TAX

[Jon39]

As we approach another UK general election, taxes are in the news.
Politicians proclaim the other party will make us pay more tax and then other party promise, we will not increase Income Tax, National Insurance or VAT, during the next 5 years of government.

Such political statements usually turn out to be untrue, as can be seen when looking back into history.
Interesting that the comments normally centre around income tax, which for many shows up clearly as an amount on monthly pay slips.

Have you ever worked out the real percentage of your gross income that you pay in tax?
That can be quite a time consuming exercise, so I don't expect many people ever attempt it.
Politicians no doubt know that most voters tend to think of income tax as the main tax. Certainly it is the largest contributor to the Treasury, but the other taxes that are taken from us, do mount up although in a more concealed way.

If many of your outgoings are paid using a credit card, (more protection than a debit card) settled in full monthly, then it can be fairly easy to monitor the VAT that we pay. Annual total spend, minus food spending, extract the 20% equals an approximation of the total VAT amount. Remember with your total petrol/diesel spend, to also calculate the fuel duty tax. Possibly the only example of us having to paying tax on a tax!

Note the annual totals of;
Income Tax
National Insurance
VAT
Fuel Duty
Council Tax
Interest Tax
Dividend Tax
Vehicle 'Road Tax'
Insurance Premium Tax
Others

Then work that percentage of your gross income.
Probably quite a surprising figure.
Both a disincentive and an aspiration killer.

Imaginative state fund raising is continuing to evolve.
Income Tax was introduced on a temporary basis in 1799, to help pay for the Napoleonic War.
We now have Stamp Duty; Speeding Fines; Parking Fines (including not quite within the marked bay); Congestion Charges; ULEZ; Tourist Tax; others I cannot recall.

Edited by Jon39 on Thursday 6th June 10:59

[Eric Mc]

We had lots of taxes in place before Income Tax was invented. Some of those much older taxes still exist in one form or another.

[Elderly]

Jon39 said:

Have you ever worked out the real percentage of your gross income that you pay in tax?


If many of your outgoings are paid using a credit card, (more protection than a debit card) settled in full monthly, then it can be fairly easy to monitor the VAT that we pay. Annual total spend, minus food spending, extract the 20% equals an approximation of the total VAT amount. Remember with your total petrol/diesel spend, to also calculate the fuel duty tax. Possibly the only example of us having to paying tax on a tax!

Note the annual totals of;
Income Tax
National Insurance
VAT
Fuel Duty
Council Tax
Interest Tax
Dividend Tax
Vehicle 'Road Tax'
Insurance Premium Tax
Others

Then work that percentage of your gross income.
Probably quite a surprising figure.

Edited by Jon39 on Thursday 6th June 10:59

Don’t forget that all in your list below Income Tax and National Insurance
are paid out of the residue of your taxed income.

[Countdown]

Elderly said:

Don’t forget that all in your list below Income Tax and National Insurance
are paid out of the residue of your taxed income.

Dividend tax and Interest tax aren't.

[Panamax]

Elderly said:

Don’t forget that all in your list below Income Tax and National Insurance are paid out of the residue of your taxed income.

Exactly. If you're on about 40% average income tax/NI rate and then pay 20% VAT on almost everything you're already at or above 60% tax and from your remaining cash you then get to Council tax and all the various fuel, booze, air travel, gambling duties.

Regrettably the UK has evolved into a very expensive shambles.

[Eric Mc]

Panamax said:

Elderly said:

Don’t forget that all in your list below Income Tax and National Insurance are paid out of the residue of your taxed income.

Exactly. If you're on about 40% average income tax/NI rate and then pay 20% VAT on almost everything you're already at or above 60% tax and from your remaining cash you then get to Council tax and all the various fuel, booze, air travel, gambling duties.

Regrettably the UK has evolved into a very expensive shambles.

Are any other developed Western countries substantially different?

[Pistom]

What I find surprising in the UK is how blind many are to the tax they pay.

A colleague was genuinely surprised when I told him that he had to declare some extra income so he'd pay tax on it.

His response was - "but it's my money"

[jesusbuiltmycar]

Pistom said:

What I find surprising in the UK is how blind many are to the tax they pay.

A colleague was genuinely surprised when I told him that he had to declare some extra income so he'd pay tax on it.

His response was - "but it's my money"

did you enlighten him that its the states money and he should feel lucky the state let him keep some of it?

[Elderly]

Countdown said:

Elderly said:

Don’t forget that all in your list below Income Tax and National Insurance
are paid out of the residue of your taxed income.

Dividend tax and Interest tax aren't.

But you purchase shares ( which give that dividend) out of your taxed income,
and the tax on your interest earned ( from a savings account ) is on that principal sum invested
Paid from your taxed income.……. or am I missing something?

[Panamax]

Eric Mc said:

Are any other developed Western countries substantially different?

It's always difficult to make exact comparisons because one ends up comparing apples and oranges.

The French, for instance, have quite high headline tax rates but many, many more allowances.

Meanwhile UK purports to have a "top rate of tax for the highest earners" of 45% yet we all know that between £100k and £125k the actual rate of tax is 60%. That's a huge tax rate and catches a large group of taxpayers these days.

https://northants-chamber.co.uk/latest-news/why-th...

"The UK’s status as one of the highest taxed countries in the world is the result of a multifaceted set of factors, including its commitment to funding comprehensive public services, its economic structure, and a taxation system designed with social equity in mind. While this approach ensures a wide range of services for its residents, it also presents challenges in terms of economic competitiveness and ongoing political debate."

[alscar]

I could probably work out the total tax as a percentage but a) it would be too depressing and b) what would be the point as none of it I can apparently avoid.
Perhaps bookmark for 12 months time.

[Pistom]

jesusbuiltmycar said:

did you enlighten him that its the states money and he should feel lucky the state let him keep some of it?

I'm helping him fill out his self assessment

[Eric Mc]

Panamax said:

Eric Mc said:

Are any other developed Western countries substantially different?

It's always difficult to make exact comparisons because one ends up comparing apples and oranges.

The French, for instance, have quite high headline tax rates but many, many more allowances.

Meanwhile UK purports to have a "top rate of tax for the highest earners" of 45% yet we all know that between £100k and £125k the actual rate of tax is 60%. That's a huge tax rate and catches a large group of taxpayers these days.

https://northants-chamber.co.uk/latest-news/why-th...

"The UK’s status as one of the highest taxed countries in the world is the result of a multifaceted set of factors, including its commitment to funding comprehensive public services, its economic structure, and a taxation system designed with social equity in mind. While this approach ensures a wide range of services for its residents, it also presents challenges in terms of economic competitiveness and ongoing political debate."

It is very difficult to compare and contrast but I would say that the tax collected per head population - irrespective of the mechanisms used - is fairly consistent across most of the Western world.

[oyster]

Jon39 said:

As we approach another UK general election, taxes are in the news.
Politicians proclaim the other party will make us pay more tax and then other party promise, we will not increase Income Tax, National Insurance or VAT, during the next 5 years of government.

Such political statements usually turn out to be untrue, as can be seen when looking back into history.
Interesting that the comments normally centre around income tax, which for many shows up clearly as an amount on monthly pay slips.

Have you ever worked out the real percentage of your gross income that you pay in tax?
That can be quite a time consuming exercise, so I don't expect many people ever attempt it.
Politicians no doubt know that most voters tend to think of income tax as the main tax. Certainly it is the largest contributor to the Treasury, but the other taxes that are taken from us, do mount up although in a more concealed way.

If many of your outgoings are paid using a credit card, (more protection than a debit card) settled in full monthly, then it can be fairly easy to monitor the VAT that we pay. Annual total spend, minus food spending, extract the 20% equals an approximation of the total VAT amount. Remember with your total petrol/diesel spend, to also calculate the fuel duty tax. Possibly the only example of us having to paying tax on a tax!

Note the annual totals of;
Income Tax
National Insurance
VAT
Fuel Duty
Council Tax
Interest Tax
Dividend Tax
Vehicle 'Road Tax'
Insurance Premium Tax
Others

Then work that percentage of your gross income.
Probably quite a surprising figure.
Both a disincentive and an aspiration killer.

Imaginative state fund raising is continuing to evolve.
Income Tax was introduced on a temporary basis in 1799, to help pay for the Napoleonic War.
We now have Stamp Duty; Speeding Fines; Parking Fines (including not quite within the marked bay); Congestion Charges; ULEZ; Tourist Tax; others I cannot recall.

Edited by Jon39 on Thursday 6th June 10:59

Don't do this exercise in a year where you move house.

[Countdown]

Elderly said:

Countdown said:

Elderly said:

Don’t forget that all in your list below Income Tax and National Insurance
are paid out of the residue of your taxed income.

Dividend tax and Interest tax aren't.

But you purchase shares ( which give that dividend) out of your taxed income,
and the tax on your interest earned ( from a savings account ) is on that principal sum invested
Paid from your taxed income.……. or am I missing something?

The shares generate income which hasnt been taxed. You're not paying tax on the purchase price of the shares, you're paying tax on the "new" income they've generated.

In the same way your savings aren't being taxed, the income they generate is being taxed.

(although you could argue that both dividends and savings interest have ALREADY had corporation tax deducted)

[Ken_Code]

Panamax said:

Exactly. If you're on about 40% average income tax/NI rate and then pay 20% VAT on almost everything you're already at or above 60%.

Not quite.

If you are taxed at 40% of your income and then spend all of that taxed income on things at 20% VAT then your total tax rate would be 52%, as in for every £100 you earn £52 is taken in tax.

[Simpo Two]

Politician says 'We won't put up income tax'.
Politician means 'We will put up every other tax'.

They have little choice, because the electorate always clamours for money. So the electorate will have to pay it...

[Chris Type R]

Countdown said:

Elderly said:

Countdown said:

Elderly said:

Don’t forget that all in your list below Income Tax and National Insurance
are paid out of the residue of your taxed income.

Dividend tax and Interest tax aren't.

But you purchase shares ( which give that dividend) out of your taxed income,
and the tax on your interest earned ( from a savings account ) is on that principal sum invested
Paid from your taxed income.……. or am I missing something?

The shares generate income which hasnt been taxed. You're not paying tax on the purchase price of the shares, you're paying tax on the "new" income they've generated.

In the same way your savings aren't being taxed, the income they generate is being taxed.

(although you could argue that both dividends and savings interest have ALREADY had corporation tax deducted)

You'll be paying stamp duty(SDRT) on some share purchases as a percentage of the capital.

[Ken_Code]

Eric Mc said:

It is very difficult to compare and contrast but I would say that the tax collected per head population - irrespective of the mechanisms used - is fairly consistent across most of the Western world.

It’s not. Certainly not as an absolute number, but also not as a fraction of GDP.

France, Denmark, Belgium are around 45% of GDP, Germany’s 37%, UK 33%, Argentina 30%, Turkey 25%, Chile 20%, Peru 15%, Angola 9%, and Iraq 2%.

[fat80b]

Jon39 said:

Have you ever worked out the real percentage of your gross income that you pay in tax?

I did try to do this once. I tried to back calculate it from adding up the income tax & NI from the MSE calculator, then estimated VAT based on spends, council tax and fuel duty etc. It came out at a ridiculously high percentage of my annual salary and a whopping number overall. I don't have the spreadsheet anymore but for me it was something approaching 70% of my gross wage which ended up as tax one way or another where I kept 10% ish plus the possesions left over after a year of purchases & living.


I then went down a different path working out how much things actually cost me out of my gross wage and how much disappears in tax this way - i.e. For me to buy a pint in a pub, how much tax does the government get?

• A £5 pint, has ~33% tax on it to start with= £1.65.

• But on top of that, the pub pays tax and NI on wages, running costs, and if they are lucky enough to make a profit, they'll pay a percentage of tax on that too. And if you follow the money down the chain, then the brewery pays tax on everything it does as well. So probably a fair chunk of the "non tax" cost of the pint ends up actually being tax collected as well. Let's say another 35p (but it's probably more)

• But the real killer is that my £5 actually costs me way more than than that out of my gross wage - I paid 45% income tax, 2% NI plus my employer paid 13.8% NI as well - so roughly £7 of tax paid on my payslip just for me to have the additional fiver in my pocket to start with!

Looking at it this way, a £5 pint in the pub actually costs me somewhere in the region of £12 and delivers somewhere around £10 in tax overall !


(p.s. numbers are rough, but you get my point)