kingcole
Well-known member
Sorry, this is totally OT and a long post. Advanced warning to skip!
I have just completed the year end accounts for my company. I'm lucky, I earn more than the average bod, I'm able to employ family members and where I can I take advantage of tax breaks for ISA's and Pensions.
As expected, I'm a true blue voter. However, what I have discovered is an archaic and unfair system of taxation. It has to change. Here is how it is now (summarised but accurate) followed by my simple solution.
Lets call NI and Income tax the same. Forgetting the pennies, you can earn the first £8100 tax free. Figures below assume you are not an OAP in which case you can subtract 12% tax from the first 2 lines and 2% from subsequent ones.
You will then pay 12% tax on the next £2500
You will then pay 32% tax on the next £32,000
You will then pay 42% tax on the next £7400 (on the next £57400 if you don't have kids)
You will then pay 59.7% tax on the next £10,000 (assuming you have 2 kids)
You then go back to paying 42% on the next £40,000
You will then pay 62% tax on the next £21,200
You will then go back to paying 42% tax on the next £28,800
Finally, from £150k you will pay 47% tax on everything else.
For those are don't know why these figures are as they are, it's because, unless you are old, we all start paying NI at about £8100 at 12%, at £10600, 20% income tax kicks in. At £43600 income tax increases to 40% but NI drops to 2%. At £50k, if you have kids you start to repay the child benefit, with it all repaid by the time you have earned £60k. At £100, you start to lose the £10600 personal allowance at a rate of 20% until it's all covered. And then at £150k, the income tax rate increases to 45%.
My view is that basically these rates are about right, just unnecessarily complex. I think NI and TAX should be aligned so the government can't harp on that basic rate tax payers pay 20% tax (they pay 32%) and we should remove the lowest earners from paying tax at all, and that means NI.
Next onto reliefs. There are 2 big ones. ISA's and Pensions. Most of us try and save something into a pension, maybe through a work scheme and most of us (at least those earning up to £43k) will get tax relief on their pension contributions at their standard income rate of 20% (not the 32% - it don't work that way!)
So far so good, but how can it be just that someone earning 5 times the average wage will get 45% releif when someone on an average wage will only get 20% ? This means in simply terms that for Mr or Mrs average to put £1000 in their pension it will cost then £8000 in cold hard cash, where Mr or Mrs wealthy will only have to pay £5500.
That's not all. If you earn enough you can shelter £40,000 a year doing this. Many will be struggling to pay £40 a month into a pension, but £40k a year! And it gets worse. If Mr and Mrs Wealthy have not used their pension allowance for previous years they can back date up to 3 years, so could in fact this year pop £170,000 (3 years ago it was £50k in case you are wondering why I did not write £160k). That £170,000 would only cost them £93500 as the governament would GIVE them the remaining £76,500 as tax relief. A £76500 gift to the highest earning. That one gift is more than the average Joe currently has in their pension fund at retirement! Fair?
With ISA's (forgetting help to buy etc) one can save £15600 (this increases to £20k in April) a year and all the income and growth from this is totally free of tax. ISA's were designed to get people saving, but they are now being used by the very wealthy as another vehicle to shelter excesses from the tax man. It may surprise you but there are many ISA millionaires our there. If you have popped away with maximum allowed since their formation (we include their forerunners known as PEPS and TESSAS here) then you will easily have made it. And that's with historic contribution limits being much much lower. In fact, only 5 years ago the limit you could contribute was £5300.
£20,000 a year is NOT rainy day saving. It's now simply a vehicle exploited by the rich that the average Joe will be little and often no use of. Someone with a £1m ISA pot could be creaming off a further £50k a year without a penny in income tax whilst a Tesco worker is paying 32% tax without a hope of having anything spare on pop into an ISA.
For those who don't know, those with masses of savings that have exhausted their ISA can also pop £50k into premium bonds and have another £100k in a savings account and pay no tax on the interest (assumes 1% interest rate as all can earn £1k a year from savings interest tax free).
There, that's how it is now. Here's my solution.
Allign TAX and NI and set it at a rate of 30%: This will free all those earning between £8k and £11k from paying any tax. There will also be a 2% deduction of tax for all others.
Increase the higher rate tax limit to 45%: This is only a 3% increase from the current rate. And as these earners will have benefited from the 2% cut on the basis rate they will have to be earning over £70k before they are paying more tax than they are now
Abolish Child Benefit. Have is paid as part of child tax credits to those who qualify.
Let those earning over £100k keep the personal allowance. If someone is on £120k under my propsal the extra 3% on earnings over £70k more than covers this.
I've no idea how the above will add up in terms of affordability for the government, but as the biggest earners pay the most income tax and those earning over £70k a year will be paying more, then this may be a net gain for the government. Add to this the extra money low earners will take home, so may be less dependant on benefits.
Onto pensions. So easy. Make it a level playing field. All get tax refleif at the basic tax rate (which will be 30%).
Whether you earn £10k or £1m it will cost us all £700 to pop £1000 into your pension. I'd also kill the facility to use previous years allowances. It will be use it or lose it. £40k a year is ample to pop in your pension and is a pipe dream for 95%. To be able to shelter 4 times this figures is grotesque.
Finally ISA's: Limit the amount that can be hold in an ISA to £50,000. Again, this is an ample sum which will not be achieved by most, even in their wildest dreams. We don't need to be offering tax breaks to those wealthy enough to ammas more than £1m in rainy day savings.
Those with more than £50k in their ISA will have to move it to accounts that pay tax or spend it. The later being a boom for the economy.
I would also slash the amount that can be saved into an ISA each year to £6,000. This is £500 a month and the government really don't need to be passing cash to those who are fortunate enough to be in a position to save more.
For pensioners. I propose they are given an additional personal allowance of £2500 to compensate them for the higher tax they will pay with the merging of NI and TAX. A pensioner would have to have income of over £36500 before this new system cost them money
I have just completed the year end accounts for my company. I'm lucky, I earn more than the average bod, I'm able to employ family members and where I can I take advantage of tax breaks for ISA's and Pensions.
As expected, I'm a true blue voter. However, what I have discovered is an archaic and unfair system of taxation. It has to change. Here is how it is now (summarised but accurate) followed by my simple solution.
Lets call NI and Income tax the same. Forgetting the pennies, you can earn the first £8100 tax free. Figures below assume you are not an OAP in which case you can subtract 12% tax from the first 2 lines and 2% from subsequent ones.
You will then pay 12% tax on the next £2500
You will then pay 32% tax on the next £32,000
You will then pay 42% tax on the next £7400 (on the next £57400 if you don't have kids)
You will then pay 59.7% tax on the next £10,000 (assuming you have 2 kids)
You then go back to paying 42% on the next £40,000
You will then pay 62% tax on the next £21,200
You will then go back to paying 42% tax on the next £28,800
Finally, from £150k you will pay 47% tax on everything else.
For those are don't know why these figures are as they are, it's because, unless you are old, we all start paying NI at about £8100 at 12%, at £10600, 20% income tax kicks in. At £43600 income tax increases to 40% but NI drops to 2%. At £50k, if you have kids you start to repay the child benefit, with it all repaid by the time you have earned £60k. At £100, you start to lose the £10600 personal allowance at a rate of 20% until it's all covered. And then at £150k, the income tax rate increases to 45%.
My view is that basically these rates are about right, just unnecessarily complex. I think NI and TAX should be aligned so the government can't harp on that basic rate tax payers pay 20% tax (they pay 32%) and we should remove the lowest earners from paying tax at all, and that means NI.
Next onto reliefs. There are 2 big ones. ISA's and Pensions. Most of us try and save something into a pension, maybe through a work scheme and most of us (at least those earning up to £43k) will get tax relief on their pension contributions at their standard income rate of 20% (not the 32% - it don't work that way!)
So far so good, but how can it be just that someone earning 5 times the average wage will get 45% releif when someone on an average wage will only get 20% ? This means in simply terms that for Mr or Mrs average to put £1000 in their pension it will cost then £8000 in cold hard cash, where Mr or Mrs wealthy will only have to pay £5500.
That's not all. If you earn enough you can shelter £40,000 a year doing this. Many will be struggling to pay £40 a month into a pension, but £40k a year! And it gets worse. If Mr and Mrs Wealthy have not used their pension allowance for previous years they can back date up to 3 years, so could in fact this year pop £170,000 (3 years ago it was £50k in case you are wondering why I did not write £160k). That £170,000 would only cost them £93500 as the governament would GIVE them the remaining £76,500 as tax relief. A £76500 gift to the highest earning. That one gift is more than the average Joe currently has in their pension fund at retirement! Fair?
With ISA's (forgetting help to buy etc) one can save £15600 (this increases to £20k in April) a year and all the income and growth from this is totally free of tax. ISA's were designed to get people saving, but they are now being used by the very wealthy as another vehicle to shelter excesses from the tax man. It may surprise you but there are many ISA millionaires our there. If you have popped away with maximum allowed since their formation (we include their forerunners known as PEPS and TESSAS here) then you will easily have made it. And that's with historic contribution limits being much much lower. In fact, only 5 years ago the limit you could contribute was £5300.
£20,000 a year is NOT rainy day saving. It's now simply a vehicle exploited by the rich that the average Joe will be little and often no use of. Someone with a £1m ISA pot could be creaming off a further £50k a year without a penny in income tax whilst a Tesco worker is paying 32% tax without a hope of having anything spare on pop into an ISA.
For those who don't know, those with masses of savings that have exhausted their ISA can also pop £50k into premium bonds and have another £100k in a savings account and pay no tax on the interest (assumes 1% interest rate as all can earn £1k a year from savings interest tax free).
There, that's how it is now. Here's my solution.
Allign TAX and NI and set it at a rate of 30%: This will free all those earning between £8k and £11k from paying any tax. There will also be a 2% deduction of tax for all others.
Increase the higher rate tax limit to 45%: This is only a 3% increase from the current rate. And as these earners will have benefited from the 2% cut on the basis rate they will have to be earning over £70k before they are paying more tax than they are now
Abolish Child Benefit. Have is paid as part of child tax credits to those who qualify.
Let those earning over £100k keep the personal allowance. If someone is on £120k under my propsal the extra 3% on earnings over £70k more than covers this.
I've no idea how the above will add up in terms of affordability for the government, but as the biggest earners pay the most income tax and those earning over £70k a year will be paying more, then this may be a net gain for the government. Add to this the extra money low earners will take home, so may be less dependant on benefits.
Onto pensions. So easy. Make it a level playing field. All get tax refleif at the basic tax rate (which will be 30%).
Whether you earn £10k or £1m it will cost us all £700 to pop £1000 into your pension. I'd also kill the facility to use previous years allowances. It will be use it or lose it. £40k a year is ample to pop in your pension and is a pipe dream for 95%. To be able to shelter 4 times this figures is grotesque.
Finally ISA's: Limit the amount that can be hold in an ISA to £50,000. Again, this is an ample sum which will not be achieved by most, even in their wildest dreams. We don't need to be offering tax breaks to those wealthy enough to ammas more than £1m in rainy day savings.
Those with more than £50k in their ISA will have to move it to accounts that pay tax or spend it. The later being a boom for the economy.
I would also slash the amount that can be saved into an ISA each year to £6,000. This is £500 a month and the government really don't need to be passing cash to those who are fortunate enough to be in a position to save more.
For pensioners. I propose they are given an additional personal allowance of £2500 to compensate them for the higher tax they will pay with the merging of NI and TAX. A pensioner would have to have income of over £36500 before this new system cost them money
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