Reply to: Income tax thresholds

[SueEllen]

Indeed, let's face it the vast majority of permies have no idea that employers NI even exists.

I agree completely that NI and Income Tax should have been merged decades ago, but of course it would be political suicide for any Government to do it. While it would remove plenty of bureaucracy no doubt imported workers would bitch like mad that they have to pay for pensions they couldn't collect.

They bitch already.

I've met a number of South Africans, Kiwis and Ozzies who have p*ssed off that they have to pay NI and receive no benefits from it i.e. not allowed to go on the dole and won't be here to collect their state pension. I point out that the NHS is one of the benefits.

[SueEllen]

Better still merge tax and NIC into one tax - that would be bold.

They won't.

One reason is that cross-EU border workers are allowed to pay their social taxes (which is what NIC is) in one member state and work temporarily in another if sent by their employer.

So if large consultancy organisation decides to send Bill Bloggs to work in Spain for 9 months. Both the employer and employee can elect to pay NI in the UK if it's cheaper even though Bill Bloggs must pay Spanish income tax if he is there over 182 days. Off course Bill Bloggs won't be given a choice where he is paying his NI because his employer will decide what's cheaper and easier for them to administer.

[Peoplesoft bloke]

Just found this on HMRC:

Income Tax allowances 2009-10 2010-11 2011-12
Personal Allowance (1) £6,475 £6,475 £7,475

Income Tax rates and taxable bands Rate 2009-10 2010-11 2011-12
Starting rate for savings: 10%* £0-£2,440 £0-£2,440 £0- £2,560
Basic rate: 20% £0-£37,400 £0-£37,400 £0- £35,000
Higher rate: 40% Over £37,400 £37,401-£150,000 £35,001-£150,000
Additional rate: 50% Not applicable Over £150,000 Over £150,000

HM Revenue & Customs: Income Tax allowances

So, in 11/12, the level at which you're taken into 40% territory is actually coming down by £1400 (despite inflation running at about 4%), in effect increasing the tax take on every higher bracket earner by at least £560 per year. (did I get my sums right?). Oh and don't forget the removal of child benefit too.

WE ARE ALL IN THIS TOGETHER

No you didn't. Since the tax threshold is being increased by such a large amount, higer rate tax payers would have benefited (along with everone else) the threshold move down for hgher rate tax payers is neutral - you don't lose out overall but you yo don't get the same gain as people on minimum wage. I have no problem with that - it's the kind of thing Labour would have done if they really cared about the less well off.

[amcdonald]

No, they wouldn't. And even if they did that would be the last thing Govt gives a tulip about when it comes to merging those taxes in one.

Well it would even up for having operations on the NHS when they haven't paid NI contributions

[AtW]

imported workers would bitch like mad that they have to pay for pensions they couldn't collect.

No, they wouldn't. And even if they did that would be the last thing Govt gives a tulip about when it comes to merging those taxes in one.

[TykeMerc]

NI is basically a tax in all but name. It should have been merged years ago.

Tough to do politically - as people will realise that the "basic" rate of tax is really 40%.

Indeed, let's face it the vast majority of permies have no idea that employers NI even exists.

I agree completely that NI and Income Tax should have been merged decades ago, but of course it would be political suicide for any Government to do it. While it would remove plenty of bureaucracy no doubt imported workers would bitch like mad that they have to pay for pensions they couldn't collect.

[centurian]

Better still merge tax and NIC into one tax - that would be bold.

NI is basically a tax in all but name. It should have been merged years ago.

Tough to do politically - as people will realise that the "basic" rate of tax is really 40%.

[AtW]

Better still merge tax and NIC into one tax - that would be bold.

That would make "headline" income tax rate look non-competitive when compared to other countries - if Income Tax gets combined with NI for both employee and employer then "standart" income tax rate will be easily close to 50%.

[Waldorf]

Whilst I agree that the aim of being able to earn £10,000 without any tax deduction as this will encourage people to work, the benefit seems to be diluted as National Insurance will still be due on salaries above about £7,000 (can't remember the exact figure) - surely it would be best to align the NIC and Tax threshold and then gradually increase both together to get them up to £10K?

Far easier to say to people that no tax or NI will be taken if you only earn up to £10K.

Better still merge tax and NIC into one tax - that would be bold.

[AtW]

Sounds good to me, next stop a flat rate tax system

Flat rate basically makes economic sense but impossible to bring in politically

[amcdonald]

Lib dems want it to be 11k.
That would mean loads of civil servants out of jobs due to a simplified tax & benefits system for the average person.

Sounds good to me, next stop a flat rate tax system

[Fred Bloggs]

I suspect that the majority of income splitting contractors will continue to draw just under the 40% tax bracket for themselves and spouse and will not really be affected by this. Don't forget, we save 1% on corporation tax in the coming year.

[SueEllen]

Funny how people are only just noticing that with 8 weeks to go though.

Maybe, just maybe, it will encourage some benefit layabouts to actually go and get a job - now that tax won't cut as much into their minimum wage salary.

Realistically though, it needs to be around 10K to make a difference - the hard part is paying for it.

Lib dems want it to be 11k.
That would mean loads of civil servants out of jobs due to a simplified tax & benefits system for the average person.

[centurian]

Funny how people are only just noticing that with 8 weeks to go though.

Maybe, just maybe, it will encourage some benefit layabouts to actually go and get a job - now that tax won't cut as much into their minimum wage salary.

Realistically though, it needs to be around 10K to make a difference - the hard part is paying for it.

[VectraMan]

The Lib Dem idea is to raise loads of people out of tax which the Tories are doing stuff to implement. Unfortunately the rest of us have to pay for it................

Yes but the rest of us are very quick to moan about all the benefits we have to pay for, and the intent is to make low paid jobs more attractive than benefits. IMHO this is a pretty good policy from the LibDems, and one of the big positives of having a coallition (and the tories dropping their daft promise to cut inheritance tax).