Friday, 24 April 2009

Lies, Damn Lies and Tax Calculations

I'm seeing a lot of nonsense being talked about Gordo's new top rate of tax, particularly over on the Guido Fawkes Blog where his latest claim is that "for the government to take more than half your income is not social justice".

Well I'd certainly agree with him if that were the case but it isn't. The most charitable explanation is that he is mistaken rather than deliberately misrepresenting the facts which, while a bit odd for someone who "spent several years in Finance", is entirely understandable for a political commentator. Mind you, he did go bankrupt didn't he...

The most common 'misconception' I've seen is that the new rate applies to the whole amount. It doesn't. It applies to anything over £150,000, so if you earn £160,000 then there's a slim chance that you might have to pay the 50% rate on £10,000 of that if - and only if - Gordo doesn't come up with an excuse to either postpone it or revoke it entirely before it takes effect next year.

Add in personal allowances and the lower rates which apply to any income under £150,000 and the net total is significantly less than half. But your personal accountant already told you that didn't he?

On a related note I had my attention drawn to a comment from some finance type - probably one of the red-braced yobs who caused Black Monday judging from his rhetoric - bewailing his fate and listing the many things this country will lose if he leaves, two private school places, two cleaners, a gardener, a part-time groom, a part-time farrier, an au-pair, 5 vehicles...

And to round off this rather childish temper tantrum, he's cancelling the charity evening he's hosting on behalf of the County Ambulance Service.

Now if that's not a childish act of spite then I really don't know what is...


  1. Wow. What a well thought out and carefully argued comment.

  2. 1) Personal allowances are now being clawed back when salary passes £ 100 k
    2) You are ignoring National Insurance deductions, both from employee and employer, which are more income tax in all but name.

  3. Also, forgotten to add in pension costs - no higher tax relief on pensions PLUS it costs the Employer money to give a pension (this one for "consultation".)

    There is also the minor issue of increases to salaries and if it's worth the bother - say, you are on £100,000 salary and you get a massive 10% increase - £10,000.

    You’ll have to pay 40% of your salary in tax (£4,000 increase) AND lose £5,000 in personal allowance meaning this is actually a 90% tax band.

    So you get a 10% gross payrise equating to 1% net. Still aspire to do well and get this salary ? No, thought not.

  4. The reduction in personal allowance is not a tax of £5000. It simply means that more of your income will be taxed at the higher rate of 40%.

    Basic math or is that something else they don't teach self-appointed financial wizards these days?

  5. Own a pair of red braces do you Triffid?