Where is the incentive.....

[LookingforMaryPoppins]

Fairly certain I am going to be shot down and 100% appreciate I am in an incredibly fortunate position however.......

My parents are working class, money was short but I never went hungry. I was taught that education was everything and the value of the opportunities it offered. I passed the 11 plus, went to grammar and was the first in my family to go to university.

Fast forward to now and I have a well paid professional job which I (mostly) enjoy. I am now self employed (to give me the flexibility to be there for my youngish children) and have ended up in a situation where I worked far more hours than I would choose due to not wanting to let clients down. This has resulted in a huge tax bill - despite putting a good amount aside, when you hit 100k you start losing your tax free allowance which effectively puts you on the equivalent to higher than the highest bracket. I think it equates to over 60%.
Ive also had the increase in school fees this month - having started off in state school it was very clear there was a total failure to meet needs (youngest daughter is academically bright but dyslexic - this means she "meets expectation" in state provision so gets no help albeit fails to acheive her potential which apparantly is acceptable to the state education system).

Despite the increase in fees, which we will cover by not taking a family holiday, I have now chosen to reduce my hours to keep my income below £100k. This is at least a £20k loss in income tax to the country (less than 12k take home reduction to me), another £6k loss to the country in VAT plus the loss to the economy of the money I have forgone so am not spending.....

I know this country has the mentality of despising anyone doing better than average but surely anyone with any economic sense can see this is a lose lose scenario......

If I didn't have school age children whose education would be detrimentally disrupted I would move to different country!

Go and see a tax/ business advisor. They can help you with this. A lot of people keep their income below a certain threshold as it’s not worth it. You may as well have a bit more time to yourself.

At 30k annual income you pay 4.9k in income tax and and national insurance.

At 130k you pay 49k in income tax and national insurance. You also have no free childcare (cost 2k per nursery age child?) and no child benefit.

The government spends an average of 17k per person. The person earning 30k is basically subsidised by higher earners. This is also why immigration costs the UK a fortune.

The tax system in the UK is ridiculous. Paying 40% as a higher earner is okay (it's higher than id like but not complaining about that) but losing childcare is unfair and marginal rates of income tax at 60%+ are also unfair. I'm not sure how anyone can say that the current cliff edge is fair or sensible?

Sorry, as a self-employed person, you don't find yourself with a huge tax bill despite 'putting money aside'. You know the percentage of each invoice/monthly income you need to put aside to cover tax and NI.
If you don't, you're either not suited to manage being self-employed, or you are being disingenuous and wrapping it up in a foot-stamping tantrum about how you are missing out on benefits because you have 'accidentally' not put enough money aside.

I genuinely think it is a privilege to earn enough to afford to make a real contribution to the rest of society.
I don’t have a halo either!

Of course they're subsidised.
Someone on £30k has £25k to live on as opposed to £80k after tax and NI.
That’s 3 x as much.
You're still going to have a much better standard of living than many people.

The aims of the tax system are to raise money but also to incentivise (or disincentivise) certain behaviours. A situation where people are actively penalised for working more, and therefore work less and pay less tax, is clearly stupid and harms the economy. As many have said, this is NOT complaining about paying tax, it’s saying that a tax rate of over 100% (for £100k-£135k with kids in childcare) is ridiculous!

Everyone knows this but the government is clearly scared of the ‘tax cut for high earners’ headlines.

brexit is the issue

In Singapore the tax is 24% if you earn 1 million dollar or more. And their public service is excellent.

The difference is people don't have the mentality of I cannot be bothered working, I need benefit. UK has the most sick people out of all countries I've lived in. Some are genuine but I bet in many cases it's not. So your benefit and housing bill is huge and you have a few working bees like me and you to fund this country and we get whipped more and more especially by Labour.

To each according to his needs; from each according to his means. That's the social contract. Think of it as a fee for not living in a strife-torn country ruled by robber barons.

OP this. Pension is also good idea, short term.
As much as its lovely you feel how you do, trust me when I say those from higher earning backgrounds definitely play the system (perfectly legal) to avoid paying higher taxes.
An advisor will discuss what options you'll have. Fully recommend.

And I mean short term in the sense right now you can handle this yourself and work on getting an advisor, I wasn't clear! Sometimes people literally pay 50% of earnings into pension to avoid higher tax brackets.

OP I get that it’s annoying to feel badly off when you’ve worked hard but don’t accept the argument that the country as a whole loses out. If you didn’t take the higher paying job someone else will: If you reduced your hours then someone else picks them up. They pay that tax.
If the businesses can’t get the staff at 110k they need to pay more.

That’s not ‘the social contract’, that’s a statement by Karl Marx, the father of communism.

Where is the fairness in a parent of toddlers facing 100% tax rates, while anyone else in the UK earning at that rate pays 45-62%

What’s the incentive to work at that point?

You’re working for ‘free’ for a quarter of the year. As we have seen from this post (and numerous others) it makes those paying the most tax… work less, or engage in tax avoidance, which of course doesn’t benefit the state either.

The idea you should be grateful to work for free is ludicrous, even ignoring that those earners are already paying a large amount of tax to fund social benefits they are then excluded from using.

YANBU - the cliff edge creates perverse incentive to either drop your hours to £99k or, put loads in your pension which reduces the tax base. I think I read you need to earn something like £130k to mitigate against the cliff edge at £100k.

Given most people are net negatives on the tax base, I would rather people earning 100k could access childcare support than have to go acrobatics just to get there. It’s short term support and if you live in London especially, where you’re more likely to earn an 100k salary, it doesn’t go as far due to housing and childcare costs.

I don’t earn remotely close to 100k, the cliff edge is just a terrible design flaw.

You won’t get much sympathy here OP, but I completely understand as DH is in a similar situation. He’s been maxing out his pension, but in years to come because of incremental pay increases he will not be able to avoid falling off the cliff edge. He’s already part time as well, was offered it to save jobs during covid (aviation industry) and never went back full time. And this isn’t a woe is me thing, he works really hard and has not long come home off a 15 hour day which is a regular occurrence in his job and has a very high level of responsibility for other people.

I understand the feeling that you aren’t getting value for money from the amount of tax you pay, but you are very fortunate compared to a lot of people. Especially in the current climate where there are a lot struggling.

This is such a weak and lazy argument. There are many different ways you can fund the necessities of society and not all of them mean that OP needs to pay such punitive levels of tax. Ideally services should be funded by economic growth and 'growing the pie' instead of getting more and more from those that are already contributing so much. This is especially true when people like OP (and she certainly isn't alone) are telling you that they are cutting hours to save tax. This lowers productivity and lowers growth which is alarming considering we are in the midst of a productivity crisis.

So actually your claims that OP should just suck it up and be grateful to pay tax are completely misguided as are your claims that the only alternative is to have the poor out on the streets. There are other, better ways than taxing everyone to oblivion. We need sensible adults with some real understanding of economics and growth to work on policies that reflect this rather than people driven by some weird ideology that believes taxation is the only instrument we have available to us and targeting perceived 'rich' people is a good idea for the economy (spoiler: it isn't).

I don't think this is really the case a lot of the time. I'm in a similar position to the op and work 80% FTE. That 20% FTE of 'missing work' just isn't covered. It isn't cost effective to employ someone else for those hours and there is no need for cover for enough hours to make a second post viable.

In my line of work, that 20% of time is picked up by the client waiting slightly longer for a response and this seems to be a fairly common way of dealing with it - it is certainly how my GP operates.

Absolutely - OP also isn’t making the argument that she doesn’t want to pay tax, she’s saying it is disincentivising her to work because it means she loses total childcare support. If this poster believes OP’s tax should go towards roads, hospitals etc why shouldn’t OP be able to derive some benefit from society as well as being a net contributor.

The £100k threshold is a weird one and it would be better if it were smoothed out, but I never understand the mindset that decides it's not worth working for 40% of their (v high) salary. Unless motivation is already a struggle for you?

I earned in that bracket for about ten years before changing jobs for something altogether less stressful that allowed me time to care for a family member. The money was great and all the threshold did was convince me to keep getting a higher and higher salary to come out the other side.

In the meantime, the breakdown per hour of 40% of my salary was still more than most people get for their efforts - and they don't struggle with incentive/motivation.

Because of all the access to childcare support you lose. In this scenario, it is literally better for OP to work less in order to access childcare support than it is to work full time. She’s asking what the incentive is - why would you work full time to be worse off? Her situation will change when her children are school age but her current situation disincentivises her to work full time.

Yeah the childcare thing is compounding it. I can see that.

Personally I think childcare should be scrapped altogether though. All the subsidies seem to have done is allow employers to dampen salary increases (especially on lower salaries) to the point where they are all woefully behind where they should be. The impact of it all is really becoming apparent now, I think.

In this case, it's left someone on £100l+ feeling like they are missing out because the government won't give them the money it gives to someone who earns less. Not a dig at the OP but that is genuinely bonkers that it has been allowed to breed such ill feeling.

I agree (and I am not a high earner) and I actually don't think there should be any different tax brackets. As it's a percentage you would pay more anyway. That's why a lot of higher earners are going part time and means that the country is getting even less tax and also NHS consultants etc are cutting their hours meaning longer waiting times.

@FirstOfTheFirst OP has far higher rates than 40%.

At £100k - £125k the rate is 62% due to loss of personal allowance. Plus student loan it would be 71%.

Including loss of childcare it can be above 100%. If I earn a penny less than £135k, I will LOSE MONEY vs earning £99k. So what’s the point in doing it?

And regarding your suggestion of scrapping all the subsidies… given the birth rate is already at record lows and dropping rapidly, making it even more difficult for people to have families seems a bad idea IMO. My cheapest local nursery is £2k a month - that’s an entire average salary after tax.

Also depends slightly on your definition of needs.

My cousin has just finished uni up to her eyeballs in debt and is refusing to get any old job due to anxiety but would take on something in the very niche and badly paid field she wants to work in. She thinks she has needs that the government or her parents should contribute to and cannot see that at 24 she has a responsibility to look after herself.

OP completely agree with you. Would also recommend utilising pension, charity gifts and seeing a specialist. It feels like we Re in a race to the bottom via avoiding work than trying as a society to lift everybody up by all contributing as much as we can.

The £100k threshold is a weird one and it would be better if it were smoothed out, but I never understand the mindset that decides it's not worth working for 40% of their (v high) salary. Unless motivation is already a struggle for you?

Because it's not 40% if you have childcare costs, it's 100%.

Not maany people will jump through that 100-135k with promotions or large bonuses. For most people, probably, they will be relying on incremental salary increases by inflation each year to get them from 100k to 135k where it stops being 100% marginal tax rate, and that would take about 10 years (at which point, you probably don't need childcare anymore anyway).