky rules. Is there any wonder that taxpayers attempt to optimise their situations (especially when encouraged to do so by government who reserve the right to change their minds completely)? This is before we get on to things like inheritance tax where being married and the order in which people die and the composition of their assets all make a massive difference to the amount paid (if anything at all - let's not get on to Will and Kate a lovely couple who don't have an 'income' per se but are filthy rich and will benefit from some careful tax planning through trusts not available to most people).

I'm sure there will be flaws in my arguments and examples, but what is pretty clear is that HMRC needs root and branch reform and far greater accountability. As part of the social contract fairness is essential - otherwise the people have a tendency to revolt - 'no taxation without representation'!