Exactly. It would be a neat and efficient way of doing it. The reason it's not done like this is purely political. The regressive nature of the system would become obvious - much higher tax rates for people on low incomes.
Family Tax Credit
Aug 29, 2006
26 Replies
Agreed. The means of collection also becomes privatised like the collection of VAT with a substantial saving on civil servants.
As you say. 70% tax on a low income will seem unfair where the "higher rate" for investment income is 34%. Good old Labour.
It's actually 47.5%
What is 47%?
for someone more than 2,090 over their personal allowance:
37 (reduction in tax credits) + 22 (basic rate tax) + 11 (NI) = 70%
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and for investment income (dividend) above the basic rate limit = 32.5%
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Can you explain what you mean by "taxing"? If someone pays no tax and yet has a high award how can you tax them ? Not paying tax will not accomodate all their circumstances or change of circumstances.
For dividends, you receive them net of a notional tax credit of 10%, which is supposed to represent your share of the corporation tax paid. However, the corporation tax rate is generally 30%.
So, if a company made £1000 of profit, it would pay £300 in corporation tax, leaving £70 to pay as a dividend. This would be treated as £777.78 dividend less a tax credit of £77.78.
A higher rate tax payer would have to pay 32.5% of £770 which is £252.78, less the tax credit of £77.78, so a total payment of £175.
The total tax payable on this income is therefore £475, which is 47.5% of the total income.
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