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According to the permanent secretary for tax, Dave Hartnett China could have the perfect tax model for the United Kingdom to adopt. Speaking to the Exchequer Secretary to the Treasury, David Gaulke and the Office for Tax Simplification, Hartnett stated that the turnover tax favoured by China

“appeared to have a very positive effect on tax compliance.”

The Office of Tax Simplification have been called upon by Hartnett to explore different ways to tax sole traders who earn below £20,000 per annum. According to Hartnett, the 1.8 million sole traders play a significant role in the UK’s tax gap, which should be considered by the OTS. Their proposals could have an effect on tax compliance.

The tax director of the OTS, John Whiting admits that they are looking further afield for a radical approach to tax compliance. New ideas for simpler taxation could lead to a reduction in tax evasion and avoidance. Mr Whiting said:

“A flat turnover tax would see traders pay a flat rate of tax on gross income rather than having to comply with income, national insurance, and other taxes.”

Although the intention is not to reduce the amount of tax paid, it is intended to make compliance much easier. Both personal and business tax has a flat rate of tax in a large number of Eastern European countries, Russia, South Africa and China. A spokesman for HMRC said that although Dave Hartnett had praised the tax system of China, he wasn’t sure of its suitability for the UK.

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