The UK Tax system

skint_panther

I feel almost ashamed to ask this question
. But when it comes to tax brackets, why are the jumps so big?

Im not a lazy person. I have a brain. But when i think about doing overtime or I look for a new job, i genuinely work out my actual take home probability. Why on EARTH would i do all of that extra work for doesn't feel justifiable in my wage slip.

You can scorn my work ethic all you like. But why do the government do it? I thought they would want a more subservient work force.

I feel naive. Someone please humour me.

asajj

Well, any tax basically funds every public service you receive. Next time you use NHS, you might remember that. You are also given options to impact your tax band. Like gift aid or tax saving work benefits. The tax system still favours the rich anyway. Payslip is only a small part of a whole career. For many people, at least.

I thought they would want a more subservient workforce.

Can't see the connection between this and taxation?

p00hsticks

skint_panther wrote: »

I feel almost ashamed to ask this question
. But when it comes to tax brackets, why are the jumps so big?

Basically it's what the government decides.

They are looking to budget to get a certain amount of income tax in, but exactly how they achieve that is down to the individual political policy. On one extreme they could charge every one the same rate, at the other they could have a myriad different tax bands with gradual increases. Or they could keep the existing bands but reduce the 'jump' by having a higher basic rate than 20% and/or a lower higher rate than 40%

Currently we have a pretty high personal tax allowance and relatively low basic rate comared to past years;
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/516773/Table-a2.pdf

p00hsticks

skint_panther wrote: »

But when i think about doing overtime or I look for a new job, i genuinely work out my actual take home probability. Why on EARTH would i do all of that extra work for doesn't feel justifiable in my wage slip.

You do understand that you only pay a higher rate of tax on the amount of earnings that are over a threshold ? (Apologies if you do, but you wouldn't be the first on this board who think you pay 40% on your entire salary once you go over £43,000)

agrinnall

p00hsticks wrote: »

You do understand that you only pay a higher rate of tax on the amount of earnings that are over a threshold ? (Apologies if you do, but you wouldn't be the first on this board who think you pay 40% on your entire salary once you go over £43,000)

Yes, that was my first thought too. The higher rate only applies to the marginal income earned.

FredG

p00hsticks wrote: »

You do understand that you only pay a higher rate of tax on the amount of earnings that are over a threshold ? (Apologies if you do, but you wouldn't be the first on this board who think you pay 40% on your entire salary once you go over £43,000)

I've spoken to so may people who believe that's the case.

MacMickster

I suspect that the OP is conflating the tax and benefit systems. 20% tax, 12% national insurance plus the withdrawal of tax credits, housing benefits etc mean that some people decide that it simply isn't worth working extra hours or seeking that promotion.

In reality it is a very short-sighted viewpoint, condemning themselves to a lifetime of benefit reliance and poverty, rather than looking at the longer term benefits from being more self-reliant and less dependent upon public finances and the support of others who do work those extra hours and pay taxes.

Pennywise

MacMickster wrote: »

In reality it is a very short-sighted viewpoint, condemning themselves to a lifetime of benefit reliance and poverty, rather than looking at the longer term benefits....

But at other income points, you also have very high marginal "taxes".

Such as income increasing beyond £50k where you start to lose child benefits.

Such as income increasing beyond £100k where you start to lose the personal tax free allowance.

Both these income levels cause very high marginal "tax" rates when you factor in not just tax, but also pension contributions, student loans, child benefit claw back, personal allowance clawback, etc.

Not just for low income benefit claimants at all. In fact, it's part of the reason there's a shortage of GPs and dentists, many of whom would earn over £100k full time, but rather than suffering a marginal "tax" rate of 70-80%, decide to go part time instead and end up not really seeing any reduction in their pocket yet have gained an extra day or so free time!

MacMickster

Pennywise wrote: »

But at other income points, you also have very high marginal "taxes".

Such as income increasing beyond £50k where you start to lose child benefits.

Such as income increasing beyond £100k where you start to lose the personal tax free allowance.

Both these income levels cause very high marginal "tax" rates when you factor in not just tax, but also pension contributions, student loans, child benefit claw back, personal allowance clawback, etc.

Not just for low income benefit claimants at all. In fact, it's part of the reason there's a shortage of GPs and dentists, many of whom would earn over £100k full time, but rather than suffering a marginal "tax" rate of 70-80%, decide to go part time instead and end up not really seeing any reduction in their pocket yet have gained an extra day or so free time!

I completely agree with your points, but from the OP's only other post they talk about the loss of DLA, that impacting on tax credits (disability element) and consequently having to work full-time. I suspect that they are not, in this instance, talking about earning £50K plus.

martinsurrey

Pennywise wrote: »

Such as income increasing beyond £100k where you start to lose the personal tax free allowance.

The £100k one is even worse, with just the withdrawal of personal allowance your marginal tax rate is 62%.

but you now lose the 15hours of additional free child care as well.

At the UK average of £117 for 25 hours thats £3,650 a year post tax you lose per child.

combine the 2 and someone earning £99,999 with 2 children under 4 would need to jump to £119,211 to not LOSE cash, a 15% pay rise would be a pay cut after tax and expenses...

MacMickster

martinsurrey wrote: »

The £100k one is even worse, with just the withdrawal of personal allowance your marginal tax rate is 62%.

but you now lose the 15hours of additional free child care as well.

At the UK average of £117 for 25 hours thats £3,650 a year post tax you lose per child.

combine the 2 and someone earning £99,999 with 2 children under 4 would need to jump to £119,211 to not LOSE cash, a 15% pay rise would be a pay cut after tax and expenses...

No worse than the VAT registration threshold. A business owner who grows their business to this level must decide whether to scale back and limit their turnover to avoid VAT or take the step and the hit in finances with the belief that the business will continue to grow eventually bringing greater rewards in the long-term.