Understanding the British Tax system, or why not to bash the rich...

[Denzark]

Saw this elsewhere, thought it might induce some debate. Don't know where the figures came from so cannot source, but the principle remains:

Suppose that every day, ten men go out for beer and the bill for all ten comes to £100...
If they paid their bill the way we pay our taxes, it would go something like this...

The first four men (the poorest) would pay nothing.
The fifth would pay £1.
The sixth would pay £3.
The seventh would pay £7..
The eighth would pay £12.
The ninth would pay £18.
The tenth man (the richest) would pay £59.

So, that's what they decided to do..

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball.

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by £20". Drinks for the ten men would now cost just £80.

The group still wanted to pay their bill the way we pay our taxes.

So the first four men were unaffected.

They would still drink for free. But what about the other six men?
The paying customers?

How could they divide the £20 windfall so that everyone would get his fair share?

They realised that £20 divided by six is £3.33. But if they
subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer.

So, the bar owner suggested that it would be fair to reduce each man's bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

And so the fifth man, like the first four, now paid nothing (100% saving).

The sixth now paid £2 instead of £3 (33% saving).

The seventh now paid £5 instead of £7 (28% saving).
The eighth now paid £9 instead of £12 (25% saving).

The ninth now paid £14 instead of £18 (22% saving).

The tenth now paid £49 instead of £59 (16% saving).

Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.

"I only got a pound out of the £20 saving," declared the sixth man.

He pointed to the tenth man,"but he got £10!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a pound too. It's unfair that he got ten times more benefit than me!"

"That's true!" shouted the seventh man. "Why should he get £10 back, when I got only £2? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax system exploits the poor!"

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and government ministers, is how our tax system works.

The people who already pay the highest taxes will naturally get the most benefit from a tax reduction.

Tax them too much, attack them for being wealthy, and they just may not show up anymore.

In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

[Wolfshade]

I saw this on BookFace.

[eldargal]

There was actually a good example of this from France recently. The new Socialist government increased the tax rate on the wealthy dramatically and Gerard Depardieu, a self-made man who earned all his money through hard work (yes, acting is hard) left the country rather than suffer the punitive tax rate. What incentive is there for someone to do well if the government will just take it all away? Depardieu was the son of a metal-worker and left school at 15, not exactly elite.

[Mr Mystery]

Tax is always going to be wonky. It's the nature of the beast. Likewise, everyone wants to pay less.

What narks me right off is the ever so slightly cack handed approach at tightening up tax laws so people can't dodge them, whilst they viciously and relentlessly go after those with the very least in society. It's horrible to watch.,

[Wolfshade]

One of the big problems is that the big three (of the accountants) each hire more tax specialists than HMRC themselves, not only that they pay more so attract the brightest and the best.

Those less well off are easier to handle as they do not have the resources (and often knowledge) to fight it.

for instance: http://www.telegraph.co.uk/comment/letters/9972484/The-taxman-plots-oppressive-persecution-of-parish-clerks-and-bellringers.html

[eldargal]

Tax is always going to be wonky. It's the nature of the beast. Likewise, everyone wants to pay less.

What narks me right off is the ever so slightly cack handed approach at tightening up tax laws so people can't dodge them, whilst they viciously and relentlessly go after those with the very least in society. It's horrible to watch.,
Not me, happy to pay my share.:p I'm fortunate and I know it and I don't begrudge the state it's share when hopefully much of it will be reinvested in society.

Agreed, the focus on attacking benefits fraud instead of tax evasion amongst the middle class and above is deeply disturbing.

[Mr Mystery]

Indeed.

Then there's other taxes out there, like Council Tax, which I for one consider grossly unfair. As a single occupant, I get a 20% discount on my bill, which sounds cool. Except, if I had a partner who lived with me? We'd just pay half each. If three people inexplicably shared my tiny flat, splits three ways, doesn't go up. I'm not saying scrap that particular tax, but let's just have a set rate per capita shall we? It's not income linked, so awesome chance to make it Britain's fairest tax.

There is also the counter that those earning enough to hit the highest band of tax have far more disposable income. Which is of course true. But lefty as I am, I don't necessarily begrudge them that (whereas Call Me Dave and chums, telling us to work hard and stick in, when they were born into the lap of luxury leaves a sour taste in my ears).

But tax dodging/evasion is wrong, and nobody should ever get away with it. Even that Tax Lawyers exist kind of suggests the system needs a full overhaul, tying off all those loopholes, and ensuring we can support ourselves as a nation.

[Wolfshade]

The other strange thing with council tax is that if the other person you live with is unemployed and receiving benefit, or in full time education you can claim the single occupancy 20% discount, if the person you live with is unemployed and not recieving benefit you cannot.

[energongoodie]

I got a letter from HMRC yesterday telling me they are sending round the bailiffs to collect the money I owe for PAYE.
The total amount I owe is £0.00

[Mr Mystery]

You have spoken to them about that yes?

[energongoodie]

Yep :)
First phonecall, they said 'let me transfer you to someone to sort it out' and they transferred me to a debt collection company!!!!
Second phonecall, they kept me on hold for a while and cut me off.

My accountant sorted it. :) They waste so much on pointless post.

[Mr Mystery]

Write to the press. Could be good for a laugh!

[Denzark]

I 100% agree you need to hunt down tax evaders. I think it should be done no more or no less assiduously than hunting down benefit fraudsters. Each has a moral repugnance for me. On balance though, I find the level of parasitism of benefiot fraudsters worse, because they (in some circumstances) want something for nothing - most tax evaders contribute something to society even if it is a minute proportion of the millions they owe, and even if it is only a cover for their activities. Something of something is better than nothing of something.

I am not sure EG, that you are right about tax evasion being a middle class thing. It probably is, but only because I only rate soemone as upper class if they specifically come from aristocratic roots. But it is not those who scrape into the hgiher tax band by £500, it is more likely those with £150K+ and an accountant to cook the books.

Also, I must state that I can't be upset against a firm using tax loop holes - my annoyance is with the behemoth, monolithic HMRC who sets stupid complicated tax systems that allow businesses to do this. Starbuck might owe us money, but at least they employ people and make a mean latte for commuters - the Wayne and Waynettas of the world provide nothing but an audience (and subject matter) for Jeremy Kyle.

At the end of the day, if you have to fight 2 wars, with one set of resources, you go for Lichtenstein and Andorra first, and smash France second. So taking out benefit fraudsters being a degree easier than those hiding behind lawyers and accountants, makes a good strategic targetting sense.

[Mr Mystery]

Thing is, Benefit Fraud is nowhere near the scale of tax evasion, and this is what irks a lot of people.

Yes, Benefit Fraud exists. But the constant vilification and false portrayal of all benefit recipients being workshy wastrels needs to stop. One of the biggest chunks of benefit payments goes to retirees, including those already plenty well off (such as winter fuel allowance). Remember, state pension goes down as a benefit. The next biggest group claiming benefits are actually in work, but thanks to low wages, need financial help.

It all needs clamping down on, I just wish the media wouldn't present such a one sided, and blatantly false picture!

[Wolfshade]

There is also the concern of this type of behaviour being seen as trying to create schism, an us and them so that the general populace end up believing that all tax evaders are evil despots, just like we know all those living on benefits are, with their 87 children...

The issue of transfer pricing (i.e. Bodgit and Scarpa UK Ltd, buying parts from Bodgit and Scarpa Andora Corp.) is not a new thing, indeed back before WWII there were attempts to tackle this.

[eldargal]

Well the upper class is the aristocracy traditionally, everyone else are still commoners regardless of the money they have amassed.:p But I did say middle class and above, it seems to start with small business looking to give themselves an edge and goes right up to corporations. I'm not generalising here and saying 'small business owners are tax evaders!' obviously, but some do it, it's not just limited to the very well off.

[Mr Mystery]

And then there's HMRC agreeing to let Vodafone off a £6,000,000,000.00 Tax Bill, which they did owe, but didn't feel like paying (massive over simplification of course, but hey, we're just plebs chatting :)) then followed by £7,000,0000,000.00 of benefit cuts?

Current chancellor has the wrong priorities.

[Wolfshade]

Well the upper class is the aristocracy traditionally, everyone else are still commoners regardless of the money they have amassed.:p But I did say middle class and above, it seems to start with small business looking to give themselves an edge and goes right up to corporations. I'm not generalising here and saying 'small business owners are tax evaders!' obviously, but some do it, it's not just limited to the very well off.

Tsk tsk tsk, you forgot the clergy :p

[eldargal]

Oh right, the second estate.:p

[Wildeybeast]

At the end of the day, if you have to fight 2 wars, with one set of resources, you go for Lichtenstein and Andorra first, and smash France second.

Utter nonsense. You always attack France first for two simple reasons. 1)It is our duty as Englishmen. 2)There is a good chance they will surrender without bothering to fight.

As for tax, no one actually cares about the rich paying more other than the Labour party (and the rich obviously). The poor don't pay it anyway, all they are bothered about is benefit whilst the middle class only care about paying less tax themselves. The 45p/50p tax rate is just an easy way for Labour to point out to the uneducated masses that the Tory party only care about helping the rich (Labour's words, not mine).

[Denzark]

Wildey of course, my apologies old horse, you are correct. I wanted a big Euro country as an example and France 'just popped in there' Stay Puft stylee. You are entirely correct that they should always be attacked first, and sometimes for no reason - I will instantly take to the streets seeking a crapaud to horsewhip.

[Denzark]

Multi-national diplomacy good enough for anyone?

http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/9982660/UK-signs-tax-deal-with-France-Germany-Italy-and-Spain.html

[Mr Mystery]

Yup. I may think the man is a mindless fool, but credit where it's due.

This does need international attention and unilateral action to crack down on it.

I remember a few years back, somebody smuggled a DVD out of Lichenstein, which contained account details of various high rolling tax haven dodger types. He sold it to one of the European governments (France, I think. May have been Germany) who also bunged him in their witness protection scheme.... Was said the info on that disc was worth quite a few billion in tax revenues.... That government then shared the love...

That's what we need!

[Wildeybeast]

Wildey of course, my apologies old horse, you are correct. I wanted a big Euro country as an example and France 'just popped in there' Stay Puft stylee. You are entirely correct that they should always be attacked first, and sometimes for no reason - I will instantly take to the streets seeking a crapaud to horsewhip.

No worries. Though I'm afraid you are wrong again my friend. There is always a reason to attack the French - they're French. :D

[-Tom-]

But tax dodging/evasion is wrong, and nobody should ever get away with it. Even that Tax Lawyers exist kind of suggests the system needs a full overhaul, tying off all those loopholes, and ensuring we can support ourselves as a nation.

I kind of agree that doing something sneaky just to avoid paying tax should be cut down on, but the problem really there is that it is possible to do so, therefore people who can afford to do so will do it. As you say, it is the system that needs an overhaul to get rid of the loopholes.

There is a flip side to it though... As a seafarer, out of the country for more than 186 days a year, I don't pay income tax on my UK earnings. (This isn't a loophole, there is a specific ruling that says that I can claim it back). So, maybe this would seem unfair at face value... but, there are lots of ins and outs:

- I may end up having to pay tax elsewhere at a higher rate anyway. Some I can claim back if I don't do too much work in those waters, others like Danish tax (which is a flat 40%) I can't. Okay, paying tax elsewhere doesn't help the UK economy, but it's still a point to bear in mind for those individuals who claim back their tax for this reason.

- I am out of the country for 186 days minimum a year. I still pay car tax and I still pay council tax in full, rather than getting a 50% discount for only being able to be using council services / driving for 6 months of the year.

- I still pay VAT, and if having my tax back leads to more disposable income for me, it gets spent so more of it goes on VAT. Whoever is getting paid pays income tax, and then has more money themselves to buy things so they pay more VAT, etc. A couple of years back I used my tax refund to get new carpet for my house, and the carpet fitter was overjoyed about having work coming in because of the recession starting and how quiet it was.

[Mr Mystery]

It's more when it's the already rich or corporations (well, any company really) doing it.

To me, as the average spod in the street, there's no way to reduce my taxation. It's done PAYE, so I never see that money, which is fine with me, even when I reach a certain level in my job (5 years off tops) I'll be paying more tax per hour than the national minimum wage pays someone. Sounds harsh, but £60,000 after tax still gives me £3,480 ish each and every month, which lets face it is plenty enough for a single bloke with no dependants, and should in that time I wind up with a kid, enough to send them to private school to give them an awesome start (as would any parent I'd wager).


So why should someone else be able to pay less for earning more? I'll happily pay what is asked, mostly because I don't see social welfare as paying for someone else, but paying back for my education, and all those times I wound up quadra spazzed in hospital following some accident, or random parts of my body feeling the need to try and kill me. And as I'm doing quite well for myself (should be on £26k by August, and by the next year £30,000, year after that £40,000) it's all thanks to those who educated me, trained me, kept my alive, and invested time and money in this kid they otherwise wouldn't have known. Without them, I wouldn't have my current career path, opportunities or work ethos.

All in all, I see myself as very much owing society, and tax is its just redress, no matter how much I earn.