Reader's Letter Of The Day, Sort Of...

From the FT:

Sir, There are a couple of additional points worth making in the face of the evidence deficit behind the assertions of DeAnne Julius and others regarding the 50 per cent tax rate. First, it is more than likely that entrepreneurs will own their own company – in which case it is also more than likely that they will be paid through dividends taxed at corporation tax rates of either 20 per cent or 25 per cent (1). That everyone on PAYE was able to use the tax system to their advantage!

As for marginal tax rates, whose is the highest: 50 per cent taxpayers or those coming off state benefits? (2) It’s a rhetorical question – but one that I somehow doubt DeAnne Julius will bother answering.

Anthony Dunn, London Business School, London.

1) Corporation tax rates are currently between 20% and 26%, and the owner can only take advantage of these rates to the extent that the dividends paid to himself or family members fall within their basic rate bands. The effective rate on a higher rate taxpayer-recipient is 42% (assuming 23% corp tax) and on a top-rate taxpayer-recipient is 51%.

2) As any fule kno and as the DWP's sadly discontinued Tax Benefit Model Tables confirm, the overall average marginal rate of PAYE + benefit withdrawal is about 80% (and that's ignoring VAT and Employer's NIC, which push it up to about 84%) on the first £... of income as follows:

Single earner, no kids - 79% clawed back on first £18,500 per annum.
Single earner, two kids - 77% clawed back on first £38,800 per annum.
Couple, two kids - 82% clawed back on first £40,500 per annum.

The percentages are slightly different under IDS' botched 'Universal Credit/Single Unified Taper' system, some are a bit worse, others a bit better, but they are all still well over 70%.