UK Taxes

[radamfi]

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.

We have started to have that from this tax year. We can now earn £1,000 in interest without paying tax, with interest above that taxed at your usual income tax rate. Banks no longer take off 20% tax at source. If you earn over £1,000 in interest then you have to report that to the tax office or complete a tax return.

Britain doesn't have a problem with people hoarding money. People getting into debt is more of an issue so we need to encourage rather than discourage saving. Britain is a good country to save and invest as we have a generous ISA limit of £15,000 a year, soon to increase to £20,000. If that isn't enough, the capital gains tax exemption is £11,000 and in the unlikely event that you need to pay tax on your capital gains because you have exhausted both the ISA and capital gains limits, from this tax year the rate has been reduced to 10% for basic rate taxpayers.

 

[Qwerty133]

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



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

If a company has to pay more for staff they will just decide to hire less staff, and spend more on research into ways of replacing staff with technology. The more companies have to pay, the quicker robots will replace most jobs. I mean I can see why a proposal to only tax income would seem advantageous to somebody who spends most of their day on an internet forum, but to those people who work it would be a nightmare. I'm guessing you wouldn't support an immediate cut in benefits if we abolished VAT in order to keep claimants real incomes the same?

 

[anme]

If a company has to pay more for staff they will just decide to hire less staff, and spend more on research into ways of replacing staff with technology?

But who will do this research? There aren't very many robotics/artificial intelligence engineers hanging around in job centres with nothing to do.

I think you are simplifying massively and in a not very valid direction.

 

[Butts]

It's strange how most people claim to be against taxes that are considered regressive until Tobacco comes into the equation. The level of excise duty and VAT on this particular product is eye watering. Effectively money is transferred from poorer people (who tend to be smokers) to others in society.

The best reform to assist the lower paid is not messing about with the starting rates for Income Tax which benefits everyone but to increase the level at which NI kicks in to the same level as that of Income Tax.

Indeed why not just combine the two as effectively they are one and the same in many respects.

 

[Howardh]

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.

Er, not so sure. My mum (I do her accounts) earns interest on her savings and was just above that tax-free £1000 interest limit, on top of which she would pay 20% on interest. So we worked out that it would be better in the long run to move some money into a no-interest account so although she would lose a small amount of interest, she wouldn't have to fill in new tax forms as a result.

Now no idea what entails going into the 40% bracket and if those just over the threshold would be better/worse off; but at the much lower levels people in my former job have refused a pay rise (and/or extra hours) as it took them out of WTC's.

It's not as clear cut as "utterly moronic", homework needs to be done.

 

[anme]

It's strange how most people claim to be against taxes that are considered regressive until Tobacco comes into the equation. The level of excise duty and VAT on this particular product is eye watering. Effectively money is transferred from poorer people (who tend to be smokers) to others in society.

This is an interesting point. Smoking is hugely profitable for the 80-ish% of society who don't smoke. It's not just the taxes paid by the 20% who are smokers. Those people also die much sooner - ten years sooner on average, I believe. That's a decade less pension and healthcare costs per person. That's a massive saving for society as a whole. Now, you might say that we still have to bear the cost of treating the smokers for their self-inflicted health problems. That's true, but in fact it also costs money to treat non-smokers during their extra ten years of life, and in fact they still suffer from many just-as-expensive diseases during that time.

Ever wondered why governments don't actually take effective action against smoking, such as making it harder to buy cigarettes or just banning the vile stuff? The reason is that it would cost non-smokers a lot of money.

 

[radamfi]

Er, not so sure. My mum (I do her accounts) earns interest on her savings and was just above that tax-free £1000 interest limit, on top of which she would pay 20% on interest. So we worked out that it would be better in the long run to move some money into a no-interest account so although she would lose a small amount of interest, she wouldn't have to fill in new tax forms as a result.

Are you sure you will need to fill in forms? It might just mean a quick call so they can adjust the tax code. I've already earned over £1,000 interest this tax year and I don't currently do a tax return.

 

[Tetchytyke]

I think comparing tax rate thresholds to benefit/tax credit thresholds is wrong, because most benefit thresholds are a simple on/off. If you're over the threshold you get nowt, and that affects other benefits, so you get nowt in them too. This was one of the improvements Universal Credit should have brought about, if IDS wasn't such an inept liar.

I'm sure the 20% May influence some people to keep an existing job rather than a new one on a higher wage. But that's not a taxation issue, that's a cost/benefit analysis based on the extra responsibility. Turning down a plain pay rise, for the exact same job, because of the tax threshold WOULD be moronic.

 

[Barn]

Turning down a plain pay rise, for the exact same job, because of the tax threshold WOULD be moronic.

Which is why it doesn't happen!

 

[GB]

I'm sure the 20% May influence some people to keep an existing job rather than a new one on a higher wage. But that's not a taxation issue, that's a cost/benefit analysis based on the extra responsibility.

The "cost/benefit analysis" is based on the amount of take home pay you get which is a direct result of deductions which include a larger chunk of TAX. How can that not be a "tax issue"?

 

[Tetchytyke]

The "cost/benefit analysis" is based on the amount of take home pay you get

That's not a taxation issue. That's a salary issue.

"I don't want the extra responsibility because the salary isn't worth it for me" is what the argument is. Nothing to do with taxation at all.

 

[Bletchleyite]

I think it's really both - the tax reduces the effect of the salary.

I don't however agree it universally makes an increase not worth it. It will depend on a case by case basis.

 

[GB]

That's not a taxation issue. That's a salary issue.

"I don't want the extra responsibility because the salary isn't worth it for me" is what the argument is. Nothing to do with taxation at all.

Um, they are all linked and tax is very much a part of salary.

...and it's not just about promotions and responsibility. Overtime on current role is a part of it. That's why once I hit the 40% bracket my overtime commitments plummet... becuase it is no longer worth while due to the amount of tax now being taken on that shift....to me that is very much a tax issue.

 

[Bletchleyite]

A flat tax would solve that but hit those on lower incomes harder.

Would it help if it were some kind of continuous curve rather than stepped? Complex, though.

 

[northwichcat]

the worst aspect of it is that it is paid by those who are nominally non-taxpayers

There are plenty of taxes anyone pays. For instance, when George Osborne was looking at ways of cutting the deficit he increased a little known about tax that is paid on insurance premiums, so the average cost of insurance premiums have gone up and the treasury is benefiting but most people probably see it as the greedy insurers charging more.

When I was on holiday in Canada earlier in the year I was discussing how the Canadians advertise prices pre-tax with a group of tourists from various countries. When I said we had VAT added at 20% some were shocked that the British government got away with charging what they called a very high rate of tax on sales.

 

[northwichcat]

Um, they are all linked and tax is very much a part of salary.

...and it's not just about promotions and responsibility. Overtime on current role is a part of it. That's why once I hit the 40% bracket my overtime commitments plummet... becuase it is no longer worth while due to the amount of tax now being taken on that shift....to me that is very much a tax issue.

Overtime never adds much to your pay packet if you are in full time employment and earning over the income tax threshold unless you do a lot of additional hours, given you are taxed on every penny of overtime pay while you aren't taxed on the first £883 you earn a month.

 

[Tetchytyke]

it is no longer worth while due to the amount of tax now being taken on that shift....to me that is very much a tax issue.

The tax difference is 20p on every £1 you earn over the threshold. If you'd turn down £60 because it costs you £20 then that's just stupid.

 

[DynamicSpirit]

Ever wondered why governments don't actually take effective action against smoking, such as making it harder to buy cigarettes or just banning the vile stuff? The reason is that it would cost non-smokers a lot of money.

Good point. I mean, there's so many things the Government could do... For example, a concerned Government might

• Ban sales of cigarettes to children
• Ban most cigarette advertising
• Prevent shops from keeping cigarettes in plain sight
• Ban smoking in workplaces and enclosed public spaces
• Provide lots of education and help for people who wish to give up smoking.

I've often wondered why the British Government hasn't done any of those things. I guess you're right and it's because of the tax income from cigarettes...

 

[Howardh]

Are you sure you will need to fill in forms? It might just mean a quick call so they can adjust the tax code. I've already earned over £1,000 interest this tax year and I don't currently do a tax return.

To be honest, nobody knows...not even the bank! We do know we have to inform HMRC if the amount is above £1000, but as for forms etc; not the foggiest. Don't forget this is after April next year - so it doesn't affect you or me yet.

It's good of the chancellor to allow a tax-free sum, but this has been done Brexit-style; no-one has any idea what's going on! IMO paying 20% on your interest was simple, and if you wanted tax-free income then the iSA was more than sufficient. Why keep a situation simple when you can beggar it up for everybody?

 

[Bletchleyite]

A while ago I had a lot of savings built up (before I bought my house) and moved into the 40% bracket, I did wonder if I'd end up with a tax return, but all I had to do was declare the interest using the information provided by the bank and pay for it (the extra 20%) on the next year's tax code, if I recall rightly.

As long as your affairs are simple a tax return should not be needed. Indeed, no form was needed, just the figure and P-whatever-it-is that the bank give you once a year.

To be fair, even though I think our tax system would stand a fair bit of simplification, at least it isn't the subsidy to the accountancy industry that the US system represents.

 

[northwichcat]

It's good of the chancellor to allow a tax-free sum, but this has been done Brexit-style; no-one has any idea what's going on!

Or the Help2Buy ISA. Introduce a scheme, realise it's not as good as it could be but rather than admit it was wrong introduce a second scheme which can be used for the same purpose and call it something different.

 

[Bletchleyite]

Or the Help2Buy ISA. Introduce a scheme, realise it's not as good as it could be but rather than admit it was wrong introduce a second scheme which can be used for the same purpose and call it something different.

I have a very different view on any "assistance" to the housing market - there shouldn't be any of it, as all it does is sustain high prices. If people couldn't pay the high prices they would reduce - it is a relatively pure market.

There should be sufficient social rented housing for society's needs (and it should not be sold to people), but buying houses should be the preserve of the market and it should be optional.

Money into developing private renter protections and rights would have much more value than an effective subsidy on buying houses.

 

[Barn]

The tax difference is 20p on every £1 you earn over the threshold. If you'd turn down £60 because it costs you £20 then that's just stupid.

It's not difficult to understand. If overtime pays £100 gross and you're in the higher band then you'll get £60. If you were in the basic rate band then you'd get £80.

A person could value their free time such that they'd be willing to give it up for £80 but not for £60.

 

[Bletchleyite]

Or it would be if it wasn't for National Insurance, which has a cap as well.

Personally, I would abolish National Insurance and place it on the income tax rate.

 

[northwichcat]

Personally, I would abolish National Insurance and place it on the income tax rate.

There's a plan to do that but the government seems to keep delaying it's implementation.

 

[Tetchytyke]

A person could value their free time such that they'd be willing to give it up for £80 but not for £60.

In which case that's a salary problem not a taxation problem, and certainly isn't a justifiable reason for reducing the higher rate of income tax.

 

[Barn]

In which case that's a salary problem not a taxation problem, and certainly isn't a justifiable reason for reducing the higher rate of income tax.

It's a taxation problem in the sense that, if £100 is a reasonable gross payment for the overtime, the differential tax rates can have a disincentivising effect on people doing more work and being more productive.

Whether this justifies reducing the higher rate is another question. Personally I think that the threshold between the basic and higher rates should be increased. Public sympathy is obviously more limited towards the upper end of the higher rate band.

When you say it is a salary problem, you are presumably suggesting that higher earners should receive a disproportionately higher overtime rate to overcome the higher marginal tax? I'm not sure if this is really what you would wish to happen.

 

[JamesT]

There's a plan to do that but the government seems to keep delaying it's implementation.

It's been suggested for decades. But governments of various stripes have resisted.

There's a bit of a psychological thing, 20% tax +12% NI okay, 32% 'new' income tax looks scary. (Remember all the fuss with the 10% income tax when that was withdrawn).

Some income is currently NI-exempt (e.g. Pensions, savings) but gets income tax on it, do you retain the lower level or just charge the full rate?

Then you have to unpick the various bits of welfare that are tied into NI contributions.

Unfortunately it's a lot more complicated than just adding NI to Income Tax.

 

[Tetchytyke]

It's a taxation problem in the sense that, if £100 is a reasonable gross payment for the overtime, the differential tax rates can have a disincentivising effect on people doing more work and being more productive.

And I think that is more about perception than reality, with many people still believing that the tax rate is retrospectively applied to the whole lot, not just the bit above the higher tax threshold.

If you're very close to the threshold, within £1000 or so of it, I can see how it would disincentivise someone from a small amount of overtime if they lose an additional 20% of the extra money. But in that case the effect on the marginal tax rate is negligible, it's more about the emotion than anything logical or tangible.

If people are saying that they wouldn't take a £20,000 pay rise because the tax doesn't make it worth it, I call nonsense on that statement.

I think the higher rate threshold is at about the right place, £43,000 is a lot of money, it's not much short of double the average salary in the UK. There are some issues with how other benefits are dealt with- the removal of child benefit to higher earners at a threshold rather than a taper has a dramatic impact on marginal tax rates- but they're not a taxation issue either.

 

[Barn]

And I think that is more about perception than reality, with many people still believing that the tax rate is retrospectively applied to the whole lot, not just the bit above the higher tax threshold.

If you're very close to the threshold, within £1000 or so of it, I can see how it would disincentivise someone from a small amount of overtime if they lose an additional 20% of the extra money. But in that case the effect on the marginal tax rate is negligible, it's more about the emotion than anything logical or tangible.

I think the number of people who are higher-rate earners and do not understand the marginal system is vanishingly small.

It's not about being close to the threshold. If you are in the higher rate band (say if your salary is £45k), then you've already 'banked' all of the basic rate band.

From that point on, everything you earn above your basic salary: overtime, bonus, modest promotions, savings, will be charged to income tax at 40%. Therefore, any behavioural decision that person makes over and above simply turning up and collecting a basic salary will be calibrated based on a 40% rate.

It will be the 40% rate that determines whether to work overtime, whether to work hard for a bonus, whether to take on extra duties for a small payrise, whether to spend or save. The 20% rate has ceased to be relevant to that person when it comes to discretionary decisions.

PS: Child benefit is tapered down between £50k and £60k - it is not a cliff edge. (Or, more precisely, a tax charge is tapered upwards in that band to cancel out the child benefit.)