Have you been worried about all the tax policies of the potential new Labour Government? Well, for most of us, we don't need to be. For example, the truth is that if you are now nowhere near earning £80K a year, you are very unlikely to join ever join the 5% of the population that earns more than that and that includes the millionaires and billionaires! If you are a student, look at the salaries for your chosen profession on job sites to see just how you would fare getting to the salary.
I find it very interesting that for something that touches our lives so profoundly, so many people do not understand the basics of tax, particularly income tax and VAT. An example of this is the fallacy of 'overtime' tax which I will make the subject of another post. The people who understand tax are the ones the least likely to correct any misconceptions because it serves their interests.
You don't need to know the exact numbers, you just need to understand the basics. Currently the press are scaring us with the plan to start the 45p band for earners of £80k or more a year. In this tax year this band applies to those who earn more than £150K a year, something like the top 2.5% of earners. When you see or hear the press reports, it sounds like 45p in the £ is going as tax which is simply not true. I will keep the figures simple to help explain what the means. Let's start with a salary of £84k a year which is £7,000 a month – good salary is it not?
Income tax in the UK (and in many parts of the world) is calculated in bands. This year (17/18) the bands are Basic (20%), Higher (40%) and Additional (45%). Before any tax is calculated, everyone gets a Personal Allowance which in effect is a 0% band – I will round up this year's allowance to £12K (it is slightly less) - £1k a month - just to make the figures easy. So on our £7K a month salary:
less £1,000 for the personal allowance (0%)
less £2,700 Taxed as the basic rate (20%) = £540.00
leaving £3,300 to be taxed at (45%) = £1, 485.00 (Currently 40% = £1,320)
So total tax is £2,025 leaving £4,975 – actual tax rate is about 30%. The difference is £165 more on current tax rates. Now nearly £5K a month is £60k a year – still good isn't it? And if it pays for a better funded NHS, you won't have to buy medical insurance!
For the vast majority of working people there is no difference in our tax position so why are you worried? This is the case with all the press scaremongering on the tax front – most of us will not be affected, those that will be are the most likely to be able to afford to contribute more to the well being of the society that allows them to make more than the rest of us. Millionaires and Billionaires become rich from our money, don't you ever forget that.
Seriously before being sold on how much more tax you will pay, look at the figures and how much of it will affect you and those around you. One paper knowing that 5% of the population sounds low used the figure of 1 million people to state how many people will be affected by the Income tax proposal. Well that is still 1 in 20 and just how badly they will be affected, from our example not that badly.
Look behind the shock, horror, we will need to pay more headlines and educate yourself. Britain needs a new way.