Interest rates

[Amarillo]

Sure, but does a 5% tax cut really entice sufficiently to offset the lost revenue? I’ve never heard anyone having a stab at that, which is amazing given how many conservative chancellors I’ve heard banging on over the years. Is it just ideology - “reward the ‘hard workers’” (because nurses don’t work hard) - or is there evidence that cutting the 45p rate would actually result in higher tax revenue?

I think billionaires are highly likely to move to the place which offers them the most favourable tax terms. But I have no specific evidence to support this or comment on how an 11.1% cut in the top rate of tax might attract billionaires only to suggest that it *may* attract them.

 

[Amarillo]

 

[Velma's Dad]

I think billionaires are highly likely to move to the place which offers them the most favourable tax terms. But I have no specific evidence to support this or comment on how an 11.1% cut in the top rate of tax might attract billionaires only to suggest that it *may* attract them.

Most billionaires are fairly indifferent to income tax rates. That's because most of the money that passes through their hands will be from dividend income and capital gains proceeds. Both of those are taxed at lower marginal rates than top-rate income tax (CGT is 20%, dividends 38.1%).

The public fixates on what company executives and bankers get paid and what tax rates they pay, but they're not the truly rich, they're just highly paid workers.

 

[Amarillo]

Most billionaires are fairly indifferent to income tax rates. That's because most of the money that passes through their hands will be from dividend income and capital gains proceeds. Both of those are taxed at lower marginal rates than top-rate income tax (CGT is 20%, dividends 38.1%).

The public fixates on what company executives and bankers get paid and what tax rates they pay, but they're not the truly rich, they're just highly paid workers.

Therein seems to be the riddle of low productivity. If you can afford to be less productive you can pay lower taxes.

Share dividends 38.1%
Higher rate tax 40% rising to 45% plus 13% NI

£30,000 salary for a nurse 20% tax plus 13% NI with £12,570 threshold
£30,000 rent to a resident landlord, 20% tax, voluntary NI, £20,070 threshold.

I thought CGT was either 18% or 28%. But still lower than basic and higher rate tax, and exempt from NI.

 

[pjm-84]

Most billionaires are fairly indifferent to income tax rates. That's because most of the money that passes through their hands will be from dividend income and capital gains proceeds. Both of those are taxed at lower marginal rates than top-rate income tax (CGT is 20%, dividends 38.1%).

The public fixates on what company executives and bankers get paid and what tax rates they pay, but they're not the truly rich, they're just highly paid workers.

Both of those are taxed at lower marginal rates than top-rate income tax (CGT is 20%, dividends 38.1%).

But on dividend's don't forget that they are taken from money after tax has been paid.

So If my company makes 200k profit. I pay 38k in Corporation Tax (remember I own the company). If I take the remaining £162k in dividend (remember I own the company) then I would then pay another £45,747 in tax. This assumes that I have not used my personal allowance.

So tax is approx. £83,747 on the 200k (assuming 100% free pay allowance) - about 41.8%

Someone earning 200k pays £79,165 tax and NI

Payment through dividend saves the Employer NI that most employees are blissfully unaware of. A 200k salary costs the employer £26,244 .... i.e £226,244

 

[McDee22]

But on dividend's don't forget that they are taken from money after tax has been paid.

So If my company makes 200k profit. I pay 38k in Corporation Tax (remember I own the company). If I take the remaining £162k in dividend (remember I own the company) then I would then pay another £45,747 in tax. This assumes that I have not used my personal allowance.

So tax is approx. £83,747 on the 200k (assuming 100% free pay allowance) - about 41.8%

Someone earning 200k pays £79,165 tax and NI

Payment through dividend saves the Employer NI that most employees are blissfully unaware of. A 200k salary costs the employer £26,244 .... i.e £226,244

Don't forget though that the director of that imaginary company if they so wish will drive down profit to reduce their corp tax bill. Investments, pension contributions, expenses, business entertainment, work from home allowance, various reliefs, etc. Also you'd take £12,500 in income tax-free to use your allowance, and no doubt there are many other ways to reduce your tax burden. I'd say in your example tax could be nearer 30% for that fortunate individual. That's before they've made their spouse a director too and got good use of their allowances.

 

[willwander]

Don't forget though that the director of that imaginary company if they so wish will drive down profit to reduce their corp tax bill. Investments, pension contributions, expenses, business entertainment, work from home allowance, various reliefs, etc. Also you'd take £12,500 in income tax-free to use your allowance, and no doubt there are many other ways to reduce your tax burden. I'd say in your example tax could be nearer 30% for that fortunate individual.

The budget also reversed some changes to IR35, making it slightly easier to be a contractor again. Nothing wrong with tax avoidance.

Only the poor pay tax.

 

[GrumpyGranddad]

And don’t forget the Salary Sacrifice scheme.

 

[subthree]

And don’t forget the Salary Sacrifice scheme.

Or "retirement gifts". VW California anyone?

 

[pjm-84]

Don't forget though that the director of that imaginary company if they so wish will drive down profit to reduce their corp tax bill. Investments, pension contributions, expenses, business entertainment, work from home allowance, various reliefs, etc. Also you'd take £12,500 in income tax-free to use your allowance, and no doubt there are many other ways to reduce your tax burden. I'd say in your example tax could be nearer 30% for that fortunate individual. That's before they've made their spouse a director too and got good use of their allowances.

Might be worth running a company and see how it goes.

Note the 200k is profit so the question is dividends. The other measures you mention are relevant or do you think you should pay tax on someone's salary and NI?

 

[pjm-84]

Or "retirement gifts". VW California anyone?

TQOTW Tax Implications on a Retirement Gift

A client’s employee is retiring and they wish to give them a gift - what are the tax implications of this?

www.cronertaxwise.com

Available to all but unless VW drop their prices I think it you're be a tad short......

 

[Velma's Dad]

Don't forget though that the director of that imaginary company if they so wish will drive down profit to reduce their corp tax bill. Investments, pension contributions, expenses, business entertainment, work from home allowance, various reliefs, etc. Also you'd take £12,500 in income tax-free to use your allowance, and no doubt there are many other ways to reduce your tax burden. I'd say in your example tax could be nearer 30% for that fortunate individual. That's before they've made their spouse a director too and got good use of their allowances.

All no doubt correct but if we're talking about the question of whether/how income tax rates affect investment in the economy, the factors you cite are footling in that they are only of concern to a relatively small business owner. Large scale investors are interested primarily in where to place their chips internationally to achieve the best before-taxes return - provided the tax regime isn't completely sky high, or can't substantially be avoided anyway. Over the last ten years a humungous "Wall of Money" has been accumulating in capital markets internationally, looking for investment opportunities. They will look at aggregate performance of industries and economies before worryimg much about tax rates.

Factors in favour of the UK have been long-run stable government policies and investment conditions such as availability of suitable skilled labour. Demand-side factors will of course include access to markets, both domestically and internationally (and we know how that one has played out for the UK since 2016). Economists differ but there is some consensus that lower corporate tax rates are correlated somewhat with investment in manufacturing, but not in services. And the UK is now primarily a service economy.

 

[andyinluton]

Don't forget though that the director of that imaginary company if they so wish will drive down profit to reduce their corp tax bill. Investments, pension contributions, expenses, business entertainment, work from home allowance, various reliefs, etc. Also you'd take £12,500 in income tax-free to use your allowance, and no doubt there are many other ways to reduce your tax burden. I'd say in your example tax could be nearer 30% for that fortunate individual. That's before they've made their spouse a director too and got good use of their allowances.

That sounds like a jealous person thinking that directors get away with paying bugger all tax.
So lets correct a few assumptions above:
1. To be able to take a dividend you have to declare a profit & that profit will be taxed. So £200k profit made 19% Corporation tax paid. = £38,000

2. Where's this magic £12,500 tax free allowance? once you draw income whether its a salary or dividends & the total goes over £100,000 you loose any tax free allowance at the rate of 50p for every £1 you go over, total is over £125k so zero tax free allowances.

3.Work from home allowance Tax relief on £6/ per week - big deal also available to all employees.

4. Investments - what investments? if the company invests in something it doesn't get the shareholder anything, it might make the company some money but there's no way of getting that money to a shareholder without paying tax.

4.Income tax paid on what's left of that £200k after corporation tax as below £49,419


The extra tax to pay is £49,419 (30.5% of the dividend).
Band Rate Lower Limit Upper Limit Tax
basic rate 8.8% 0 £37,700 £2,073
higher rate 33.8%. £37,700 £150,000 £37,901
additional rate 39.4% £150,000 - £9,444
Total Tax: £49,419


So if I declare a profit of £200k on my company & try & take it as dividends I end up paying £87,419.00 tax


On the other hand if I was an employee enjoying all those little perks like getting paid every month, sick pay, paid holidays on a £200k salary I would have paid £74,960 in income tax & £9,861.48 in national insurance totalling £84,821.48 in taxes

So company owner/shareholder pays more tax than employee.

 

[The Tall Luthier]

That sounds like a jealous person thinking that directors get away with paying bugger all tax.
So lets correct a few assumptions above:
1. To be able to take a dividend you have to declare a profit & that profit will be taxed. So £200k profit made 19% Corporation tax paid. = £38,000

2. Where's this magic £12,500 tax free allowance? once you draw income whether its a salary or dividends & the total goes over £100,000 you loose any tax free allowance at the rate of 50p for every £1 you go over, total is over £125k so zero tax free allowances.

3.Work from home allowance Tax relief on £6/ per week - big deal also available to all employees.

4. Investments - what investments? if the company invests in something it doesn't get the shareholder anything, it might make the company some money but there's no way of getting that money to a shareholder without paying tax.

4.Income tax paid on what's left of that £200k after corporation tax as below £49,419


The extra tax to pay is £49,419 (30.5% of the dividend).
Band Rate Lower Limit Upper Limit Tax
basic rate 8.8% 0 £37,700 £2,073
higher rate 33.8%. £37,700 £150,000 £37,901
additional rate 39.4% £150,000 - £9,444
Total Tax: £49,419


So if I declare a profit of £200k on my company & try & take it as dividends I end up paying £87,419.00 tax


On the other hand if I was an employee enjoying all those little perks like getting paid every month, sick pay, paid holidays on a £200k salary I would have paid £74,960 in income tax & £9,861.48 in national insurance totalling £84,821.48 in taxes

So company owner/shareholder pays more tax than employee.

Stark numbers are always a little frightening.

In your case though you are conflating two different taxes, personal and corporate. You didn’t have to structure a limited company you could have stayed as a sole trader.

The benefits of being limited , there are many, cost you corporation tax.

Would the figures be more comforting if you used 200 - 38 = 162K ?


Alternatively consider restructuring in such a way that the new company takes out a sizeable Directors Loan. The company will then pay its most of its profits to the director, you, free of tax as it’s a loan repayment.

You’ll need a corporate accountant for that though, they earn a million a year, so it won’t be cheap.

In my experience, good value for money.

 

[andyinluton]

In your case though you are conflating two different taxes, personal and corporate. You didn’t have to structure a limited company you could have stayed as a sole trader.
Would the figures be more comforting if you used 200 - 38 = 162K ?

I will stick with the made up figure of £200k ( although its really £240k as thats what I would have had to turnover by the time we add in the VAT - thats another £40k of tax! - perhaps add a bit more as we also have to pay an accountant to work it all out)


As a consultancy that provides expert staff the personal & corporate taxes do need to be considered together as the cost to the client is the important bit. ie they can employ someone on a £200k salary, or they can employ a specialist from my company at £200k per year as and when required.
The client saves by not paying employers NI, holiday pay, sick pay etc & gets the same expert knowledge.

We make more money as actually no-one can afford the £200k a year, but they can afford it Pro-rata for the 2 months a year that they need the specialist expertise.

In our case we cant be sole traders - I employ a couple of others, & the LTD bit is very important to me, having seen mistakes that I couldn't insure against, made by clients own employees that have cost them tens of millions of pounds there's no way I am putting everything I own on the line just in case one of my employees gets it wrong.
Also most large companies won't use sole traders, any work has to be via a Ltd company.

 

[The Tall Luthier]

I will stick with the made up figure of £200k ( although its really £240k as thats what I would have had to turnover by the time we add in the VAT - thats another £40k of tax! - perhaps add a bit more as we also have to pay an accountant to work it all out)


As a consultancy that provides expert staff the personal & corporate taxes do need to be considered together as the cost to the client is the important bit. ie they can employ someone on a £200k salary, or they can employ a specialist from my company at £200k per year as and when required.
The client saves by not paying employers NI, holiday pay, sick pay etc & gets the same expert knowledge.

We make more money as actually no-one can afford the £200k a year, but they can afford it Pro-rata for the 2 months a year that they need the specialist expertise.

In our case we cant be sole traders - I employ a couple of others, & the LTD bit is very important to me, having seen mistakes that I couldn't insure against, made by clients own employees that have cost them tens of millions of pounds there's no way I am putting everything I own on the line just in case one of my employees gets it wrong.
Also most large companies won't use sole traders, any work has to be via a Ltd company.

Absolutely understand. Again though I think this idea of counting corporate and VAT as something 'you' are paying is a part of what makes it feel so unfair in your own mind.

You don't pay any VAT, you charge it to your customers and pass it on to HMRC, it was never your money.

The £38K (19%) sounds a lot, and it is, but, as you say, it is an insurance premium that means you can walk away from all of your liabilities, should the need arise, useful since they would subsume your house, lifestyle and your Cali.

All that considered I can still empathise that the government seem to do very well out of you. it'd just be nice if they said "Thank you for your contribution to society Andy"

 

[andyinluton]

You don't pay any VAT, you charge it to your customers and pass it on to HMRC, it was never your money.

I think it would be better phrased as acting in a totally unpaid capacity as a tax collector on behalf HMRC, with no reward & the risk of substantial penalties if you get it wrong.

 

[soulstyledevon]

Today I signed up to another 10 years at 3.05% fixed.

I had planned to remortgage another £200k over, for renovation work we wanted to do next spring. Instead we decided not to saddle ourselves with unnecessary debt and will move the build over a 5 year period using savings and shares.

So much for trickledown economics…

Barclays just increased their 10 year fixed to:
4.55%
Im glad i managed to secure the 3.05%. My mortgage at 4.55% would've increased my monthly payments by £500 a month...

 

[Californication69]

Barclays just increased their 10 year fixed to:
4.55%
Im glad i managed to secure the 3.05%. My mortgage at 4.55% would've increased my monthly payments by £500 a month...

Holy sh11 dude !
Glad you fixed it !

 

[dspuk]

That sounds like a jealous person thinking that directors get away with paying bugger all tax.
So lets correct a few assumptions above:
1. To be able to take a dividend you have to declare a profit & that profit will be taxed. So £200k profit made 19% Corporation tax paid. = £38,000

2. Where's this magic £12,500 tax free allowance? once you draw income whether its a salary or dividends & the total goes over £100,000 you loose any tax free allowance at the rate of 50p for every £1 you go over, total is over £125k so zero tax free allowances.

3.Work from home allowance Tax relief on £6/ per week - big deal also available to all employees.

4. Investments - what investments? if the company invests in something it doesn't get the shareholder anything, it might make the company some money but there's no way of getting that money to a shareholder without paying tax.

4.Income tax paid on what's left of that £200k after corporation tax as below £49,419


The extra tax to pay is £49,419 (30.5% of the dividend).
Band Rate Lower Limit Upper Limit Tax
basic rate 8.8% 0 £37,700 £2,073
higher rate 33.8%. £37,700 £150,000 £37,901
additional rate 39.4% £150,000 - £9,444
Total Tax: £49,419


So if I declare a profit of £200k on my company & try & take it as dividends I end up paying £87,419.00 tax


On the other hand if I was an employee enjoying all those little perks like getting paid every month, sick pay, paid holidays on a £200k salary I would have paid £74,960 in income tax & £9,861.48 in national insurance totalling £84,821.48 in taxes

So company owner/shareholder pays more tax than employee.

With Andy on this one. I run a LTD company and what is mentioned in the post he replies to is a pipe dream thrown at those that run a company by those that work for one. I pay myself via basic income and dividends. My accountant tells me the windfall this used to be is long gone and I save myself a few % at most. On top of that my Corporation tax is eye watering as is my twice annual self certification.

For amounts you can offset, the wife as a company director wheeze is as much a fallacy as it is a reality, but either way you still have to pay them - the money has to come from somewhere. And you have to have someone who is not working and able to do this - less likely in 2022.

Investments are taxable and the only investment that *may* save money is R&D investment - but again - you have to spend money to save the minor tax - I have never found it worth my while even though my accountant keeps trying to get me to use it.

Anyone who takes all their company profits as dividends is not really a company, they are a sole trader, and should set themselves up as such. I keep my profits in the company, paying for staff, training, premises, etc.

 

[66tim99]

Barclays just increased their 10 year fixed to:
4.55%
Im glad i managed to secure the 3.05%. My mortgage at 4.55% would've increased my monthly payments by £500 a month...

Well done!
I'm still on a tracker, but don't owe much now.
Quite a climb since January. If it goes much higher I'll pay it off, but it's not worth me fixing when the variable is 3.75%.

 

[subthree]

I thought I had stumbled on to moneysavingexpert.com. Can't find anything about roof corrosion and 6.1 electrics, just mortgage rates

 

[soulstyledevon]

Well done!
I'm still on a tracker, but don't owe much now.
Quite a climb since January. If it goes much higher I'll pay it off, but it's not worth me fixing when the variable is 3.75%.
View attachment 100159

The talk is 6% by Jan 23.
A 5% increase, on already stretched household incomes, could see people throwing the keys back...

 

[Amarillo]

Barclays just increased their 10 year fixed to:
4.55%
Im glad i managed to secure the 3.05%. My mortgage at 4.55% would've increased my monthly payments by £500 a month...

£500 per month
£6,000 per year
£60,000 over the term

Great move dude!

 

[andyinluton]

The talk is 6% by Jan 23.
A 5% increase, on already stretched household incomes, could see people throwing the keys back...

Thats a real steep increase, back in the 80s when they went up that fast a 5% rate increase was a 50% increase in the monthly cost.

This time we've started with most people paying something like 2% predicting it going to 7.5% (base rate +1.5% ) means the mortgage trebling or quadrupling. This going to have a massive effect on peoples disposable incomes.