As an example the cheapest way to generally pay yourself is by dividends. At a 40% tax rate if you pay yourself £1000, you have to pay 19% CGT on this profit (you can only pay dividends out of profits) which reduces it to £810 and then 32.5% tax which brings it down to £546.75 making my tax rate about 45% and above 100k which is taxed at 37.5% I'm left with £506.25 at tax rate of about 50%. If I spend the money on 20% VAT rated items, the effective spending power of my original £1000 is £437.30 and £405.00 respectively and of course above £100k you also have your tax allowence withdrawn at a rate of £1 for every £2 you earn. The figures are all much worse if you pay yourself through PAYE.
I don't argue with the numbers, but I think the employee vs company director analysis misses some key points. For reference, I am speaking from the position of experience in that SWMBO runs a small business as a Ltd. Company (about £55-60k profit before tax). She has the ability to work when and where she wants and claims costs against Corporation tax which would not be claimable as an employee. Not to mention that if she was doing the same level of activity as an employee, she'd be earning £30-35k and the remainder would be going to a "wealth creator".
Leaving the EU gives us the chance to get ahead again like in the 1980's, but I can't see any party or politician with the policies to take advantage of this.
I hope this is true, but I think we will have a lot of ground to make up. The falling pound and the knock to our credit rating has already increased the cost of borrowing more, as well as servicing our existing mound of sovereign debt.
STEMO if more and more people like me say, we just can't be bothered to generate the wealth like happened in the 1970's I would suggest instead of taking your dog for a walk you start growing some of Labour's money trees as no private sector wealth creation = no tax = no public sector. Tax money can ONLY come from private sector wealth creation, public sector pay taxes are only a discount on the total public sector pay bill.
I just can't see this happening with whats been put on the table so far, Labour's proposed hikes to Corporation tax would still leave us with one of lowest rates in Europe, and certainly not an outlyer (sp?). For big businesses domiciled in the UK, the costs of de-listing in the UK and moving staff, taxable entities etc etc overseas would be astronomical.
I work for a FTSE 250 plc and our FP&A team ran a number of scenarios on this very thing in the run-up to the general election. The conclusion was that it is a total non-starter with a corporation tax rate that was less than 5-8% greater than the chosen destination country, and 10-12% would be more likely to trigger the change. This is bearing in mind that our company has offices, staff and legal entities in (I think) every European company, the US, japan, australia, russia, and various south american locations, so we would be about as "plug and play" as its possible to be. Frankly, comparing a 26% rate to the 40-45% tax rates of the 1970s (which is what a lot of the UK press seem to be doing) is just scaremongering.
Where I do see a flight risk for businesses is where our new trading relationship with the EU makes the business model non-viable. How many such businesses there are will depend entirely on the deal we end up with. And no-one can know that yet.
I think the idea of "wealth creator" is held up as a holy grail in the UK as something to be revered, as though the employees are just doe-eyed simpletons along for the ride. This in many cases is as far from the truth as its possible to be. Take for an example a family friend who owns about 10 estate agencies in the south east, certainly a millionaire, this guy is the stereotypical "wealth creator" business owner who apparently we need to shield from the grisly spectre of tax hikes or drains on his considerable wealth. But what wealth does he actually create? If the guy went under a bus tomorrow, the business would still sell just as many houses and turn just as big a profit. The doe-eyed simpleton agents and their dribbling store managers are the ones who create the wealth. He just creams off whatever his accountant deems fit.
The problem is even worse when you consider listed businesses; there, the owners and, by extension "wealth creators" are mostly big institutional investors, who have absolutely sod all to do with running the company.
The spectre of private sector brain drain also ignores the actual brain drain that is occurring in the public sector. Doctors, nurses, teachers are all leaving these shores for better prospects overseas and are welcomed with open arms, bigger pay packets and better conditions than they receive in the UK. They are the real geographically mobile flight risk. For me, it isn't about comparing public vs private sector, its about paying enough to retain the best people to teach our children and fix us when we fall down. We can always find the money when we want it (see Ms Weak n Wobbly's bung to the fundamentalist Christian nutters, nukes, or a shiny new aircraft carrier), but at the moment we've decided that we don't want it for our public sector workers.
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Topic: Public sector pay cap. (Read 11435 times)