The general election. How do you stand, taxwise?

From initial speeches, the context of June's general election will be around Brexit, the NHS, and education. Important issues, yes, but as all politicians know voters will also be swayed by one subject - the cash in their pocket.

Most voters consider themselves to be "average", regardless of where they fall in the economy. A much discussed article in The Guardian has raised the subject of how much do you earn, and does that make you rich?

https://www.theguardian.com/money/2017/apr/19/how-much-earn-rich-70000-labour

This post does not wish to raise or discuss political issues. Instead, following links in the above article will take you to an HMRC/GOV.UK site which contains some extremely interesting statistics. The UK taxpayer may be surprised at where exactly, in terms of percentile of taxpayers, they fall.

https://www.gov.uk/government/statistics/percentile-points-from-1-to-99-for-total-income-before-and-after-tax

When the debates turn to proposed actions on the poor, the average, the top 5%, or the rich, it may be of benefit to understand how those proposals may affect the "Pound in your pocket" (1967 and Harold Wilson's little white lie). You may not be as average as you think. In fact, you may be the object of the discussion.

Some caveats concerning the above spreadsheet:

1) 44% of the UK does not pay any income tax to HMRC.
(For reference, it's estimated as high as 49% of Americans pay no federal income tax. In comparison to the UK, that may be a low number since the US allows MFJ.)
That doesn't necessarily mean all are not working, only that there are some with total incomes below the personal allowance. (There's also the 3 month old babies!)

2) The above allows for the "personal allowance" . It only concerns those who are taxpayers (the 56%). The first percentile (lowest 1%) starts at each years PA amount.
Note: Again, the percentiles represent (from 1 to 99) only those who pay income tax. 44% of the country falls below the lowest 1% in this spreadsheet.

3) An income is given for each percentile, from 1 to 99. You are able to determine which exact UK percentile you fall in.

4) The incomes are the "taxable" amounts of income. Tax free income (ISA interest, pension contributions, tax free benefits, etc.) are not included.

5) Only 15% of UK taxpayers will be in the 40% or higher tax band.

The latest information available is for tax year 2014/15 (the far right column). It's probably not too far afield from today since there has been little movement in the economy (wages, tax) for the individual. The biggest difference would be the personal allowance starting point.

To find out where you fall, take your yearly gross income, then subtract all tax free income (ISA interest, pension contributions, etc.). Find a close amount in the far right hand column and look across to the far left hand column to determine which percentile you fall in.

For example, someone with a £35,200 yearly taxable income would fall in the 76th percentile. 75% of those paying income tax in the UK have lower taxable incomes. 23% have larger taxable incomes.

A predicted question: "We hear the average income is £27/28,000. Why is the 50th percentile figure only £22,400?
Answer: this is a 'taxable' income percentile, not an average gross income.

Again, this is 2014/15 data. Adjust as you see fit. Incomes may be larger, but the 1% starting point, the personal allowance, will also be much larger.

 

Hi,

Statistics are indeed the best method of getting as accurate figures as possible for any given requirement. You'll also often hear 'you can present statistics in various ways to better represent a certain way of thinking' etc as well.

I'll have to find where I got the below from, it was from a reputable source and widely trusted one, not from one of those 'we have this agenda' type sites!

The UK has a workforce of 'around' 30-32 million people. This obviously means that babies, children, retired people aren't included and thus provides for a more accurate view. I recall that it does include part time, casual, full time, business owners with business premises and those operating from home, disabled people. It also includes those registered as unemployed too.

Of that workforce, only around 3.8- 4.5 or so million are in the higher 40% tax bracket. This is around 11-12% of the workforce. Around 88-89% of the workforce earns less than £45,000. The 'additional rate' affects those who earn more than £150,000 and I recall seeing the figure of around 1% of the workforce earn this, so around 320,000 people.

Across all industries and job sectors/types, the average UK salary is now up to around that £27/28,000 level. There's more job adverts with salary levels significantly below that amount than there are those which pay more than the average but less than £45K.

The inequality level, the difference between those earning the most and those the least is one of the biggest in Europe. Those earning smaller amounts have had their tax free allowance increased in recent years which has statistically helped a significant number of those low earners in not having to pay any tax. The top 1% of earners pay around 30% of all revenues into the governments HMRC coffers. Those in the basic tax bracket contribute around 37% of revenues into HMRC.

Those in the basic rate of tax often leave their tax calculations to their employer and don't question or check the amount of tax they've paid each year. Only a very small percentage of such people do and will check their tax payments and then use financial software to calculate how much should have been paid once they confirm the correct tax code they should be on and looking for any errors made by their employer. In many cases, those who do check indeed find they've paid too much tax and then go on to claim back the overpayment and then correct things with their employers.

There are a number of things which can be legally done to reduce tax liability in each bracket. The higher up the pay scale you go, the more often you'll see people taking advantage of such.

A few years ago, perhaps 2008'ish onwards, the UK's general population had more Credit Card debt than all of the European countries COMBINED. This shocking statistic has carried forward as well as now with extra borrowing channels, it's changed to 'unsecured borrowing' and again, the UK has extremely high levels of this over the entire population. Put simply, more and more people are using cheap credit (cards as well) to get by month to month.

Another very recent shocking statistic is that 16 million working households in the UK, after all monthly mandatory outgoings has less than £100 left. The political soundbite to describe those people is 'JAMs' or 'Just About Managing'. One unexpected bill or charge has been enough to push some households into the spiral of increasing debts to the levels where things are so bleak it causes many problems.

Each successive government over the last 5,6,7 decades along with each generation of the population have moved towards the 'buy now pay later' mindset. The last big financial crash of 2008 was in my opinion due to the Government, Banks AND people who took on more debt than they could afford to pay back. Lending was indeed curtailed over 2009/10/11/12/13, but the last few years has seen the availability of cheaper credit become more widely available to more people once more and the statistical levels of debt Vs income ratio etc is similar to the levels seen just before the mess of 2008.

The UK's failing, on government and personal people level mindsets is that there's been colossal wastes of money in government run departments over those decades and on a personal people level, more borrowing facilitating the British trait of 'keeping up with the Jones'.

There needs to be some form of change. Perhaps reform to the tax system that means everyone pays some amount of tax ?

As for voting in the quickly forthcoming general election....    hmmm....

Cheers, DtM West London & Slough UK!

I'm still hoping the only UK tax I will be paying is on US social security......which hopefully will only be taxed on around £1500 over the taxing limit....so not too much of a penalty for me.

I tend to favour everybody paying at least some tax. Something like the first $/£ 10,000 being pretty minimal. Take out all ways of deductions (easier said than done). I can hear the screaming when the US took away mortgage type deductions. It's gotten out of hand......some deductions are definitely there for good intentions, but just easier to get rid of them all and reduce the tax rates for everybody.

The UK has a workforce of 'around' 30-32 million people. This obviously means that babies, children, retired people aren't included and thus provides for a more accurate view. I recall that it does include part time, casual, full time, business owners with business premises and those operating from home, disabled people. It also includes those registered as unemployed too.

The 30-32 million figure for those in the workforce tallies quite closely to what I have found. A note of caution - while many workers are below the Personal Allowance threshold, there are many taxpayers who are not in the workforce but still pay UK income tax. For example, while many of those over 65 are below the Personal Allowance threshold, there are also many that are above, as many of us over 65 on this site know.

One statistic I was able to find related to the "Top 1%" in both the UK and US. In the UK, the top 1% pay 27.5% of income tax collected. In the US, the top 1% pay 37.8% of the federal tax collected. Are the UK top 1% getting a better deal, or is the UK tax system more equalitarian when it comes to tax collection?

I tend to favour everybody paying at least some tax.

Some more statistics I found which may be of interest to you:

As we all know, there is no VAT in the US. Instead, there is state tax which is supplemented in many cases by a state sales tax. There are 6(?) states with no state tax, and what is the number of non-taxpayers (below state tax thresholds) in the remaining states? The highest combined local/state sales tax in the US is in Tennessee at 9.45%. UK VAT is 20% - for everybody. Which is better?

Federal tax on gasoline in the US is $0.184 per US gallon. UK fuel duty is £0.58 per litre (£2.20 per US gallon at 3.79L/US gal), plus VAT. Our friends on the BritishExpats site (those in the US) will tell you that driving is far more a requirement in the US, and fuel costs end up being roughly the same. Nonetheless, the amount that ends up in government coffers as tax collected is much larger, per driver, in the UK. Is this a good thing, or bad?   

What's the question here? 

What's the question here?

Please, don't interrupt a good rant, it's entertaining.

You should have seen the long rant I just typed up and deleted......epic.

Basically when I mentioned everybody paying taxes I meant Federal tax.....there is no way each state is going to go along with all doing the same thing. I have NO IDEA if something like this would work.....but I just like things being simple. Simple. Simple.

$0-10K income---possible no tax, but in this case 3%
$10K-$50K--- 10%
$50-100K---15%
$100K---1 mil 20%
$over 1 mil 25%

No deductions. No special interest giveaways. The only thing I would like added is a department to help out those with major medical issues. Just get rid of the deductions and write-offs.

What's the question here?

Well spotted, SoS. There is no question.

Please, don't interrupt a good rant, it's entertaining.

Surprisingly, and perhaps disappointingly, there is no rant. I've let myself down.

This could be a strange election. It wasn't going to be called - it's now called. Mandate (?). Opportunistic (?). I'm not really sure, in 6 weeks time, what the debate will be about. And, I didn't expect this thread to go beyond the first post.

It would be nice to pay less tax, but, IMHO, the tax burden is spread (with the normal exceptions found in all countries) fairly evenly throughout the UK population. And, we pay a lot of tax as the posts about fuel duty and VAT point out. Actually, I'm quite proud of the UK in it's "spreading of the burden". I don't mind paying my proportion. Why the use of the US as a comparison? Most on this site have the luxury of knowing an alternative tax system which has become, it would seem, quite divisive. I would hate to see the UK travel further down that same road. 

The purpose of the OP was simply an alert. If the debate turns towards wages and tax, people need to be aware of where they fit in and not allow themselves to be swayed by the inevitable political game playing. Tax won't be the prime decider in the election, but let's not allow ourselves to be misled by misguided rhetoric, be it JAMs or "who is rich".

There have been some interesting points raised already in reply posts. Feel free to carry on.

Jeez guys, am I going to have to supply the rant here?  All right then, here goes

The OAP, I agree with you that the tax burden for individuals seems to be shared in a reasonably equitable way.  I'm continually shocked at how corporations regularly dodge corporate taxes and nobody seems to care at all. 

For example:

https://www.google.co.uk/amp/www.dailymail.co.uk/news/article-4266122/amp/Caffe-Nero-pays-no-corporation-tax-25m-profit.html

My head explodes when I hear stuff like this.  Corbyn occasionally mentions it off handedly, but he should be leading pickets every day until they pay up!   How many free school meals could be paid for with %40 of 25 million quid?  God, he is so worthless as an opposition leader.

Thanks for posting those articles.  I find them quite fascinating and know my husband will as well.

Well, the Institute for Fiscal Studies has been publishing some pretty chilling stuff lately. Now granted they always approach things from a deficit reduction angle (I always get the whiff of Tory from them), but their figures seem valid to me.

If we are going to make deficit reduction our goal....which seems the way this bunch in power are going....then it will get grim over the next decade, with deeper and deeper cuts as the years go by and tax rises for everyone.

https://www.ifs.org.uk/publications/9141
https://www.ifs.org.uk/publications/8825

The UK has ridiculously generous dividend and capital gains allowances and there's the ISA too. These favour those with the money to invest and just increase the wealth gap.

The latest budget made a huge reduction in the advantages of using dividends.  It's not as good as it used to be.   

I also found the links that theoap posted informative.

As for comparing the USA fuel duty and lack of VAT then I don't feel any pain at all.  Just coming up on exactly one year since we bought a used car here and we've traveled under 4,000 miles which is in line with what happened when we moved to the USA, we needed 2 cars instead of 1 and the commute and travel around town was several factors higher so fuel costs were awash. (We lived in Texas and Louisiana in largish cities where public transport was almost non-existent).  Car insurance here is also a fraction of the cost we are used.

We are finding the cost of living much lower here than where we were living in Texas.  Sure, an Ipad, IPhone,TV or laptop costs as much in £ as in is $ (not checked that yet, our 49" TV here last year cost us £249 from Curry's) but ongoing running costs for cable, broadband, and phone plans are so much cheaper here.

This coming election will be the first time in a very long time that we feel our vote will count, as we live in a marginal constituency and our current MP has said he won't stand because it he doesn't believe in his party's leader.  (all our time in the USA we were in districts that were so solidly one party that they could have put up a plank of wood and still won)