It is important to note that HM Revenue & Customs like to suggest that tax paid on pensions can be offset against the current cost of pension tax relief, but doing so breaches all the rules of accounting. The tax paid on pensions enjoyed in the current year relates to the tax reliefs given in earlier years, and not those of the current year. As such they cannot be offset. Items must relate to the same year to be offset.

Eh? Windmills are grossly polluting. For there are emissions in the production of a windmill. That the windmill saves emissions in years 2 through 15 cannot be offset because that breaches all the rules of accounting. Items must belong to the same year to be offset.

Government spending creates costs now. But this cannot be offset against the tax revenues collected in the future, to do so would breach all the rules of accounting.

Either Ritchie’s just killed off the multiplier or he’s too stupid to realise he’s done so.

11 thoughts on “Whassat?”

  1. Translation: I don’t have much in the way of pension savings, so everybody who has more than me must be taxed to buggery in order to drag them down to my level. Anything else would be grossly unfair (to me).

  2. Dennis, CPA to the Gods

    Either Ritchie’s just killed off the multiplier or he’s too stupid to realise he’s done so.

    Yes.

  3. Tim

    You’re misreading his paragraph. And you are making his point for him. However you interpret that last sentence of his, he is saying that future windmill emission savings (tax paid on pensions now) should be compared with the original production cost of the windmill (the original tax relief given), not compared with current windmill production costs (current tax relief given). Just ignore his last sentence.

  4. For once Murphy is quite right, on the principles, but what he doesn’t realise is that this kills his argument that pension tax relief is too expensive.

    HMRC shows pension tax relief given in 2020, minus tax collected on pensions in 2020, and says that is the net cost of pension tax relief.

    Murphy is correct that this doesn’t make much sense, although it does have the advantage that we actually know the numbers.

    What we should (in theory) do is show the tax relief given on pension contributions in 2020, minus the tax that will be collected on those pensions over the next 50 years. Since pension contributions are increasing every year, those future tax reliefs will (mutatis mutandis) be higher, and so the net cost of the current tax is actually a lot lower than Murphy says, so his complaints about the cost are over-blown.

  5. Future windmill emission savings” – current windmill emission savings, hopefully obvious.

  6. @RichardT wouldn’t you have to adjust for NPV on the future cash flows which would negate at least the inflation impact of them being higher

  7. Too stupid, but also ignorant of the subject that he professes (literally) to be expert in, grossly envious of others with status and wealth and happy to wreck society to grab a tiny bit more kudos for himself.

  8. Ummm, yes, that’s part of the problem of valuing the future tax reliefs.

    But it’s still the number that we would like to know – tax relief given on this year’s pension contributions vs the future tax that we’ll collect once it actually pays out.

  9. What we can do is compare the tax paid on current pensions against the years the contributions originally attracted the relief. If you could be bothered of course.

  10. Rather delicious if someone could do what samuelbuca suggests – and then allow for the higher consumption taxes of today. All those people who deferred gratification in the very early 90s, drawing that income now, paying tax on it and then having to pay today’s extra taxes such as for green energy, APD ( back in the day you could fly anywhere ), higher fuel duty and 20% VAT.

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