Who pays too much/too little tax? ...Inspired (?!) by Jon the Hat

[Rincewind]

When I was at the hosiery warehouse, there was a bloke who was just a normal warehouseman. He sort of for want of a better word arse licked his way to become manager. One day when visiting his sister during lunchtime he was in a rush to get back to work, collapse at his car and died of heat failure. The twin brothers that owned the company both died at around 50. There are also many people who work extra hours to compensate for their low pay and they also die at an earlyish age. This draws me to the conclusion that it is best just to do as much as you need to. Be ambitious yes, but if yoyu are the boss delegate. If not think about what you need rather than what you want. If you do too many hours you may initially have a better life but you could be leaving behind a wealthy widow.

I do not have anyone to leave money to so it is mostly spent during my lifetime.

[DANGEROUS TIGER]

i would love to hear the justification for anyone to pay a higher percentage of their income on income tax. Putting aside for a moment the need for a tax free threshold to ensure the low paid can afford to live, which is just a fact, and the misalignment of the tax thresholds with the NI ones. We bascially have four tax buckets.

1) Not taxed

2) Taxed at 32% (20% + 12% NI)

3) Taxed at 42% (40% + 2% NI)

4) Taxed at 52%/47% (depending on when / if the top rate actually changes)

Now, the only sensible quesion here is why on earth would you have a 32% rate and a 42% rate and a 52% rate? If you need to make people on lower incomes better off, you increase the tax free threshold. This is very fair because if directly favours those on the lowest incomes, incentivises work over benefits, and means you dont have complexity. This should also replace all tax credits, with the exception of a child benefit of an appropriate level.

The only reason then to have a higher percentage, is the idea of a progressive tax rate which increases the tax burden on the higer paid. The common justification for this is the one SAB used above, which is the minimum wage vs Richard Branson approach. We have already solved that problem with the increase in the tax free threshold. Everyone paying tax can afford that tax, which means that any further incremental tax in addition to the flat rate is punative. The result of punative taxes is a further increase in salary levels to properly reward in-demand skills and services, which ultimately falls on the companies which employ higher earners. This is inflationary, and means that the cost of goods and services goes up, and the burden of this inflation falls on the lowest paid who spend a greater proportion of their disposable income on essentials.

The main blocker to any tax reform is exactly the nonsense when is spouted in response to the top rate tax band. There is no justification for this band, Employers have to pay even higher salaries to complensate for it, roles move abroad to avoid it, and the overall tax take is tiny. Yet try to take it away and you are accused of ignoring the poor and favouring the rich. This is a serious problem, becuase it means the sensible discussion is clouded out, and we end up with silly workarounds when what we need is an massive simplication. We need to stop arguing about the people paying tax and start holding the government to account for the fact that it is spending 50% of GDP on public services. No one asked for this, and in the main people cannot even see how much tax they are really paying. Wake up and smell the coffee - government is spending your money on things you don't want and don't need. Wouldn't you rather have that in your pocket to choose how to spend?

Holy smoke, Jon, you sound like you believe this to be the way forward, and much though I admire your argument, I don't believe this to be the case, but that is only my humble view.

The whole subject quite frankly, is a seriously "sticky wicket", with no perfect answer.

[cambridgefox]

Come on, you're better than that.

Many company directors will have put the hard hours in to get where they are (and many will still put in hard hours). Many will be talented leaders capable of growing an organisation and as such employing more of the people "that actually do the actual work". I'm not denying that many people work fúcking hard for little reward but I also recognise that people who are highly paid are often (not in all cases admittedly) completely deserving of that reward in the context of their contribution to their organisation and the industry they work in.

well said,that is true of my workplace.

My dad was lucky enough to have a good job and retired at fifty,but on a Friday and Saturday night I would crawl in at 4 in the morning and he would till be working.Honestly.

[I am Rod Hull]

Lets just get the FTSE 100 to contribute a little instead of letting them get away with paying fook all.....

[Jon the Hat]

Right, time for slight thread hi-jack. Now that some of our more left of centre posters have come to the conclusion that paying more tax is not a disincentive to pursuing a successful and perhaps higher paid career, can they please tell me what they think of university tuition fees?

[Alf Bentley]

Can we please not assume that only highly paid people work hard, unsociable/unhealthy hours in stressful jobs.

The vast majority of people are not paid more on less on how hard they work but on how fortunate they were to be born with and then using a brain that allows them to do more complex work.

As I've said many times on here before having worked in large organisations but in the private and public sector I've seen plenty of people literally flogging themselves to death and even dying on the job in some case some were low paid and some were high earners and I've also seen plenty of low paid and highly paid do next to FA, their main skill being the ability to always look busy whilst producing next to nothing.

Agreed 100%. Before going self-employed, I worked in both private and public sector, everywhere from civil service offices to a car factory, youth hostels, kitchens and potato fields....the one thing they all had in common was that there were always some people who worked very hard and some who skived...at every level of the organisation. For the most part, you also get a mix of good people, half-decent people and horrible people....though the balance varies more in this respect...."workplace culture" to some extent, I suppose.

[Alf Bentley]

When I was at the hosiery warehouse, there was a bloke who was just a normal warehouseman. He sort of for want of a better word arse licked his way to become manager. One day when visiting his sister during lunchtime he was in a rush to get back to work, collapse at his car and died of heat failure. The twin brothers that owned the company both died at around 50. There are also many people who work extra hours to compensate for their low pay and they also die at an earlyish age. This draws me to the conclusion that it is best just to do as much as you need to. Be ambitious yes, but if yoyu are the boss delegate. If not think about what you need rather than what you want. If you do too many hours you may initially have a better life but you could be leaving behind a wealthy widow.

I do not have anyone to leave money to so it is mostly spent during my lifetime.

I found this pretty sad (in the old, non-condemnatory meaning of "sad"), not least as I'm now "around 50"! Life is not for idling, but it's not for killing yourself through work, either. I'll take this to heart and avoid over-work in future, Nightguard...not that I've had much choice this week - slack week work-wise, hence the multiple posts! Mind you, keeping busy and lively is generally good for you, within reason. I'd rather die of over-exertion (preferably at age 105, in luscious company) than of inaction and tedium...

[Captain...]

Right, time for slight thread hi-jack. Now that some of our more left of centre posters have come to the conclusion that paying more tax is not a disincentive to pursuing a successful and perhaps higher paid career, can they please tell me what they think of university tuition fees?

I think they are fees charged to university students to say for their education.

Or do you mean specifically to the amount being charged for them?

I think it is ridiculous amount to be expected to pay up front, but they are not paid up front, I think it is ridiculous to make them so high that some people are just not actually going to be able to pay them, which all seems a bit pointless. In actuality the average earning of those that go to uni as opposed to those that don't is about 3 grand more, a year, so on average they will still come out on top having gone to uni as opposed to not. The fact is university costs money, you get significantly reimbursed financially, so you should be made to pay. I would propose a university tax, but not having a quantifiable amount up front that puts people off going to uni.

Still at least it was implemented in a well thought out manner and is not going to cost the tax payers billions and the benefit will be only felt in many years time... Oh wait.

[Rincewind]

I have nbothing against working hard as long as it is worth while and appreciated. 30 years at one place and made redundant. Worked out through a rating system. Because I was not as fast as others and my work area was not as tidy I was top of the list. In previous years I had done overtime and helped in any area when on piece work like working in the stockroom when they fell behind. A few of us did overtime for years overtime and did work at a reduced rate to get it out. Our reward? The management trying to find ways of reducing our rates for the work. They said we were earning too much. They took certain operations off us and gave them to the women side. Eventually from what was about 20 men doing the job went down to 4 after I had left.

In security the place before last I worked at various locations. At first they provided transport. Just before I left after 2-3 years they stopped this and said that I had to name a site for permanant place. I could not think of one that did not have a regular team on already which was suitable so I had to look elsewhere.

My last place the company went up the spout and neglected to tell the employees that they were in trouble.

At an office skills course we were told that we should all work for the good of the company as their success affects everyone. True when you are not taken for granted which happens a lot. Now I want to do work where the goal is not profit but satisfaction for myself,

[Charl91]

No problem with higher earners paying more, but I think the highest band should be 40%. When the state takes pretty much 50% of every £1 you make, it's daylight robbery.

[MooseBreath]

is not going to cost the tax payers billions

how is it going to cost the taxpayer more?

[Captain...]

how is it going to cost the taxpayer more?

http://union-news.co.uk/2012/10/government-got-sums-wrong-on-tuition-fees-says-report/

This report has the details.

[Captain...]

Still at least universities can still make lots of money on international students...

Oh no they've fvcked that up too.

http://m.guardian.co.uk/education/2012/may/17/new-rules-overseas-students-universities?cat=education&type=article

[MooseBreath]

http://union-news.co...es-says-report/

This report has the details.

Load of old cobblers. It still costs the same, just paid for differently

Still at least universities can still make lots of money on international students...

Oh no they've fvcked that up too.

http://m.guardian.co...on&type=article

agree with this though. Cutting back on students as a way of lowering immigration was a stupid move.

[Captain...]

Load of old cobblers. It still costs the same, just paid for differently

agree with this though. Cutting back on students as a way of lowering immigration was a stupid move.

Not it costs more to the taxpayers to implement this ridiculous restructuring of student finances and tuition fees, and the pay back will not be seen for a few years, so at a time of economic stress this ill conceived policy is ending up costing the tax payer money, increasing the deficit in the short term, by billions, and pissing off a hell of a lot of students.

Did you not bother to read follow the link and read the article again.

It is not about how much it will cost the students, it is about how much it will cost out of government spending to implement this train wreck of a policy.

NUS president Liam Buns said: “The government has told us these changes needed to be made to save money but despite the tripling of tuition fees their system costs the treasury billions more and creates even more instability for universities.

[MooseBreath]

I did read the article but I do not believe much of it. I can't begin to imagine how slightly altering a loans/payment system is ever going to cost "billions". I'd imagine it's more like a two man job for a couple of weeks.

[Captain...]

I did read the article but I do not believe much of it. I can't begin to imagine how slightly altering a loans/payment system is ever going to cost "billions". I'd imagine it's more like a two man job for a couple of weeks.

Me too but then we are not incompetent politicians and civil servants.

[Monk]

Well if you are self employed and sole director of a small business, then when you pay yourself a dividend, you do pay tax on a dividend of 10% it, but you receive a tax credit for the 10% as you have already paid business tax on it, so effectively you are paying tax on your dividend, but then claiming it back, this is only really relevant to the individual if they are self employed and set up as a limited company, but it is effectively tax free.

Explains more here: http://www.contracte...s_tax_pay.shtml

But I got a little lost when it started talking about the higher brackets of tax.

Get your facts straight mate. I run my own company, pay my fair share of tax and you are wrong. Profit has already been taxed at 20% before dividends are taken, and dividend tax is only rebated up to the higher tax band. So for dividends paid on a total income of up to ~40k, you pay 20% tax on those dividends. If it's above the tax limit you'll pay an additional 25% dividend tax that is not rebated and is on top of the 20% corporation tax already paid on that amount. So the difference isn't huge.

People saying this stuff really winds me up, especially when you haven't got a clue what you're talking about.

I also pay 20% VAT on all income I bring in to my company, which adds quite a lot to this.

[Captain...]

Get your facts straight mate. I run my own company, pay my fair share of tax and you are wrong. Profit has already been taxed at 20% before dividends are taken, and dividend tax is only rebated up to the higher tax band. So for dividends paid on a total income of up to ~40k, you pay 20% tax on those dividends. If it's above the tax limit you'll pay an additional 25% dividend tax that is not rebated and is on top of the 20% corporation tax already paid on that amount. So the difference isn't huge.

People saying this stuff really winds me up, especially when you haven't got a clue what you're talking about.

I also pay 20% VAT on all income I bring in to my company, which adds quite a lot to this.

My facts are straight buddy boy, I even provided a link to show my working, and admitted I got a little lost when it started talking about the higher tax band, which you say is based on total income being over 40k, (or 35k I read somewhere else) I found it difficult to work out, so in the context of self employed and set up as a limited company, you take a salary of 15k, then you can take up to 20k/25k as a dividend and not pay any more tax on it.

Or are you disputing that?

And as for VAT, do you not also charge VAT on everything you sell, so you are not really paying 20% VAT just passing it on from the customer to the Governement whilst it sitd in your account getting interest in the process, and I am assuming you claim back VAT on everything you purchase, or subscribe to the flat rate of VAT scheme, so you don't pay 20% VAT on all income, unless you are doing it wrong.

[danny.]

My facts are straight buddy boy, I even provided a link to show my working, and admitted I got a little lost when it started talking about the higher tax band, which you say is based on total income being over 40k, (or 35k I read somewhere else) I found it difficult to work out, so in the context of self employed and set up as a limited company, you take a salary of 15k, then you can take up to 20k/25k as a dividend and not pay any more tax on it.

Or are you disputing that?

If it's a one person ltd company, then while the dividends are "tax free" up to 40k the money earned to pay those is taxed at 20% - so no it isn't tax free, it's taxed at 20% and then over 40k it's taxed at 42.5% and over 150k 52.5%. And no, you don't know what you are talking about.

[Captain...]

If it's a one person ltd company, then while the dividends are "tax free" up to 40k the money earned to pay those is taxed at 20% - so no it isn't tax free, it's taxed at 20% and then over 40k it's taxed at 42.5% and over 150k 52.5%. And no, you don't know what you are talking about.

You may want to read the whole thread before saying I don't know what I'm talking about

The original comment was this:

But this is not the problem, the problem is people setting themselves up as companies paying business tax and taking a salary of 15k and paying little income tax, then getting a tax free dividend at the end of the year.

I have said they pay business tax and then pay themselves a low wage and a tax free dividend, which may only be 25k, but effectively you would be paying income tax of a low rate on 15k, then 25k dividend, which is tax free, after you have paid business tax.

You also avoid paying NI on dividends, so whilst paying income tax and everything on a salary of 40k, would result in £10,312 in deductions

Limited company

15k income tax is £2,312 deductions

25k dividend, on which you will have paid 20% business tax, £5k in deductions

= £7,312 in deductions.

A significant "saving" of about £3,000 a year.

[ADK]

If you are set up as a limited company you don't have some of the protections as an employee. Therefore i think it is fair to pay less tax.

[Captain...]

If you are set up as a limited company you don't have some of the protections as an employee. Therefore i think it is fair to pay less tax.

If you are a genuine limited company then yes, but if you are doing so to avoid paying tax then no, this is not aimed at small businesses and people that are genuinely self employed, it is people who get paid a huge wage, and set themselves up as a limited company to avoid paying more tax on their huge wage.

Examples http://www.thisismoney.co.uk/money/article-2095909/How-pay-21-tax-100-000-income-child-benefit--IR35-rules-explained.html

[Jon the Hat]

I think it is ridiculous amount to be expected to pay up front, but they are not paid up front, I think it is ridiculous to make them so high that some people are just not actually going to be able to pay them, which all seems a bit pointless. In actuality the average earning of those that go to uni as opposed to those that don't is about 3 grand more, a year, so on average they will still come out on top having gone to uni as opposed to not. The fact is university costs money, you get significantly reimbursed financially, so you should be made to pay. I would propose a university tax, but not having a quantifiable amount up front that puts people off going to uni.

My point here is that we have people arguing that paying more tax is not a disincentive to wanting to earn more. Then we have the new university fee and "loan" system which is basically a graduate tax, because you only pay it if you get to earn higher salaries. Then we have people arguing that the huge student loans put people off going to Uni. It doesn't add up. Sadly people believe what they are told, and the loony left with the BBC and unions etc have brainwashed people into believing they will leave Uni with massive debts.

[Guest]

Student "loans" only paid back when earning significant money are an excellent idea.