Simplifying taxation through personal companies

Berkshire Hathaway Shareholders Meeting
Berkshire Hathaway Shareholders Meeting, a photo by timbu on Flickr.
Companies have lots of advantages compared to real people. Amongst other things, they generally only pay taxes on their profits, not on their income (revenue), and lots of companies are registered for VAT, which means they don’t pay any VAT on what they buy.

Companies have these advantages to encourage investment and promote growth.

However, one might argue that this should apply to individuals, too.

Imagine if every individual automatically owned a “personal” company (i.e., at birth I would have been made sole director of Thomas Widmann Ltd.), and all their work took place through their company (it would be illegal for companies to employ people rather than other companies). In this scenario, everybody would need to decide when to take profits out of their personal company instead of investing the money (which would be tax-free).

With the move away from direct employment towards self-employment, this is increasingly becoming a reality for a large number of people, so perhaps it would be worthwhile making this approach universal.

After this change, it would be possible to completely abolish income tax, because employment would then always an issue between two companies, and all that would be needed would be company taxation and taxes on withdrawing profits. I guess many people would let their personal companies own their house and their car and let their personal company provide free meals to its employee in order to minimise tax and VAT, but that would be a good thing as it would just be levelling out the playing field (which is currently distorted in favour of companies and rich people).

At the moment, most rich people have companies (or charities) to lower their tax bill, so giving everybody a VAT-registered company would basically just give normal people the benefits that the rich currently enjoy.

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