Tax question UK income tax

zygurat789

somethingcorporate wrote: »

Yep, this was one of the few situation where the marginal rate of loss means it probably isn't worth it, but is a quirk of the benefits system and not the tax system. It is the loss of benefits that makes you worse off, not an increase in tax.

A negative tax credit should surely be considered a tax charge but, nevertheless, anything deducted from gross pay by the state, be it PAYE or NI, is taxation in one form or another.

nomunnofun

zygurat789 wrote: »

Each £1 earned may result in the reduction of tax credits and benefits, TC being reduced by 41p for each £1 earned. So whilst the tax is ONLY 20p and NI is ONLY 12p the reduction in TC is a wapping 41p making an effective tax rate of 73%. In other words you get to keep, in your pocket, 27p of every extra pound which you earn.

Indeed so! I remember during my days on the tax lecturing circuit using this as an ice breaker - how does one obtain tax relief on pension contributions at the rate of 73% ( or whatever it was then)?. Bleary eyed delegates, faced with the prospect of listening to me drone on for six hours, were suddenly more awake, or seemed to be.

It says something about the tax system when those who most need it pay a marginal rate of 73%. There used to be something similar with pensioners whose age allowance was restricted by 50p per pound or something horrendous although the loss of age allowance altogether is limitinmg the effects now.

zygurat789

nomunnofun wrote: »

Indeed so! I remember during my days on the tax lecturing circuit using this as an ice breaker - how does one obtain tax relief on pension contributions at the rate of 73% ( or whatever it was then)?. Bleary eyed delegates, faced with the prospect of listening to me drone on for six hours, were suddenly more awake, or seemed to be.

It says something about the tax system when those who most need it pay a marginal rate of 73%. There used to be something similar with pensioners whose age allowance was restricted by 50p per pound or something horrendous although the loss of age allowance altogether is limitinmg the effects now.

As you say "indeed so"
Some tima ago I asked, on this board, for any solution to this problem and received no suggestions.
Now, at least, we have a suggestion, above, get rid of the benefit and there is no very high marghinal rate!
Can anyone do any better?