CinnabarRed's tax thread

Tax has ended up so complicated because one G Brown, aided by one Ed Balls, made it so. We went from a relatively easily understood system to a labyrinthine system which requires a degree in doublespeak to navigate one's way around. I wanted some simple answers about IHT and CGT last year, and ended up having to call HMRC as I couldn't find what I wanted from what was on their website (and I spent years immersed in the LGFA for CC and CTAX and can read legislation fairly well and used to be a TOHG in my very much younger days).

Oh, and I do remember getting more interested in the tax I was paying when my coding notice didn't correspond with the information I had put into my tax return. I don't object to paying tax, provided it is collected efficiently and calculated correctly!...

Blimey - was just looking on HMRC website at "National Insurance for Employers: the Basics." It doesn't look very basic to me.

So, how has tax ended up so complicated? Is it because we don't go for a "spirit and intendment" approach to the interpretation of our tax laws? Or because life will always be too complicated for simple tax laws to be possible? Or because simple always ends up meaning transparent but unfair? Or because it's easier to collect tax if everyone is very confused by it?!...

I have to admit, I have never really wanted to know exactly how much I am paying in tax - always felt slightly annoyed to be given the VAT exclusive price when I knew that wasn't what I had to pay; tried very hard never to look at the deductions on my pay slip and only looked at the net amount; didn't want to know the gross amount of interest being paid on my savings if I couldn't get them tax free in any event; found it vaguely annoying if it was suggested to me that I could structure things in a more tax efficient way. If I ran my own business and needed to be very tax efficient in order to survive (and mainly wasn't the end payer of VAT), I am sure some of that would spill over into the way I viewed my personal tax bill, too. Also, I suppose the less my tax money seems to be going towards things that I perceive to be good for society as a whole and which create some sense of community and shared enterprise, the less I will be willing to view things that way - when I no longer see the State as well meaning and relatively uncorrupt, I will probably avoid tax as much as possible.

50% tax, plus NI, plus loss of personal allowance always felt over the tipping point to me.

Don't get me wrong I don't pay my tax bill with a grin, but when it was 40% I felt it was okay. Fair.

When it tipped to more than half of each £1 earned, it felt unfair. Paticularly as DH and I both lost our allowance too. It felt like a punishment.
I can quite see how that sent people scurrying off to avoid it.

Whether 45% is enough to get those people back in the system again, I dunno. It's still high.

Thanks scaryteacher.

Thanks, clytaemnestra. So at 45% income tax, you would be paying less than 50% tax on your income including NI contributions? That makes much more sense to me, now.

ps how do employers' national insurance contributions work? Are they a fixed % rate whatever the income, or do employers' contributions vary depending on the salary being paid? (Never having been an employer, it would be very interesting to know how this side of the NI coin works - is it as hugely complicated and obscure as other tax?).

Rabbit - it isn't just the 50% rate, but the withdrawal of the tax free allowance at that level as well, plus the NI, so it comes to more than 50%.

More than half comes from adding on NI contribitions, so you're actually paying more than 50%, depending on how much you earn. (IIRC it's 12% on money earned up until the HRT cut off then 2% on anything over that). So if you were paying the highest rate of tax then you were actually losing more than half of anything earned above the cut off point.

CinnabarRed - 50% isn't more than half, it IS half, so I personally don't see it as psychologically restricting or a level so swingeing that it will send all wealthy people running for their yachts in order to escape these shores forever. I agree anything over 50% feels different, somehow... But doesn't your point about deferring tax just go to show that cutting the rate now means no-one will ever actually know how bearable wealthy people might have found a 50% rate (over and above the lower rates, on which all people are taxed the same amounts for those tranches of income, so it's not as if the most wealthy pay more tax on all of their income), since it hasn't been around for long enough for anyone to know (ie has been around for so short a time that people could well have been betting on an imminent fall in the tax rate and therefore adjusting their behaviour in that fairly confident expectation, knowing they were safe one way or the other because the rate was never going to go up and was almost certainly going down)????? I was hoping you would compare the rate with other countries and provide some statistics or examples of the effect of 50% rates on the most well off in other countries, rather than express a personal opinion without any evidence to back it up, as though it is an immutable fact of human nature - in good times and bad times, utterly oblivious to its environment. I know the OECD thinks 40% is the optimal tax collecting rate, for example, but have no idea how they calculated this or in what economic conditions the data was collected, or what they did about countries that appeared to fall outside the norms in terms of tolerance for tax collection (you can't, after all, compare attitudes in Greece to those in Scandinavia very easily, as the mentality to tax in both countries appears to be entirely different).

So, I'm still confused as to how you can be so confident in your opinion on this.

Oooh. A couple in advance of the budget: do you think this Government will be any better than any previous governments at closing tax loopholes? And what is your view on cutting the 50% income tax rate band (assuming this is going to be done)?

Aw, thank you, CinnabarRed... I like my rants to be thought of as good posts.

Argh.... Points 1 and 3 justify high pay... Point 2 doesn't justify what they get to cream off. And point 4 and historical precedent explain the rest.

or even, should NOT be so greedy in times of luck!... (referring to CinabarRed's post on bankers' pay, of course...).

I suspect point 4 has an awful lot to do with it. Points 1 and 2 would only justify a few hundred thousand at most, for those who actually took responsibility for anyone other than themselves. As for point 3, they should be treated like the gamblers that they are if they expect huge rewards for their successes, and accept personal ruin for their mistakes. And if they don't like that idea, then they should be so greedy in times of luck.

'I reckon there will be a new section on each tax return asking if a member of the household claims CB and if so to provide their NIC number. It doesn't need to be any more sophisticated than that.'

One could put yes, but how would dh know my NIC number if I didn't tell him? It's none of his business, and the fact remains that many married couples keep their financial affairs entirely separate and may not wish their spouse to know this info.

Cinnabar - I broadly agree with your last post.

However, an interesting piece of recent research highlighted by Gillian Tett at the FT suggest that City banker pay has not always been high.

According to the research paper she cited it was very high as a comparison to other jobs with similar skill levels back in 1929. It took almost the whole of the 1930s for them to fall back to the pay levels of other similar jobs and then stayed there at that level until the 1980s when they started their inexorable rise to the stratospheric level they are now.

As it happens City pay has now started falling again and the research paper suggest that it may well fall back to normal levels. Indeed footballers also used to be paid quite normal levels of pay compared to other manual workers - so maybe they will also suffer a similar fate.

I certainly think society has had enough and your point "banks... should forgoe profits earned through certain behaviours that society deems unacceptably risky or otherwise immoral," will happen. The way it will happen and is already happening is society will demand banks hold far more capital against their risky trading operations and hence the banks' ability to earn such huge profits in boom periods (and catastrophic losses in busts) will be much more limited and hence banker pay will fall over time as profits fall.

Of course, footballers never used to be paid much at all, even though football has always been popular.

latebreakfast - bankers can expect huge amounts of money because they are magicians. They make and lose money by playing about with money. They have virtually no connection to the real, physical world and what earnt the money in the first place and therefore don't feel they have to follow its rules. Unfortunately, they thought they were clever, mathematically minded magicians but it turns out that if you start out with nothing concrete, you end up with nothing concrete, even if you are a magician. And the effect of all the money magic is to cause the physical world to disintegrate.