The 50p tax rate

[Cadiz Seagull]

Whatever the economic rights or wrongs of the 50% tax rate it will stay for one reason and one reason only.

Political.

Imagine the furore in the press if the Government reduce it. How can they justify reducing tax on the rich when everyone else is suffering etc etc.

I'm not saying it's wrong. It's just one of the realities of life. A government can't simply go ahead and do what it thinks is right, it can only do what it thinks the electorate will put up with, however reluctantly.

 

[sten_super]

Is there confusion between company tax and personal tax here.

A sole trader pays tax on all his profits, whatever he draws it out of the business or not. A company director pays tax on the salary he draws and dividends (at a lower rate).

If a sole trader wants to re-invest in his business he has to, in effect, use the cash left over after he has paid his tax - if this investment creates more profit then he will be taxed more, but its not as if he will get nothing out of it, he will still get 48% in his pocket.

If a company wants to invest the company will use its cash (after corporation tax) so the director will not withdraw it in wages to then invest

It's quite possible that I've not understood the whole picture - that's part of the reason I started the thread to be honest. I'm no entrepreneur or accountant so my understanding of the tax system is somewhat limited.

It seems to me that the authors of that letter aren't sole traders (who, if I understand you correctly, would have to pay this 50p tax on their 'company' earnings). To quote a couple of them;

For the first time, the business owners have also provided examples of the damage being done to the economy by the levy. They say that by taxing their personal income so highly they have less incentive to invest their own cash in their firms or try to make them more successful.
Tony Stein, the owner of Canterbury Care and Healthcare Management Solutions, which runs care homes, said the tax had meant the firm could not afford to fund a new venture, which could have employed 12 people.
“To put it bluntly, as a result of the increase in tax we can no longer help to finance this new venture,” he said. “I believe that this is the wrong outcome for the economy.”

Maurice Shearman, proprietor of Ace Moulding Services, which makes plastics, added: “This tax prevents me from expanding or investing into my business. With our expertise, the potential for growth is very good. But we are greatly hindered by the tax.”

These people are seemingly talking about multiple-employee firms not expanding due to the tax. It's this that I don't understand (well, I do, but it's personal income rather than any nonsense about damaging the economy).

 

[Westdene Seagull]

It clearly will not be cut as to give a bonus to the most wealthy when everyone else is suffering would not happen, but it is the only tax cut that would put money back into the economy as the excess income from the rich would most probably be spent. Cutting any other tax (including VAT which Labour suggested) may possibly make peoples lives better (although I doubt it would have any real impact on sale prices for most things) but will not put money into the economy.

Ironically I would suggest that cutting VAT or fuel duty ( thus giving money back to the lowest paid ) wouldn't result in more money being pumped into the economy. I have a feeling people would use any extra money to either pay off debts or to save given the very uncertain future. *** I have no evidence of this as such - it's just a gut feeling ***

 

[Pavilionaire]

A government can't simply go ahead and do what it thinks is right, it can only do what it thinks the electorate will put up with, however reluctantly.

Or, in the case of Greece, what the Germans tell it to do.

If the Tory-led government is convinced the 50p tax rate is losing the UK money then it must do what it thinks is right and change it. The voters need to see some conviction on matters like this, it's why half the country can't be bothered to vote because politicians aren't prepared to fight their corner and differentiate, they want to be popular all the time.

Anyway, change will happen courtesy of the Budget so any tax decreases will be "bundled" together with other stuff. Providing there's good news for low and middle income earners too then everyone's a winner, right?

 

[Gazwag]

Not sure really, I can understand that big tax bills put a burden on self employed people cashflow wise but if they are limited companies, the company doesnt pay 50% and if the directors are taking so much out of the company to put them into 50% then they are not getting the right tax advise.

 

[The Large One]

According to these rates

Tax rates of Europe - Wikipedia, the free encyclopedia

it appear we have neither the highest nor lowest Corporate Tax, Income Tax nor VAT across Europe. Where were the entrepreneurs looking to move to?

 

[The Large One]

Or, in the case of Greece, what the Germans tell it to do.

If the Tory-led government is convinced the 50p tax rate is losing the UK money then it must do what it thinks is right and change it. The voters need to see some conviction on matters like this, it's why half the country can't be bothered to vote because politicians aren't prepared to fight their corner and differentiate, they want to be popular all the time.

Anyway, change will happen courtesy of the Budget so any tax decreases will be "bundled" together with other stuff. Providing there's good news for low and middle income earners too then everyone's a winner, right?

On the back of today's letter (using that as an example), have they made the case for the UK economy suffering on the back of a 50% Income Tax band? They say they have, but it doesn't appear that obvious.

Or is it obvious that the UK economy is worse off for a 50% Income Tax band?

 

[Hotchilidog]

Or is it obvious that the UK economy is worse off for a 50% Income Tax band?

No.

 

[beorhthelm]

But this is exactly why I don't understand it. The 50p rate is income tax, not capital gains. Taking money out of a business as wages to reinvest in expanding the business is horrendously inefficient from a tax perspective.

thats fair point and i'll quiz him on that. i think it may be tied in with retirment coming up, and generally getting money out of the business. its a very good point someone made that it only applies to the earning over the threashold. nice problem to think you'll have.

personally id rather see the focus on rising the tax allowance for all. this 50p tax was a political tool to curry favor with the left wing, it raises very little in the scheme of things.

 

[TimWatt]

Pigs in the troughs

What misleading rot by the so-called business leaders.

What they're calling for is tax cuts on behalf of the very high earners, ie themselves not the good of the economy.

Tax in companies and incentives to encourage investment are not related to personal taxation. Taxable earnings can or could be mitigated with wise tax planning so actually sensible high earners could, ideally, mitigate the 50%. I'm sure all of them that signed the letter must have qualified accountants and advisors.

Such investments would encourage jobs and allow for others to pay tax - and these earners are more likely to invest in the fundamental economy rather than yachts, mansions in the South of France or whatever.

Maybe there should be more incentives to invest earnings in the economy however. The argument that 50% tax discourages the ambitious from working hard is a stupid one though. It's just an excuse for laziness or lack of ambition - basically they're earning enough and all things being equal don't have much to worry about, and could still add to the 50% on top is still a lot more if they're good enough and ambitious enough.

In a sense the 'political' argument is correct in that a higher than previous 50% sends a signal that the rich should carry more of the burden of the casualties of the economy than previously. But I don't even think the chancellor would disagree with this in practice, and he can't afford to remove it.

The rate is arbitrary to some extent, the important details are in the threshold levels. the 50% rate cuts in at £150,000 which is pretty high - but the rate below those earnings is 40% which means moderately high or still very high are paying quite a lot too - and maybe taking even more or the burden than necessary - I seem to recall from my tax calculations even at about 60-70k a lot of tax is being paid.

So maybe there's an argument to be had about where these thresholds should be - but I think the bigger issues concern low earners being discouraged from working more by the 20% rate at around as low as about 8K.

These guys signing the letter seem to be arguing for a 'flat tax' which is totally unrealistic and if the Chancellor were to cave he's need to make even more massive budget cuts. How fair would that be is then the next question...

"We're all in this together" are we Dave?

 

[Herr Tubthumper]

According to these rates

Tax rates of Europe - Wikipedia, the free encyclopedia

it appear we have neither the highest nor lowest Corporate Tax, Income Tax nor VAT across Europe. Where were the entrepreneurs looking to move to?

Quite. For a long time Germany had a higher rate of personal tax than the UK. You did not see loads of Germans moving over to The City so they could pay less tax. And when the UK rate went up to 50p equally you did not see loads moving to Frankfurt. There are many reasons why people choose to do business or live in a particular country; tax is only one of them.

 

[Bold Seagull]

But often when you're regularly earning £150K plus the choice is: carry on paying increasing UK taxes, move your business out of the UK altogether or sell up and retire.

How many business owners actually pay themselves in a conventional way? Most will be using family members as shareholders, taking minimum salaries and taking profit from the business as shareholder dividends charged at corporation tax rates. The great thing (I suspect!) about earning that kind of money is that you can hire a very good accountant, tax adviser, lawyer and financial advisor to minimise your tax burden.

Talk of businesses leaving the UK is just talk. Most need what the UK offer in order to succeed.

It's a political tax that doesn't hurt half as much as people make out, and certainly not in comparison what is happening at the other end of the spectrum when you start considering 2.5m unemployed, and some serious hard times for many people.

 

[Bold Seagull]

According to these rates

Tax rates of Europe - Wikipedia, the free encyclopedia

it appear we have neither the highest nor lowest Corporate Tax, Income Tax nor VAT across Europe. Where were the entrepreneurs looking to move to?

Quite. For a long time Germany had a higher rate of personal tax than the UK. You did not see loads of Germans moving over to The City so they could pay less tax. And when the UK rate went up to 50p equally you did not see loads moving to Frankfurt. There are many reasons why people choose to do business or live in a particular country; tax is only one of them.

Totally agree. Every time there is any talk of the higher rates of tax we hear the same stories of the mass exodus of business and wealth creators leaving the country, but it never actually transpires. It is almost embarrassing given what is happening to people like nurses and other essential service providers who take 6 or 7 years to earn the equivalent of the higher rate of tax.

 

[Westdene Seagull]

Talk of businesses leaving the UK is just talk. Most need what the UK offer in order to succeed.

Around the 50p tax rate itself ..... possibly correct. Add in all the other variables then I would suggest thinking companies won't move is naive. Look at the Pru - already moved all their call centres abroad ( via Capita ) and now considering a move of their HQ. I suspect it will happen.

 

[Bold Seagull]

Around the 50p tax rate itself ..... possibly correct. Add in all the other variables then I would suggest thinking companies won't move is naive. Look at the Pru - already moved all their call centres abroad ( via Capita ) and now considering a move of their HQ. I suspect it will happen.

The Pru's move is more to do with a European Union compliance (Solvency II) than anything Britain is doing is it not? Hence they're considering Hong Kong?

 

[Herr Tubthumper]

Around the 50p tax rate itself ..... possibly correct. Add in all the other variables then I would suggest thinking companies won't move is naive. Look at the Pru - already moved all their call centres abroad ( via Capita ) and now considering a move of their HQ. I suspect it will happen.

But equally one of the big banks (the name escapes me) took out a long lease at Canary Wharf last year and explicitely stated that higher UK taxes did not put them or exployees off the UK. They said they aim to recruit the best people, and the best people want to live in the most attractive places...hence they were growing London period.

If a pattern emerges then fair enough. But, at present it is nothing but anecdotal evidence and for every business which is moving out you could probably find an example to counter it. As I say, there are many reasons why companies and people choose to live in certain countries, tax is only one of them at best. The 50p tax has been in place for a long time now. As has our corporation tax levels which folk seemed to have stopped moaning about for the moment. Surely we would have seen the mass exodus by now?

 

[seagullsovergrimsby]

Would the government get more income tax revenue by having a standard rate and closing all the loopholes ?

 

[janee]

Interesting timing as the Lords debate welfare reform and how it will affect cutting benefits for cancer sufferers and parents of disabled children!

 

[cirC]

One of the worlds most successful economies is Hong Kong,once governed by the British and a tax system set by a Scottish civil servant and no Gordon Brown was not involved

Hong Kong Tax - Understanding Hong Kong Tax
Hong Kong Taxation

Qed really,charge less raise more.

 

[Beach Hut]

VAT is actually very low in the UK compared to most of Europe