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Liquid Goldfish

Top Tax Rate?

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I know this is very basic stuff but it's driving me mad trying to find a simple answer.

I've read several articles recently stating that the top rate of tax is efffectively 63% when you take into account National Insurance.

Most recently, in tonight's Independent they say George Osborne is going to cut the top rate of tax to 45% and will justify this on the grounds that after taking into account NI the top rate will still be 58%.

But didn't it used be that there was an NI cut off at about £40,000 after which you didn't pay NI on the rest of your income? Has this changed? Do people now pay NI on all their income? I've looked at the HMRC site and this seems to suggest to me there is still a cut off but the terminology is confusing for me. And if so why all this stuff in the papers about rates of 63%?

Edited by oldsport

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Not sure, but according to the HMRC website the upper accrual limit is £770 per week, or £40,040 per year. Linky

Don't see how that effects anyone in the very top tax band of 50% earning over £150k pa.. but then I'm not a tax advisor nor have the fortune to share that particular problem :lol:

Edit to add: it could be the upper earning limit of £42,484 instead of the accrual limit.. not sure what the difference is.

Edited by libspero

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extra details from another article in tonight's Indy

The Treasury believes it can claim that combining the highest rate of income tax (50p) and national insurance (currently 13p) means taxes on income are effectively 63p. So, even after the reduction, the rate will still "effectively" be 58p.
Edited by oldsport

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I know this is very basic stuff but it's driving me mad trying to find a simple answer.

I've read several articles recently stating that the top rate of tax is efffectively 63% when you take into account National Insurance.

Most recently, in tonight's Independent they say George Osborne is going to cut the top rate of tax to 45% and will justify this on the grounds that after taking into account NI the top marginal rate will still be 58%.

But didn't it used be that there was an NI cut off at about £40,000 after which you didn't pay NI on the rest of your income? Has this changed? Do people now pay NI on all their income? I've looked at the HMRC site and this seems to suggest to me there is still a cut off but the terminology is confusing for me. And if so why all this stuff in the papers about rates of 63%?

It's more complex than that. The highest marginal rate is 75%, in the sense that if you get a rise from £100k to £101k, the government will take £750 from that rise.

As for NI, yes one component of it drops (but doesn't disappear) at about the same level you start paying higher-rate tax.

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It's more complex than that. The highest marginal rate is 75%, in the sense that if you get a rise from £100k to £101k, the government will take £750 from that rise.

As for NI, yes one component of it drops (but doesn't disappear) at about the same level you start paying higher-rate tax.

That is incorrect.

Some people on benefits face 117% EMTR, before transport costs. They call it the 'benefit trap', poverty trap etc.

I didn't know about the personal tax withdrawance until recently, but it seems to be tapered in quite fast, over a short burst of income in the next power of ten up from minimum wage. (£100k pa)

When the 50% tax kicks in, NI drops from 12% to 2%.

As the population ages the average worker is likely to be increasingly liable for the graduate tax of +9%.

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When the 50% tax kicks in, NI drops from 12% to 2%.

Thanks

So, if we ignore the anomalies of marginal rates at various points on the income scale, then the top rate including NI is 52% (made up of 50% tax and 2% NI). And not 63% (made up of 50% tax and 13% NI) as stated in the article.

Edited by oldsport

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Thanks

So, if we ignore the anomalies of marginal rates at various points on the income scale, then the top rate including NI is 52% (made up of 50% tax and 2% NI). And not 63% (made up of 50% tax and 13% NI) as stated in the article.

Wrong.

Above the NI upper limit, the marginal rate is 42% (40% +2%). Between £100k and about £115k it becomes 62% (40% + loss of personal allowance (20%), +2%). Above £115k it drops back to 42% as the personal allowance effect runs out, then it jumps to 52% at £150k (50% +2%).

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Wrong.

Above the NI upper limit, the marginal rate is 42% (40% +2%). Between £100k and about £115k it becomes 62% (40% + loss of personal allowance (20%), +2%). Above £115k it drops back to 42% as the personal allowance effect runs out, then it jumps to 52% at £150k (50% +2%).

Google ' listen to taxman' really useful uk tax calculator

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.... but you have to include employers national insurance. I'm never quite sure why people see this as anything other than another income tax.

So 50% + 2%NI (+ 13.8% ENI)

... except the ENI is paid on top

As an example, let's take £1 earned above £150k:

The employer actually pays £1.138, but the first 13.8p goes directly to the govt as ENI.

... then you pay your 50p (50%) income tax

... and your 2p (2%) national insurance.

So you pay 65.8p in tax from the 113.8p, which is 57.8%

But yes, those above are correct, between 100-112k there's a higher effective rate.

And don't get me started on benefits and tax credits.

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Wrong.

Above the NI upper limit, the marginal rate is 42% (40% +2%). Between £100k and about £115k it becomes 62% (40% + loss of personal allowance (20%), +2%). Above £115k it drops back to 42% as the personal allowance effect runs out, then it jumps to 52% at £150k (50% +2%).

What a mess...

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.... but you have to include employers national insurance. I'm never quite sure why people see this as anything other than another income tax.

So 50% + 2%NI (+ 13.8% ENI)

... except the ENI is paid on top

As an example, let's take £1 earned above £150k:

The employer actually pays £1.138, but the first 13.8p goes directly to the govt as ENI.

... then you pay your 50p (50%) income tax

... and your 2p (2%) national insurance.

So you pay 65.8p in tax from the 113.8p, which is 57.8%

But yes, those above are correct, between 100-112k there's a higher effective rate.

And don't get me started on benefits and tax credits.

When have you ever seen a salary quoted with employers NI included?? "We'll pay you £50k a year, but actually well deduct 13.8% from that before we pay you, and then you pay your own tax and NI on top." Employers NI has nothing to do with the employee.

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What a mess...

Remember that NI only applied to income through employment - pension, savings etc don't attract it. So you can't do the simplifying thing and just merge Income tax and NI.

Oh, and if you have kids there is going to be a big step back when you hit the higher rate threshold and lose child benefit from 2013. There's going to be some very nasty cases in the press when that happens - people who are right on the borderline with 3 kids, for example, could find they lose nearly 10% of post-tax income.

Employer's NI is also really a hangover from the days of 'jobs for life' in the post war era.. but scrapping it would lead to a high loss of revenue with no obvious way of getting it back.

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When have you ever seen a salary quoted with employers NI included?? "We'll pay you £50k a year, but actually well deduct 13.8% from that before we pay you, and then you pay your own tax and NI on top." Employers NI has nothing to do with the employee.

In that case let's just scrap all other taxes and put the employers NI contribution up to 150%. :o

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When have you ever seen a salary quoted with employers NI included?? "We'll pay you £50k a year, but actually well deduct 13.8% from that before we pay you, and then you pay your own tax and NI on top." Employers NI has nothing to do with the employee.

Seriously????????

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When have you ever seen a salary quoted with employers NI included?? "We'll pay you £50k a year, but actually well deduct 13.8% from that before we pay you, and then you pay your own tax and NI on top." Employers NI has nothing to do with the employee.

I hate to agree with your avatar, but employer's NI is exactly what he said it is: a jobs tax. Companies don't pay VAT when they buy in machinery or consumables, but thanks to employer's NI they do pay a sort of 'labour VAT' when they hire somebody. This is obviously going to encourage companies to spend more on capital and less on wages than they would if the tax didn't exist.

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Wrong.

Above the NI upper limit, the marginal rate is 42% (40% +2%). Between £100k and about £115k it becomes 62% (40% + loss of personal allowance (20%), +2%). Above £115k it drops back to 42% as the personal allowance effect runs out, then it jumps to 52% at £150k (50% +2%).

Sensible policies for a happier Britain.

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When have you ever seen a salary quoted with employers NI included?? "We'll pay you £50k a year, but actually well deduct 13.8% from that before we pay you, and then you pay your own tax and NI on top." Employers NI has nothing to do with the employee.

Wrong, it is part of his gross wages from the employers POV.

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When have you ever seen a salary quoted with employers NI included?? "We'll pay you £50k a year, but actually well deduct 13.8% from that before we pay you, and then you pay your own tax and NI on top." Employers NI has nothing to do with the employee.

Apart from just like salary, it's another cost the employer has to pay. And if it was less, they would be able to afford to employ more people.

To me it's all just visible/hidden forms of the same equation - my take-home pay is X. Government gets Y from me, Z from employer.

Total cost to employer is X+Y+Z. What i care about is X, what employer cares about is X+Y+Z. Neither could give a fart about whether Y or Z is greater, as it's either money they're paying or money they're not getting to keep.

Or to simplify it a little, what difference would it make if the government reduced all NI&income taxation employee side to zero, but implemented the same structure on the employer's contributions?

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The employee has no responsibility to pay employers NI.

Doesn't mean it's not a tax on their employment (on the amount the employer has to pay to employ them).

It's just a simple way for the government to pretend it's not.

It is most definitely income tax (except not paid on pension, divds etc).

Call it a tax on jobs if you like, but that's missing the point too (unless you call income tax and NI a tax on jobs also).

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To go back to my original example: If your 'wages' are 100p, the costs the employer 113.8p.

If you moved all the tax onto the employee side (which they would if they were being honest), your wages would be 113.8p and your tax rate 58%.

.... the current structure is just smoke and mirrors.

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That is incorrect.

Some people on benefits face 117% EMTR, before transport costs. They call it the 'benefit trap', poverty trap etc.

Yep, I know. I didn't mention it because loss-of-benefits isn't strictly tax. But the effective tax rate it amounts to is an even bigger scandal than taking up to 75% from the well-paid.

In 2002/2003 when I was struggling, I was effectively paying about 300% tax compared to a basic benefits package of income support + housing benefit. That's one reason I so bitterly resented paying more than half of a much higher income - and took substantial measures to avoid it - when my circumstances improved.

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I'm amazed that it can't simply be plotted onto a graph, with wage as the x axis, and amount you keep after taxes, etc. on the y-axis.

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.... but you have to include employers national insurance. I'm never quite sure why people see this as anything other than another income tax.

Because it's hidden off-balance-sheet. Or perhaps I should say off-payslip.

If you ever run your own small company (ideally one-man business), it becomes very clear. That's why it's better to pay yourself national minimum wage (or thereabouts) and take anything above that in dividends or other forms.

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
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      • up 5%



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