There’s NO point earning over £50k?!

[ThisReallyDoesntAddUp]

Because of the £50k child benefit limit and 40% tax rate!

So I earn £78,000 pro rata overall now with my job following a mid year pay rise. This includes bonus and car allowance. I work 4 days a week (80% equivalent) which brings the overall pay this year down to just shy of £50k with a £9.6k bonus.

Out of the £9.6K bonus due in March, I’ve worked out 40% will go to the taxman, over £2K will need paying back for child benefit as I’m now over the £50k threshold, and a further £800ish will go towards my student loan. Deductions of just under £6k!!! This means I’ll only take home 30% of my bonus?!

I’m now on mat leave for baby number 3. AIBU to make sure when I go back I remain under the £50k mark by reducing hours even further?! I’d then have less to pay in childcare mitigating the difference in the pay I’d receive working an extra day each week.

Its an absolute joke, I was hoping to go back to work after my last baby and push on hard with my career but what is the actual point!! I may as well work less hours, keep the child benefit and pay less in childcare!

Not if you want people to invest in and set up businesses. Without people doing that the businesses wouldn’t exist / grow, generate profits that can be taxed money and so wouldn’t be available to tax, and pay for teachers and nurses.

Worth noting also that the money paid as dividends and taxed at 39.5% has already been taxed at 25% because of corporation tax, where as money paid via PAYE and taxed at 45% is deductible before corporation tax is paid. So actually, although taxes less to the individual in total more tax is paid on unearned income than earned income…

The vast majority of unearned income isn’t going entrepreneurs setting up businesses, it’s going to people sitting on their arses watching their money grow while other people do the work. There’s a reason it’s also known as passive income.

The PM’s wife’s unearned income (on which she had to be shamed into paying any tax at all) is entirely passive. Generated by some of the poorest people on the planet while she plays Marie Antoinette in a charity coffee shop.

I think you mean shamed into paying tax in the Uk, rather than in India where the poorest people on the planet could have benefited from it ;)

When it comes to passive income, people are still putting capital at risk by investing in companies, listed or otherwise, that do generate jobs, profits, IP and then pay tax (corporation tax, NI, VAT etc) and that income, in the case of dividends, is paid from profits that have already been taxed at up to 25%.

So £1m of profit is £750k after corporation tax and is £455k after dividend tax. An incremental £1,000,000 income paid as salary is deductible for corporation tax purposes, and taxed at 45% plus 2% NI. So you’re left with £530k. Or rather, HMRC take a bigger slice of dividend income than salary.

I think you mean shamed into paying tax in the Uk, rather than in India where the poorest people on the planet could have benefited from it

I know exactly what I mean, thank you. We pay aid to India so her money’s going there anyway.

Akshata Murthy being an Indian citizen doesn't mean that's where she was paying her taxes, in any case. She never actually said she was domiciled in India, though obviously it suited her for people to think it was there rather than, say, some tax haven somewhere.

So yeah, that money could've been paid in India where some of the poorest people on the planet are. Whether it was or not is a separate question!

Of course for employees you also have employers national insurance to consider. That’s 13.8% and while it’s paid by employers it would be naive in the extreme to think it’s not factored in when setting salaries. If you want to consider corporation tax you should include this as well. If you are a business owner and there is £1 million available to pay to yourself as employee or to take as dividend then surely the correct calculation is that you first figure out employers NI and can pay a salary of £880,000 leaving £466,000 with a tax/NI rate of 47% (£477,000 really as you still get a slice of that income at a lower tax rate). It’s still a bit higher income than same £1 million subject to corp tax + dividend income

So why don’t people who own businesses just pay themselves
a salary as a director if that’s more tax effective? I’m assuming it’s down to various options available to reduce gross profit that means you don’t pay the 25% corporation tax on all of it.

In the end if you could pay 45% tax on fairly meagre interest or you could pay 45% tax on dividends and have the chance capital growth then there would always be people who’d take the risk of investing for the chance of that capital growth.

If the money was earnt in India, is it worth considering whether those the company employed were being paid a fair wage?

We know that many UK companies do not pay their employees a fair wage and so employees very often have to rely on state handouts to get by.

For my years it’s been more tax effective to pay dividends rather than salary but that was when corp tax was 19% and tax on dividends was lower. The saving is mainly due to their being no ni on dividends. In small businesses dividend is still often more tax efficient and the owner can take whatever combination of salary and dividends they want. In a larger business where someone is taking out £1m say as per your example there is more likely to be other factors that come into play and not just the tax affairs of one person in isolation.

Ah is that what rankles you now…aid to India? That sounds a little too UKIP for my liking. Given what we took from their country under the empire I think it’s fair that we help them move from developing to developed status.

You’re incredibly good at extrapolating meaning that simply isn’t there, aren’t you? You’ve done it twice in as many posts. Of course it doesn’t “rankle”, how is it UKIP to point out that tax raised in the UK finds its way to India via the aid budget? It’s a simple statement of fact.