11 January 2011: For updated version showing rates for 2011-12, click here.
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Just to keep things updated, subject to a few simplifying assumptions, here's an overview of how the main rates of tax on income or production interact. There are three income tax rates (20%, 40% and 50%); three rates of National Insurance (8%, 11% and 1%); two Tax Credit withdrawal rates (39% and 7%); a mainstream corporation tax rate of 28% (I've ignored small company 21% or marginal rate of 29.75%) and VAT (which is zero or 7/47 of turnover).
There are plenty more marginal income tax rates, a few even higher, some of them lower, but this should help give an overall picture (click to enlarge):
Hands up anybody who thinks it would be more honest, not to say less economically damaging, to have a single, flat rate of income tax? Obviously, the lower the better, that's a different topic.
Tuesday 30 March 2010
Effective income tax rates in the UK (April 2010)
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13 comments:
People of 65 and over have a 30% taxband starting at £22.9k and continuing for several thousand; thereafter it falls to 20% until it reaches 40%.
I have my hand up.
D, for example that one, but if I include all the marginal rates the table would be the size of a telephone directory.
Wherever it's been tried a flat tax system also increases the revenue the government ends up with. So does a low tax system...double whammy!!
So I'm definitely for a lower flat tax system!!
Think of the savings in HMRC manpower to handle a simpler system as well, so they need less tax from us anyway....triple whammy!!
You missed student loan repayments - 9% of everything over £15k.
Ok, it is a loan repayment, but it used to be paid as a grant. It is a graduate tax in effect.
So my tax rates are 0%, 31% then 40%. If I got a better job then the next one would be 50%.
Sub, thanks.
JohnR, as to taxation of incomes and production, the lower the rate the better, obviously, but even if all we did was to roll all these taxes (income tax, NIC, VAT, corp tax, WTC withdrawal) into one flat rate of (say) 48%, then the increase in revenues from the few sources of income taxed at lower rates would be far more than the fall in revenues from those taxed at higher rates of 60%-plus (and revenues from those sources might even increase), ergo, fiscally neutral might be a flat rate of 40% on everything and we can busk it from there.
S_L, indeed, that's another one (I preferred the old system that was not income based, far more honest, far less damaging).
My hand is waving in the air rather vigorously.
The lower the flat tax the better.
Yes, hands up for "more honest", but that's precisely why it will never happen. You don't want the little people to be able to work out what's going on.
W, ta for waving.
B, people recoil in horror when I suggest scrapping taxes and rolling them into fiscally neutral flat taxes, because they think the rate is far too high. Well of course the bloody average rate of 48% (or whatever) is far too high, that's half the point I am trying to make. Splitting it up into lots of layers of stealth tax just makes it worse.
"Splitting it up into lots of layers of stealth tax just makes it worse."
but oh so much more acceptable to the electorate....
Bayard - not THIS elector!
MW - you wouldn't like to put the working out up with that table would you? Or somehow link to the spreadsheet I am sure you must have used? I'd be very interested.
L, I can't because they are all calculated 'by hand'. You need a different approach to calculating just about every different situation.
For example, higher rate taxpayer/dividends/company VAT-able =
£100 gross income less VAT = £85.11 net income. Less corporation tax = £61.28 available as dividend. If paid out, recipient pays £15.32 income tax, so net income = £46, so effective tax rate = 54%.
Calculating effective rate of tax on interest income received by basic rate taxpayer/2nd WTC withdrawal rate is completely different.
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