UK Taxes

[Bletchleyite]

For all I dislike VAT as a tax as a whole (the worst aspect of it is that it is paid by those who are nominally non-taxpayers) if it does exist I would take a more German line - there is little reason for it not to be charged on *every* sale at least where value was added by the organisation doing the selling - and it certainly was in the case of any prepared food of any kind.

Only unpackaged fresh meat, fruit and vegetables would seem to have any justification for not charging it based on its concept (tax on added value, essentially).

 

[Tetchytyke]

there is little reason for it not to be charged on *every* sale at least where value was added by the organisation doing the selling

The origins of the laws here lie in the bakery industry, where you would go and buy a loaf of bread or a pie fresh from the oven at the local baker's but would take it home to eat it later. These days you don't go buy fresh bread, it's all from factories, but it'd be difficult to justify charging VAT on a loaf of bread simply because you bought it from the bakery not the supermarket.

 

[Bletchleyite]

The origins of the laws here lie in the bakery industry, where you would go and buy a loaf of bread or a pie fresh from the oven at the local baker's but would take it home to eat it later. These days you don't go buy fresh bread, it's all from factories, but it'd be difficult to justify charging VAT on a loaf of bread simply because you bought it from the bakery not the supermarket.

For clarity, assuming we are to have VAT, I can see no justification for not charging it on food. Or public transport. Or even childrens' clothes.

I would rather it was abolished totally in favour of an increased rate of income tax, personally. But I do have a rather strong view on taxation simplification - essentially I believe income tax should be the only tax with the exception of vice taxes that need to cover their costs[1], and as such would end up levied at a quite high rate, which would be politically unpopular among the non-thinking and fickle electorate who as a whole value soundbites over up-front honesty (I value the latter above almost everything else).

Re your bread, a loaf has added value over flour etc, flour etc have added value over being raw wheat. Only raw wheat would have any justification to be exempted in my book.

Anyway, getting OT...if people do want to continue it I'll do a new thread

[1] Example: there is a medical and policing cost to alcohol, therefore there needs to be a vice tax on alcohol to cover this cost in full.

 

[Clip]

[1] Example: there is a medical and policing cost to alcohol, therefore there needs to be a vice tax on alcohol to cover this cost in full.

There is a medical cost to many things why don't we just tax them all to the hilt and be done with it - if we cant enjoy booze which is already taxed then why let anyone enjoy anything any more because they may end up in hospital due to it? :roll:

A cycling and walking tax? Sticking things up your nose tax - only applicable to children? Catching a bus tax, you know just in case? A swimming tax because you may ingest something or possibly start to drown?

Just tax everything and be done with it so we can all stay at home in our little perfect bubbles and die of boredom(thatll be taxed too)

 

[najaB]

...essentially I believe income tax should be the only tax...

Taxing only income discourages people from working too hard (as they don't want to get into a higher tax bracket). It also encourages tax avoidance by hiding income in offshore accounts, non-dom status, etc.

In an ideal world (recognising this isn't remotely practical) tax on income should be offset by tax relief on spending. This removes the disincentive to earn and encourages spending - helping the economy all around.

 

[Tetchytyke]

This is probably deserving of it's own thread (and I've hit the button) but taxing only income discourages people from working too hard (as they don't want to get into a higher tax bracket).

The idea of tax bands is only a problem when people don't understand them. People don't want to be in the higher tax band because they think everything will be taxed at 40%, not just the bit above the threshold. If people realised they got to keep 50% (after NICs) of money above the threshold as well as money they already have below the threshold, a lot of the resistance would change, and it'd really only impact on people going into the higher threshold by a few hundred.

I wouldn't turn down £60k instead of £40k simply because of the higher tax.

 

[Bletchleyite]

The idea of tax bands is only a problem when people don't understand them. People don't want to be in the higher tax band because they think everything will be taxed at 40%, not just the bit above the threshold. If people realised they got to keep 50% (after NICs) of money above the threshold as well as money they already have below the threshold, a lot of the resistance would change, and it'd really only impact on people going into the higher threshold by a few hundred.

I wouldn't turn down £60k instead of £40k simply because of the higher tax.

Agreed totally - but far too many people *do* think that if the threshold is £50K, say, they will pay 20% if they earn £49,999.99 but 40% on *all of it* if they earn £50,000.01. But that just needs education.

It doesn't help that there was a tax, stamp duty[1], that worked in exactly that blindly stupid manner (it hasn't done for the past few years, but it did for ages). It also doesn't help that there are complicated things like the reduction of personal allowance towards zero at higher rates, when the correct, sensible thing to do is just to make those higher rates a higher percentage.

The whole problem is that people just can't accept the honest, Scandinavian view that we need to all pay taxes to fund the greater good, we should all be willing to pay our share based on what we can afford etc - and as such we just keep "hiding" taxes behind things.

[1] Stamp duty is a blindingly stupid tax, because it reduces the mobility of the workforce and by doing so damages the economy - we need to make it easier to move house, not more difficult. I do see the justification for property taxation to "catch" people who earn all their income that way and would circumvent income tax (capital gains is one way I suppose, but that only catches you if you sell it), but if you're going to have it it probably needs to be a property ownership value tax, not a sales tax.

 

[najaB]

The whole problem is that people just can't accept the honest, Scandinavian view that we need to all pay taxes to fund the greater good, we should all be willing to pay our share based on what we can afford etc - and as such we just keep "hiding" taxes behind things.

That's where a scheme such as I suggested would be ideal - effectively the majority of tax would be on hoarded wealth. If you spend as much as you earn you wouldn't pay much tax - which benefits the poorly paid, and stimulates the economy by making it worthwhile to spend if you're a higher earner.

No idea how it would work practically though.

 

[Simon11]

I would rather it was abolished totally in favour of an increased rate of income tax, personally.
.

I don't really agree with this, when your in the 40% tax bracket, you reach the stage where it really isn't worth moving up the career leader as you will only see around 50% of it after pensions, NI etc and doesn't match the added workload/stress. If the tax brackets were increased, it would make it even worse.

Another issue is that you end up encouraging people to spend, rather than save. Is that always a good thing?

 

[Bletchleyite]

I don't really agree with this, when your in the 40% tax bracket, you reach the stage where it really isn't worth moving up the career leader as you will only see around 50% of it after pensions, NI etc and doesn't match the added workload/stress. If the tax brackets were increased, it would make it even worse.

But you're still paying it - in hidden taxes.

This is exactly my contention.

Another issue is that you end up encouraging people to spend, rather than save. Is that always a good thing?

I sort of see that point, but I don't think that effect would be all that significant. And you could tweak it by having a personal allowance for savings interest alone, meaning most people would not be discouraged from saving by it, but those living off interest would still be taxed.

 

[Abpj17]

And even when you know that the higher rate tax is only applicable to stuff about a certain level - it still may not feel worth it. The additional amount of effort may not be offset by the greatly reduced additional income.

A simple example is part time working. If you're paid 40k for 4 days a week (pre-tax), would you take on a 5th day for an extra 10k when you only get to keep 6k of it.

And on VAT, the modern split is commonly luxury vs. non-luxury. With it continuing to be insane that sanitary products are VAT-able.

 

[Bletchleyite]

A simple example is part time working. If you're paid 40k for 4 days a week (pre-tax), would you take on a 5th day for an extra 10k when you only get to keep 6k of it.

I might, I might not. It's a simple value judgement. Do I want/need that sum of money more, or do I want/need that time more for other purposes?

And on VAT, the modern split is commonly luxury vs. non-luxury. With it continuing to be insane that sanitary products are VAT-able.

It's meant to be that split, but in practice it's very fuzzy indeed, particularly in the area of the "pasty tax" where I simply don't see any practical difference between choosing a takeaway Big Mac and fries for lunch (VATable) or a cornish pasty and a bag of crisps (non-VATable) - the price is similar, the context is similar, yet one attracts VAT and one doesn't.

And the Jaffa Cake thing is a nonsense - biscuits non-VATable, cakes VATable? How is one any more of a luxury than another? You don't need either, you just need (for a healthy diet) fresh meat (and possibly not even that, as you can be a veggie), fruit and vegetables and to drink water - nothing else. Everything else is a luxury.

 

[Tetchytyke]

when your in the 40% tax bracket, you reach the stage where it really isn't worth moving up the career leader as you will only see around 50% of it

But whether the stress of the job is worth the salary of the job has nothing to do with the taxation system.

You only pay the higher tax on the bit above the threshold. You don't pay it on all of it. So there is a benefit in moving up the career ladder- at least 50% of everything you earn.

 

[Tetchytyke]

A simple example is part time working. If you're paid 40k for 4 days a week (pre-tax), would you take on a 5th day for an extra 10k when you only get to keep 6k of it.

It depends. If I wanted a holiday in the Maldives or, at the other end of the scale, if I was heavily in debt, then I probably would. If I valued a three-day weekend at more than £6000 then I wouldn't.

But that's a personal valuation, it's nothing to do with the taxation system, even if you value your day off at between £6000 and £8000pa.

 

[Abpj17]

I think our point is that there is a *reduced* benefit in moving up the career ladder (not that there is categorically no financial benefit) - particularly for that first 10k or so. It has varied over the years, but around the same threshold can affect your rights to tax credits, in the past it used to change the balance between university grants vs. loans. It can be marginal if it also involves loss of overtime, increased hours, increased on call.

 

[Tetchytyke]

I think our point is that there is a *reduced* benefit in moving up the career ladder (not that there is categorically no financial benefit) - particularly for that first 10k or so.

The difference between 40% tax and 20% tax on £10,000 is £2000, or about £160 a month.

Saying you wouldn't take a £10k promotion because you'd have to hand over an additional £160pcm of it to the taxman seems a little strange.

It might not be worth it because the extra hours and extra responsibility aren't worth the extra money, but that's not a tax issue, even if you very specifically value the extra hours at between £6000 and £8000.

 

[anme]

Taxing only income discourages people from working too hard (as they don't want to get into a higher tax bracket).

I have never understood this argument. In fact, it seems utterly moronic. Would you turn down a pay rise because it took you into the 40% bracket? Of course not.

 

[AlterEgo]

I have never understood this argument. In fact, it seems utterly moronic. Would you turn down a pay rise because it took you into the 40% bracket? Of course not.

Indeed, such logic is madness! You still earn plenty more money. I pay some "higher rate tax", but remember of course the higher rate is only payable on anything earned above the threshold - currently £43,001.

 

[DynamicSpirit]

For all I dislike VAT as a tax as a whole (the worst aspect of it is that it is paid by those who are nominally non-taxpayers) if it does exist I would take a more German line - there is little reason for it not to be charged on *every* sale at least where value was added by the organisation doing the selling - and it certainly was in the case of any prepared food of any kind.

Only unpackaged fresh meat, fruit and vegetables would seem to have any justification for not charging it based on its concept (tax on added value, essentially).

One important justification for VAT is that, if you have two separate means of collecting tax, it makes it harder for people to completely evade taxes. If you raised all taxes through income tax, then someone who doesn't declare their income might be able to avoid paying any tax (at least until they are caught). But if some of the tax is collected as VAT, then that person will still be paying at least some tax (whenever they buy something), even before they are caught.

A second justification (and one that answers your suggestion of charging VAT on everything) is that VAT could allow for varying the tax rate according to how socially useful or harmful a product is - something that is very hard to do with income tax alone.
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I have never understood this argument. In fact, it seems utterly moronic. Would you turn down a pay rise because it took you into the 40% bracket? Of course not.

Obviously you wouldn't turn down a pure pay rise (provided there was no extra work involved to get the pay rise) provided that the marginal tax rate on the additional income was less than 100%. Theoretically though, you might be motivated to turn down a promotion/offer of additional hours/etc., if you didn't feel that the additional income after tax was sufficient to compensate you for any extra work/longer hours/less pleasant work etc. In most cases however, I don't think that's a particularly strong argument against a 40% tax rate (though it probably is a good argument against the kind of 80%+ tax rates that you sometimes saw up until the late 70s).

 

[najaB]

Another issue is that you end up encouraging people to spend, rather than save. Is that always a good thing?

Yes. Money in bank accounts isn't passing through people's hands. In my utopia, there wouldn't be savings accounts only current accounts and pension/investment accounts.
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I have never understood this argument. In fact, it seems utterly moronic. Would you turn down a pay rise because it took you into the 40% bracket? Of course not.

I agree it doesn't make sense. But people, generally speaking, are emotional rather than logical.

 

[Bletchleyite]

Yes. Money in bank accounts isn't passing through people's hands. In my utopia, there wouldn't be savings accounts only current accounts and pension/investment accounts.

How would you see people saving for a large purchase, or would you prefer the idea of loans/credit for everything?
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I agree it doesn't make sense. But people, generally speaking, are emotional rather than logical.

A bit of thread crossover with glass doors behind drivers on Merseyrail - then - with CCTV in operation this can't have any practical benefit, but does potentially have a psychological one.
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One important justification for VAT is that, if you have two separate means of collecting tax, it makes it harder for people to completely evade taxes. If you raised all taxes through income tax, then someone who doesn't declare their income might be able to avoid paying any tax (at least until they are caught). But if some of the tax is collected as VAT, then that person will still be paying at least some tax (whenever they buy something), even before they are caught.

Yes, I'll give you that VAT is an easy to collect (and hard to evade on an individual level) tax.

 

[anme]

I agree it doesn't make sense. But people, generally speaking, are emotional rather than logical.

I believe this argument has only ever been used by (moronic) people arguing against progressive tax rates, and not by anyone to turn down a pay rise. So in the end, they are more logical than emotional in this case.

 

[najaB]

How would you see people saving for a large purchase, or would you prefer the idea of loans/credit for everything?

There would be low growth, 'ultra safe' investment accounts to take the place of savings accounts. By explicitly calling them investment accounts it will hopefully change the public mindset to have a more positive attitude towards investing rather that putting money under the mattress.
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I believe this argument has only ever been used by (moronic) people arguing against progressive tax rates, and not by anyone to turn down a pay rise. So in the end, they are more logical than emotional in this case.

I don't know about that. I've had plenty of conversations where mention of a large salary is followed by "must pay a lot of tax".

 

[Tetchytyke]

I don't know about that. I've had plenty of conversations where mention of a large salary is followed by "must pay a lot of tax".

True, but I don't hear many people turning down a ten grand pay rise for the sole reason that the tax rate is higher. Unless they do not understand that the tax rate doesn't apply to everything.

They may turn it down because they don't think the extra work is worth the extra cash, but that's not the same thing at all.

 

[GB]

They may turn it down because they don't think the extra work is worth the extra cash, but that's not the same thing at all.

In my book that is exactly the same thing.

 

[Barn]

Without wishing to be patronising, I suspect most people who pay higher rate tax broadly understand the marginal nature of income tax rates.

It's not really about about whether you cross a threshold, it's whether the marginal rate (which is obviously what is applied to increases in earnings) makes a relatively small additional income worth it.

If a workplace offers (say) a £3,000 bonus for a good appraisal outcome to a higher rate taxpayer, the combination of your marginal rate of tax plus NI means that you may only see roughly half of that. There is then a fairly large part of the mind that wonders whether the extra work required to achieve that bonus is really worth the relatively small net payment at the end of it.

Marginal rates can actually be a fair bit higher than 40%. In the £50k-60k range you lose child benefit, and with a couple of kids that takes your marginal rate quite high. Similarly in the £100k-£110k range the personal allowance is withdrawn.

 

[Bletchleyite]

In my book that is exactly the same thing.

It's really not.

If you are offered a new role with higher responsibility or longer hours, and you are offered £X net extra for it, you decide whether it's worth it or not.

The gross figure is of no actual importance - just what you will take home.

 

[Barn]

It's really not.

If you are offered a new role with higher responsibility or longer hours, and you are offered £X net extra for it, you decide whether it's worth it or not.

The gross figure is of no actual importance - just what you will take home.

But the employer usually decides how much extra they consider reasonable to pay based on gross figures (i.e. how much it costs them) and not net figures (i.e. the benefit to the employee).

So the tax system steps in and makes a reasonable increase in gross terms not particularly attractive in net terms.

Or, the other way around, requires employers to pay an unreasonable increase in gross terms to produce a reasonable increase in net terms. If you were right, employers would need to pay higher rate taxpayers a bigger increase for the same notional responsibility uplift to counteract the tax system.

 

[Bletchleyite]

But the employer usually decides how much extra they consider reasonable to pay based on gross figures (i.e. how much it costs them) and not net figures (i.e. the benefit to the employee).

So the tax system steps in and makes a reasonable increase in gross terms not particularly attractive in net terms.

Then they don't get the staff and thus have to reconsider.

Or, the other way around, requires employers to pay an unreasonable increase in gross terms to produce a reasonable increase in net terms. If you were right, employers would need to pay higher rate taxpayers a bigger increase for the same notional responsibility uplift to counteract the tax system.

As pay rises have a habit of being percentage based, that's precisely what does happen.

 

[Barn]

Then they don't get the staff and thus have to reconsider.

You're being too simplistic about this - it's not binary (getting or not getting staff), it's about how much productivity is obtained from each individual and whether the reduced incentive means that we plateau at a lower level, because the extra productivity wouldn't be financially worth it either to the employer or employee.

As we have a productivity rather than an employment problem in the UK, this is actually quite relevant, particularly at the lower end of the 40% band.
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As pay rises have a habit of being percentage based, that's precisely what does happen.

Automatic / inflationary pay rises are, yes. But those aren't relevant. We're talking about step changes which are intended to provoke behavioural change.