May 2013 17

The TaxPayers’ Alliance has today released a new video highlighting how the UK’s taxes on people’s wages are needlessly complex and obscure. Produced with the team from See what you mean, the video highlights how National Insurance is a second income tax in all but name.

Previous YouGov polling for the TPA has shown that many people are not aware of how much tax they actually pay. The video makes clear the real rates of tax people pay when Employee’s National Insurance and Employer’s National Insurance are factored in.

Basic: Employer’s NI 13.8 % + Income Tax 20 % + Employee’s NI 12% = 40.2%
Higher: Employer’s NI 13.8 % + Income Tax 40 % + Employee’s NI 2% = 49%
Additional: Employer’s NI 13.8 % + Income Tax 45 % + Employee’s NI 2% = 53.4 %

(See below for an explanation of the combined rates)

Polling has also shown that most do not understand the impact of Employer’s National Insurance, which effectively reduces their wages.

Last year the TPA set out how to abolish National Insurance by 2017, which would make the tax system simpler and more transparent. At the 2011 Budget, the Chancellor indicated a desire to merge Income Tax and National Insurance, which Mr Osborne said would be a “historic step to simplify our tax system and make it fit for the modern age”. Unfortunately, the Treasury has thus far failed to publish the work of the Office for Tax Simplification on this topic or come up with any solid proposals.

Matthew Sinclair, Chief Executive of the TaxPayers’ Alliance, said:

“Taxing the same income three times is a pointless complication which only benefits politicians trying to conceal how much tax people really pay. National Insurance has been nothing more than another Income Tax for years and additional redundant taxes mean higher administrative costs for businesses. The Government can and should merge them into a single tax which would be simpler, fairer and more honest.” 

**Calculations** Employer’s National Insurance is added at the rate of 13.8% on top of gross salary. So if you’re paid another £87.87 of gross salary, the employer has to pay an additional 13.8%, which would be £12.13, That adds up to £100.

For basic rate (20p) taxpayers:
From your additional gross salary of £87.87, you have to pay 20% Income Tax, or £17.57.
And you pay Employee’s National Insurance at 12%, or £10.54.
So you’re left with £59.75 from that £100 that your employer paid out.
In other words, the real tax rates are, all from that total £100 cost of paying you more, 12.1% Employer’s National Insurance, 10.5% Employee’s National Insurance, and 17.6% Income Tax, adding up to a true basic rate of 40.2%.
The same process is used to calculate the true rate of 49.0% for higher rate (40p) taxpayers and the true rate of 53.4% for additional rate (45p) taxpayers.

Britain's independent grassroots campaign for lower taxes

  • wibbling

    And council tax and business rates, VAT, green taxes, fuel duty, beer taxes, vehicle licencing, import duty, export duty….

    We all pay every tax from salary. Not just those three. every tax comes from our salary making our effective tax rate 65%. It’s theft. Nothing else.

  • Trem

    How much to get this advert on the TV?

  • Gold Bug

    Whilst your aims of reducing taxes are good your assumption that there is such a thing as a “fair” rate of tax is absurd. Tax is theft. Is there a “fair” amount that an armed robber can steal? That is all the state is, a very well armed thug but with the ability to brainwash people into thinking that theft is fair. They take your money and, after keeping a good percentage for themselves, give it to others that did not earn it. Any way you slice it that is stealing.

    • Dave

      So, it is your position that there is no role whatsoever for the state? Sounds like anarchy to me but I’d be interested to understand your point of view.

    • blarg1987

      What do you define as keep it for themselves?

      Would be interesting to hear exactly what you mean, just to clarify if it is genuine greed or a personnal view on if / what taxes should be spent on.

      • Simon Gothard

        Once the money is deducted/confiscated/stolen by the state the taxpayer/victim has no say whatsoever over where their money is spent. The individual is a better judge of where their money is spent. Think ‘charities’ that are receive massive amount of government money as a result of taxation.

        • Dave

          If such a view ever gained currency, it would I think result in the destruction of society and in complete anarchy. Reduction in the size of the state is one thing, but reduction to nothing – as both Simon Gothard and Gold Bug appear to suggest – is quite another.
          I take an entirely different view. I am delighted that the state takes a significant role in issues such as defence, justice, health, education, energy, etc. (The list is long!) I’m not uncritical – there is waste, and the state does not need to be involved in everything – but I cannot envisage the “society” in which there is essentially no state.

        • blarg1987

          So how would you run services like road maintenance? I know many private roads that are in a worse condition then publicly funded roads, the reason being as you imply individuals do not want to pay for the upkeep of the road in question.

          If we expand this to society as a whole you are going to get social collapse, some people will say we need the police other people will say why should they contribute.

          You do have a say on tax policy, it is called the ballet box, if you do not like it, change who you vote for or stand for election.

  • wee jonnie

    One big flaw
    Pensioners do not pay National Insurance
    any adoption of a single rate to replace NICS and (say) basic rate tax will cost them considerably -image what the “grey vote” will do to any government which did that

    • wibbling

      Easy way to solve that: hugely raise the disgustingly phrased ‘tax allowance to shift pensioners (and wage earners) below a given amount to pay no tax.

      Then get rid fo the other taxes we all pay and shouldn’t, such as council tax, business rates, parking charges, you name it, the state taxes it.

    • Alastair Houghton

      As a matter of fact, if you are a pensioner and you are employed, your employer still has to pay Employer’s NICs in respect of your income, even if you don’t have to pay Employee’s NICs.

  • blarg1987

    Hmmm, bear in mind the taxation paid by national insurence covers social security and NHS funds. So when the TPA does research into other tax systems, do you include the costs of private medical cover, which most other countries have on top of tax rates to give a fair comparison?

    I am for tax simplification, but I am not for alternatives that are not fully costed or compared properly.

  • Imawnka

    Ok Brainiacs – Who is going to empty your rubbish, provide street lights, provide health services, education services, libraries, swimming pools,social housing, planning, defence, You lot would drag the country to medieval times – go and live in DR Congo for a year then revisit this debate…

    • Dave

      I suspect that their model includes the very clear assumption that they would be part of the wealthy elite who organised things to meet their own requirements. Oddly enough, they’d pull down the state only to rebuild it to suit themselves.