Reducing 'Taxable Income' when working through umbrella

[eek]

Is this a case of the tax tail to wag the dog?

To some extent yes. I know of a fair few people (in permanent jobs) who because they were approaching the awkward £100,000 point have switched to 4 day weeks or 9 day fortnights in return for less money.

And that's going to be far more likely next year for anyone with pre-school aged children. Best to make the most of those years and work part time as the other options will be to pay the nursery bill in full.

[Fred Bloggs]

Is this a case of the tax tail to wag the dog?

It is. But at the same time it's a very real sign that the economy has gone completely off the rails.

Taxation policy is now actively discouraging people from working harder and taking risks.

My own situation. I have gone from semi retired and doing short term consulting assignments to fully retired and zero intention of ever working again. Despite me having a great skillset that's actually in demand. It simply is no longer worth me bothering.

We are way into the right hand side of Laffer curve territory in the UK. And it's making the entire country poorer.

[Craig@Clarity]

Don't get me wrong, it's a lovely position to be in to have that sort of dilemma and decision to make. I always say it's the price of success when you have situation where you have to decide whether to go into higher rate or additional rate tax bands. Fair play!

[PerfectStorm]

The opening question sounds dangerously close to not understanding how progressive taxation works - the myth of "once I go over this line, everything I earn will be taxed more!" - is that the case here?

As it's only the money you earn AFTER that break point that's taxed more, not everything before it. And intentionally earning less won't save you a single penny.

[eek]

The opening question sounds dangerously close to not understanding how progressive taxation works - the myth of "once I go over this line, everything I earn will be taxed more!" - is that the case here?

As it's only the money you earn AFTER that break point that's taxed more, not everything before it. And intentionally earning less won't save you a single penny.

True but there is a real barrier at the £100,000 or so point where your tax rate is 60-75% (depending on student loans) as your personal allowance disappears.

Now it's a nice problem to have but it's worth repeating that it is an actual problem as I know plenty of people who are going - I'm earning a decent wedge even on 4 days a week so instead of working 5 days a week I'll do 4.

[Fred Bloggs]

True but there is a real barrier at the £100,000 or so point where your tax rate is 60-75% (depending on student loans) as your personal allowance disappears.

Now it's a nice problem to have but it's worth repeating that it is an actual problem as I know plenty of people who are going - I'm earning a decent wedge even on 4 days a week so instead of working 5 days a week I'll do 4.

Absolutely. It's incredibly damaging to the country. If a stupid Conservative government can do this to us, I dread to think what the other lot of idiots will do.

[malvolio]

Absolutely. It's incredibly damaging to the country. If a stupid Conservative government can do this to us, I dread to think what the other lot of idiots will do.

That's easy. they will take money away from the big corporations who can afford it since they'd only spend it on creating wealth and wreck even further the incomes of people who have saved their money for their retirement.

JOI, an interesting side effect on the boost to state pensions: as mine went up with inflation, my personal allowance went down by the same amount. Which means I now pay more tax on the personal pension income I generated by myself over many years.

It's all just a bit dispiriting...

[Nava39]

The opening question sounds dangerously close to not understanding how progressive taxation works - the myth of "once I go over this line, everything I earn will be taxed more!" - is that the case here?

As it's only the money you earn AFTER that break point that's taxed more, not everything before it. And intentionally earning less won't save you a single penny.

I'm sure most people on this forum with ability to earn 100k plus pa already realise that.

The issue is if you are say 10k over 100pa, then not only you are paying 65% tax on part of the 10k, but lose some additional tax benefits such as Child Care allowance. That alone can cost 4k pa per child. So you effectively you are in net negative, as your costs are greater than your net earning on the earnings over 100k.

[ChimpMaster]

Tax policy in this country is remarkably stupid and has been ever since George Osborne wrecked the country.

Those that are familiar with section 24 property taxation will understand how you can actually be taxed on zero profit i.e. on revenue. And how it actively discourages working in any other job because of how property income (revenue) is now pooled into your overall income.

I'm PAYE employed right now just because I do actually want to work (I hope to contract again at some point), and I've spent a lot on the properties to cut the tax bill down a bit. But it's incredibly de-motivating that my effective tax rate will soon be 80% if I choose to continue to work, because I can't keep forcing expenditure on the BTLs to reduce tax. There will be very little point me working (for money).... in fact I recently turned down a promotion into a senior mgmt position because I didn't see the value of working so much harder for what equated to an extra £250/month after tax!

And before anyone says it, I do have a good balance of family time!

Tax policy is always used here to batter people and force them into submission, whereas it would be better used to reward and promote.