60% income tax rate

lostinrates

thelawnet wrote: »

When it comes to 61% taxation the answer is NO.

Don't forget that generally speaking the more you earn, the easier it is to avoid taxes.

I wish someone explain to me how it is legally possible to avoid taxation on PAYE

thelawnet

lostinrates wrote: »

I wish someone explain to me how it is legally possible to avoid taxation on PAYE

There's not just PAYE. A lot of high earners earn through limited companies and other schemes. The way to avoid PAYE taxation is obviously to get paid less.

mitchaa

thelawnet wrote: »

It doesn't work like that at all.

The plain and simple fact is if you earn say £110k, the last £10k is being taxed at 61%.

People earning £110k generally don't get that way by saying 'oh never mind, it's only 3.6% of my take-home pay', nope, they are more likely to say, 61% is ridiculous, let's take a £10k paycut and work fewer hours/put the money into a pension/contact a tax-dodging accountant.

I can assure you that when you earn that kind of money you absolutely do consider taxation, and you also consider whether additional pay is worth the effort. When it comes to 61% taxation the answer is NO.

Don't forget that generally speaking the more you earn, the easier it is to avoid taxes.



I'm pretty sure people on £26k would be moaning if they were £60/month poorer.

Im sorry but it does work like that. Pure and simple it will equate to a 3.6% reduction in take home. (IF you are earning £112k)

It's a marginal tax rate, i suppose it comes down to how you look at it. The 61% taxation figure is just a headline figure, it exists on only such a small scale. Look at the bigger picture of TOTAL taxation and it's nowhere near a 60% contribution, in fact it's nowhere near a 50% contribution.

A £112k salary at the moment equates to a 35% total contribution in taxation. With removal of the PA, this may creep upto around 40% if that.

Whatever way you look at it, it equates to a 3.8% deduction in take home pay so not a lot.I would still rather have a salary of £112k than 1 of £100k. (Cries of cut your nose off to spite your face)

Yes someone on the average £26k income would whinge about a £60 paycut but they wouldn't be up in arms about it, fleeing the country, putting in less hours etc

Your scenario assumes someone earning £100k and being offered a pay increase upto £112k. My scenario assumes someone already earning £112k

JayScottGreenspan

For those high earners bleating about marginal taxation rates, the marginal taxation rate faced by a typical 2+2 family with one adult working, with a typical rent and typical savings varies with gross pay as follows:

thelawnet

mitchaa wrote: »

Im sorry but it does work like that. Pure and simple it will equate to a 3.6% reduction in take home. (IF you are earning £112k)

It's a marginal tax rate, i suppose it comes down to how you look at it. The 61% taxation figure is just a headline figure, it exists on only such a small scale. Look at the bigger picture of TOTAL taxation and it's nowhere near a 60% contribution, in fact it's nowhere near a 50% contribution.

A £112k salary at the moment equates to a 35% total contribution in taxation. With removal of the PA, this may creep upto around 40% if that.

Tax rates are tax rates.

You don't pay exactly 20% or 40% ever. You pay 0 on part of your income, 20% on part (plus NI probably), 40% on part, if you earn over £100k you pay 60%, and if you earn over £150k you pay 50% (plus NI probably). Yet 20% and 40% are indeed the tax rates.

The fact is marginal tax rates are very important.

One example is holiday pay. If you leave a job with holiday days outstanding you should generally take the time off rather than get paid for it. Why? Because holidays are tax-free, whereas if you take the money instead you'll keep only 59% of it (as a higher rate tax payer). Somebody earning £45k in that situation, as you rightly illustrate, overall pays about 27% tax on his total income, but by foregoing his holiday, he loses 41% of the pay. So he's working those days for less money than normal.

Another example is tax credits recipients. Working 16 hours a week gets you eligible for most tax credits, but beyond that your net take home is reduced by 70% (20% income tax, 11% NI, 39% tax credit withdrawal). So somebody on £5.73/hour effectively earns only £1.72/hour. Would you bother? Neither do they.

Equally, if your time is worth £60/hour, would you work an additional 2 hours a week for take-home £23.40/hour? Or would you just stay home with the family?

Whatever way you look at it, it equates to a 3.8% deduction in take home pay so not a lot.I would still rather have a salary of £112k than 1 of £100k.

I certainly don't think that way - my wife and I both earned just less than £41k in the last tax year. Why? Because I don't want to pay 40% tax.

silvercar

lostinrates wrote: »

I wish someone explain to me how it is legally possible to avoid taxation on PAYE

The short answer is that its not. You can make small reductions by increasing your pension contributions or making charitable donations, both are tax deductable expenses, but both mean you can't access the money. With a pliable employer you could bump up your expenses and so extract some money that way eg increasing your business mileage claim will allow you to claim back in tax refund any mileage upto 40p per mile not given by your employer - but you actually have to do the mileage, so there is some cost to it.

Earn as PAYE and you have to pay tax at 40% (marginal rate for higher earner) and NI contributions of about 12%. Total tax rate = 52%.

Earn from your own company by getting a dividend and the tax rate works out at about 32.5% (taxed at 40% as income but a tax credit of one ninth) with no NI. But then your company pays corporation tax on profits, so its not plain sailing.

silvercar

For those high earners bleating about marginal taxation rates, the marginal taxation rate faced by a typical 2+2 family with one adult working, with a typical rent and typical savings varies with gross pay as follows:

Do the graph in actual £££'s paid in tax and it will rise exponentially and shoot off the page.

Statistics, statistics.

mitchaa

silvercar wrote: »

Earn as PAYE and you have to pay tax at 40% (marginal rate for higher earner) and NI contributions of about 12%. Total tax rate = 52%.

Incorrect im afraid.

NI is only 1% in the higher taxation band. (It is 11% in the basic 20%)

So max taxation as it stands at moment is 41%

JayScottGreenspan

silvercar wrote: »

Do the graph in actual £££'s paid in tax and it will rise exponentially and shoot off the page.

Statistics, statistics.

What, like this?

Pennywise

I work with small businesses all day, every day, and can assure you that marginal tax rates in lots of areas are very detrimental to UK PLC.

Take the VAT registration threshold. I've literally dozens of clients who are deliberately keeping their turnover below £67k to avoid having to register for VAT - for example, I've a fish & chip shops that only opens 5 days a week - to open for 7 days it would LOSE money in higher wages and VAT - it would be physically impossible for it to increase its turnover enough to return to marginal profitability.

The 50% rate makes it worse, but I was working with a firm a few months ago when the 45% rate was announced. He was about to expand his small business into larger premises and taking on his first employee - we'd done for forecast and it seemed viable, until Darlings pre-budget report which increased employers NIC and tax to 45% - we recrunched the numbers and suddenly the risk and stress he'd be taking on was too high for the pitiful reward he could hope for, so he scrapped it - that's fact and that's one more full timer languishing on the dole when a job could have been available.

Personally, I've never been a HR taxpayer - that's nothing to do with cunning tax planning - my headline earnings have never been high enough. I work as few hours as I need to keep myself below the HR threshold - it gives me a comfortable standard of living as my overheads are low. I'm not prepared to work longer hours and take on more stress and risk to come away with only 50% or so of the earnings.

These are true human stories. Not textbook or student union philosophies. If only people realised just how many small businesses could grow if there was an encouraging environment to do so. It seems that every step of the way, taxation and regulation encourages people to simply not bother. Just like with tax credits, state benefits, etc. - there's little incentive for people to better themselves. At both ends of the scale, there are ridiculous disincentives for trying to better yourself - all politically motivated perhaps by the best of intentions but also by prejudice.