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Flat Tax in UK - Essay Example

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The perception of a "flat tax", a simple tax system that charges a single rate of tax on all income, is rising in fame. It difference apparently by the current systems operated in mainly countries, by dissimilar tax rates depending on the level and type of income or on the individual circumstances of the personage taxpayer.
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Flat Tax in UK
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Flat Tax in UK

Central government, however, generates its revenues mainly from income tax, national insurance contributions, value added tax, corporation tax and fuel duty.
Definition: "A flat tax, also called a proportional tax, is a system that taxes all entities in a class (typically either citizens or corporations) at the same rate (as a proportion of income), as opposed to a graduated, or progressive, scheme. The term flat tax is most often discussed in the context of income taxes."(Expert Report 2005)
At first confined to academic conversation and a few small islands, the flat tax has lately been introduced in numerous of the ex-communist countries of middle Europe, counting latest members of the European Union. Additionally, Poland has announced its intention to adopt a flat tax system. As a result far none of the 'old' EU nations has taken this step, though Ireland is introducing a flat tax for companies (Feldstein).
Hypothetically we could calculate an average rate of tax under the current multi-rate system, and charge everyone this rate under the flat tax. Though this would consequence in taxpayers (mainly the lower earners) paying more tax. In practice so most flat tax systems propose a single rate approximately the similar as, or lower than, the existing standard rate. This means that no-one will pay additional tax on the transition to a flat tax.
Remove most tax allowances and deductions
One of the advantages of the flat rate is its minimalism, in that taxpayers and collectors only have to use one rate of tax in their calculations. This straightforwardness is usually extended by removing mainly of the exact tax deductions surrounded by the accessible system that try to give stipend for exact circumstances or incentives for exacting activities. In part this removal of allowances is sensible since once a single low flat rate is introduced they turn out to be less important (HM Treasury, 2003).
Greatly increased personal allowance
The individual allowance is the basic amount that every taxpayer is allowed to earn free of tax. The majority flat tax proposals engage an important augment in this amount, first and foremost to make sure that all low earners are better off under the flat tax system (in lots of cases by being taken out of the tax net in total), even subsequent abolishing a lot of the precise allowances (Richard Teather).
Apparently a flat tax will decrease the largely tax take, at least originally, unless it is set at the present average rate (in which case a lot of taxpayers would pay additional under the reforms than they do at present). Certainly raising the individual allowance considerably will also result in a substantial loss of tax revenue. But how much
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