@RichardJMurphy tells us that the basic rate of income tax is over 40%

And further, that the top rate is 60% or so.

Now, we know that the claimed basic rate is 20%. And that the top rate is 45%.

However, when talking about corporate taxation Ritchie tells us the following:

Companies do pay many taxes to government. In some cases, like the PAYE and national insurance they collect from staff and the VAT they collect from customers, the company simply acts as an unpaid tax collector for H M Revenue & Customs. That’s true of all sorts of national insurance by the way – even the part called ‘employer’s national insurance’ because all economists agree that this is really paid by employees who have lower wages as a result.

Thus the real income tax rates are not 20 and 45%.

They are, instead, 20% plus what is it, 12 ish percent employees NI, 13.8 % (?) employers\’ NI. For a combined rate north of 40%. And the top earners pay 45% income tax plus what is it, 1 or 2% employees\’ and then that further 13.8% employers\’ on top. Which is near 60%, not the claimed 45%.

It\’s very difficult to say that the UK is a lightly taxed country with these rates, isn\’t it?

Oh, and it also shows that we\’re over the 54% peak of the Laffer Curve that Diamond and Saetz calculated for a tax system that has allowances (the most important of which is being able to bugger off out of the tax jurisdiction).

When the Murphmonster next returns to what the income tax rate should be I wonder if he\’ll remember what he himself has insisted the real rates are.

 

6 comments on “@RichardJMurphy tells us that the basic rate of income tax is over 40%

  1. Er, not quite Tim. 45.8/113.8 is 40.25% and 60.8/113.8 is 53.4% ‘cos if you include Employer’s NI in the numerator you have to include it in the denominator as well.
    BUT for those struggling to escape the poverty trap the elements are 20% income tax, 12% employee’s NI, 13.8% Employer’s NI and 41%!! clawback of tax credits so the effective rate is 86.8/113.8 = 76.3%. That is unless they are sending the eldest kid to university when it rises to OVER 90%. Does it get over 100% when there are two kids at university? Yes, if you still have one or two at school.

  2. Pingback: RichardJMurphy tells us that the basic rate of income tax is over 40% - Taxes-Info.com

  3. Interesting that Richard Murphy undermines his own axiom of VAT being paid by the customer in trying to argue that employers NICs are paid by employees.

    As a result of VAT a company has lower profits. Therefore, it is paid by the business?

    But, it is fairly irrelevant as he is quite wrong about employer NICs.

    As a point of fact, when employer NICs are raised, the employee does not take a reduction in their pay. It may impair future pay increases, but it will definitely not fall on the employer.

    In reality, many higher paid employees focus on their net package. Hence a business can reduce its tax burden by identifying ways to remunerate their employees with the same, or better, net package in a tax efficient manner.

    Salary sacrifice schemes (for, say, pension contributions or childcare vouchers) save both employer and employee NICs and it is rare for the business to increase the benefit to the employee to include the reduction in employer NICs. Especially when the business has paid all the professional fees associated with enabling the salary sacrifice arrangements.

    If the employer does not benefit, why is there such a strong tax advisory area in employment taxes? Which is always paid for by the employer, not the employee…

    The same argument also applies to VAT. If customers bear the burden, why is it that it is businesses pay for expensive professional services to try to minimise VAT?

    Essentially, I am saying the argument quoted is total nonsense and whoever wrote it does not appear to have much practical understanding of tax advisory work.

  4. My business collects the 1/6th VAT payable from buyers.
    We of course pay the relevant VAT on goods and services. Then every quarter pay the government whats due.
    We put 10% by from total sales plus postage paid by buyers to cover the VAT, usually manages with room to spare.

  5. Incidentally, Tim, have you seen Murphy’s comments about his use of an LLP? I questioned wether it was right to includea 1% member, as this might be an abuse of limited liability if they don’t do much in the business; he responds that the partner does do a lot. That’s a fair enough reason to have her in the LLP – but he’s getting very defensive about why someone who does a lot in the business only gets a 1% profit share.

    I’m not sure how he can have it both ways: either she’s a genuine partner so the LLP is kosher, but the profit split is artificial; or the profit split is reasonable in which case she’s not really a partner.

    I’m also interested that his defence seems to be that as she’s a higher-rate taxpayer, not assigning her much income can’t be tax avoidance. Do we take it then that he must be an additional rate taxpayer, if her effective tax rate is lower than his? He doesn’t seem to disclose this sort of stuff… :-)

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