Income tax - is this a good idea or am I massively missing something

[Phonicshaskilledmeoff]

So much bad feeling regarding who pays the most tax etc. when in actuality salaries aren’t always linked to who works the hardest, and I find the question of ‘who’s worth more’ even more uncomfortable.

What if they removed the concept of income tax away from the individual entirely. Instead, the employer would pay all the tax. Still based on the individuals salary, but would not appear in their pay packet. (No extra cost to the employer).

your net pay would stay the same but become your gross pay. Any position £££ advertised would reflect the amount actually received by the employee.

I think it could boost employment, with companies encouraged to hire more role staff into lower paying junior roles, in addition to taking away the animosity around who’s paying what tax.

Thoughts?

I agree

But how do you advertise a net salary, when everyone's tax and benefits situation is different? It seems to be completely unworkable - I have had tax codes that have varied by tens of thousands of pounds year on year, depending on employment benefits received, pension contributions, other income, adjustments etc. How is that advertised as a net salary, and how does an employer budget/plan?

At a simple level, and using extremes to make a point, someone on £25k (gross) could be taxed at at income tax rate of 20% if they have no degree or other income, or 69% if they have a degree and are repaying a loan, and have a whole heap of other income.

Is that advertised as £21.5k, which is the income for a basic rate tax payer on £25k? With a cost to the employer of £25k + pension + Employers NI, which could be anything between £30k and £70k depending on the individuals tax situation, which might vary every year. How does an employer plan?

The employer, in the nicest possible way, doesn't care how much the employee gets. They just care about the total cost of employing them - how much goes to the individual and to HMRC as tax or NI is irrelevant.

All businesses have a budget and need to consider the wisest way to spend that budget.

A sizeable tax burden or cut is clearly going to influence future structures. It might also influence future growth strategies.

Being able to significantly influence your tax burden through who you employ would be a factor of consideration. Of course, this wouldn’t be the only consideration, but it would be one.

(If it didn’t, businesses wouldn’t be up in arms about NI changes)

Once again - let’s stay friendly. I don’t think you need to be incredulous at a suggestion on the internet from a stranger who I can assure you is not running for government. (I promise).

I think you’re right re unworkable. There would be so much to unpick from the over complicated system we currently operate with.

With respect, if I identify a need for a particular skillset and the current market rate for that is 150k, employing three people on 50k instead is going to do my business no favours. The person who has invested to gain the knowledge, skills and expertise to command a 150 k salary is deserving of that and I'm happy to pay it to acknowledge their considerable worth to my business. I'm not interested in how hard/how many hours they work, I'm interested in the overall package they bring to the table.

Absolutely - of course you are because that’s what you need.

I’m an experienced person. You could hire 3 juniors on my rate.

For my role, instead of hiring 5 of my level and 10 juniors, you could have 3 of my level and 16 junior instead. The output would need to be managed differently but ultimately similar, but with a much lower tax burden.

I can certainly see that being able to influence a tax burden would impact structures and hiring decisions.

In any case, it’s all hypothetical and the current system is far too complicated and ingrained to unpick. I just enjoy an interesting conversation/debate every now and again!

Income does not only come from employers though, does it?
So how would the income tax due from other sources be dealt with?
And for those employees who need to complete a self assessment tax return - who would do that? The employee would no longer have the relevant information. So the employer would have to do it - they don’t have all of the employees relevant information if they have other income streams. That burden on an employer would be immense and cost a lot of time, effort and money. And who pays for the changes to the IT systems that would be required?

But it wouldn't stay the same, unless you're grandfathering in the new system as even their current workers would have your new system applied so if it changes things for new hires, it also changes things for the current workers (again, unless you grandfather it in and then you have complete chaos.

So you are saying

In the current scenario, the company pays out £100k (either 1x100 or 2x50) and gets "£100k" worth of employee value because that's the total salary/ies.

In your proposed scenario, the company still has a budget, but now can choose between
£70k of employee value and £30k of taxes
or
2x£43k=£86k of employee value and £14k of taxes

And this would therefore incentivise them to hire 2x workers, because on their books, it would show as more employee value and less taxes?

This is the steelman version of what you are trying to say.

My argument against this would be that in today's scenario you are still getting the same amount of "employee value" (as in, employees who think their labour is worth either £70k or £43k net to them) for your £100k total budget. It doesn't matter if you on-paper pay the tax or the employees do.

I'm really struggling to see how this changes anything at all. Currently someone on full time minimum wage and a standard tax code, no student loans, and no pensions

Cost to business
Gross pay £2,125 +256.20 Emp NIC = £2,682.76
Employee receives £1.823.44 because employer pays £557.76 to HMRC of which £301.56 are employee deductions.

Under your system the employee would be paid £1,823.44 the same as now and the employer would pay the same as now.

Maybe suggest to your boss that they employ 2/3 cheaper people to do your job and see how that works out; let me guess, not qualified, no experience etc

I see where you're coming from but I don't think people in real life care that much, beyond social media posts, I think the governemnt and media can do better jobs explaining this as I see a lot of nonsense like if you earn less than 50k you are not contributing and so. As I see it, the difference in income tax distribution is heavily impacted by tiered approach. E.g. a company has 10 employees and a manager, each employee generates profit of 30 k and earn 24 k and manager generates 60 k and earns 72 k. Total income tax paid for all employees is roughly 2.4x10 + 24. Now manager says I pay 10 times more taxes than an employee due to higher tax rate applied. If a flat rate was applied to all, in proportion to their profit contribution, an employee would pay 4 k tax and a manager 8 k tax, employee gross salary would increase and manager gross salary would decrease , but their net income and total tax paid would stay the same. Basically the current system encourages to underpay lower earners to "sponsor" tax contribution of higher earners.

The thing is, every one surely when they look at a salary offered, inputs that salary into a calculator and works out their net income.
Everyone, thinks in net income anyway for living costs.
Except for mortgage applications and rent applications. In which case all of these would have to be recalculated and changed from the current system.
Plus your national insurance contributions are owned and accrued by you, and count towards state pension and benefits entitlement if you lose your job. They are yours not your employers.
There would ultimately be calculators you can do online to see how much your employers are paying on your behalf with this system, so people will still see that their employment is paying more tax for them than say a nurse.
Also, self employed people and people who have two or three jobs, or a job and a business or a job and sell on etsy, or let properties, or income from investments, have to do tax returns and calculate overall income and tax for the year, so if employers were doing this, how would they actually do this for someone with multiple income streams?

The size of the state is outrageous and far too much tax (income tax included) is paid.

What happens when someone changes jobs/companies and the tax office sends that letter through advising you didn’t pay enough tax 2-3 years ago. You expect the new employer to take that hit for the extra tax to be paid? Maybe it’s the old company… but what about if they don’t exist anymore? Does it just get written off?

Tax can be reduced in many ways (eg if you salary sacrificed on the old childcare voucher scheme or pay into a pension). How can an employer advertise a net salary without knowing how much pension you are going to pay?

it just can’t work.

We should go the other way- include Employers and Employees NI into income tax and make everyone pay the same. Its ridiculous that income from a trust fund is taxed lower than wages working in Tesco

Income from a trust fund has already been taxed, it's all of this double taxation that is killing the country.

Some countries have a single rate is tax regardless of income level. Singapore has a flat rate of 10% and is considered to be a successful country.

@Molly499

Income from a trust fund has already been taxed, it's all of this double taxation that is killing the country.

I would make the same argument for:

Inheritance tax. Assets are paid for from income that has already been taxed.

Capital gains tax. To tax profit, but not to issue a credit if a loss is made is double standards.

Losses can be offset against gains for capital gains tax purposes. What’s iniquitous about capital gains tax is the fact that indexation is no longer applied, so CGT becomes a tax on inflation not even real gains in many cases.

But how would it work when you have multiple types of income? So instead of the PAYE liability being mine, irs my employer’s - fine. But at the minute my rental and investment income is taxed at c 60%. If my gross income drops from £100k to £60k (ie what I actually take home) then my rental income now falls within the 40% band and I’ll pay less tax. Or are you talking about dropping the thresholds too? But then my current net salary would cost my employer way more if more of my income was taxed at 40%/60% so they’d probably end up cutting salaries and I’d actually see less than my current c £5k per month if they wanted it to still cost them the same.

So you’ve just reduced tax take or overly complicated the system, and I can’t see for what benefit - as if it’s going to cost my employer the same each way why would they change their behaviour as a result?

I don't really understand this, but I'm sorry if I'm missing something really obvious

In terms of people being annoyed, I don't think it would make any difference. You would still know how much you were being taxed, and so you should.

Thanks for illustrating your example about employment at different levels. My experience is that headcount is usually important because of the amount of - I'm not sure what the word is, effort maybe - involved in having a higher headcount. This is why so many staff struggle, the people in charge will always be looking at the profit margin. So the additional costs will be insurance linked, HR linked, and that's often the excuse for having too few workers at ground level. There is usually a need for more junior staff unless the organisation is incredibly well run.

So the point about X amount of budget being used to cover different numbers of staff at different levels, they will always go on what has the highest yield and the least hassle. It's infuriating when usually what you need is more people on the ground. But my experience is that the way business runs.

I don't think you can ever get past the bad feeling around taxes. It being paid by the employer wouldn't make any difference.

Income from a trust fund isn’t double taxed? But to also correct PP, in the vast majority of cases in the first instance it’s taxed higher than if a person had received it?