How Much Tax Do You Pay?
20% ?
40% ?
45% ?
We guarantee you its more. Lets break it down:
Samwise The Gardener
Sam is an employed gardener for a local land owner earning £31,000 a year. He is a basic rate tax payer and pays 20% income tax. He also pays National Insurance Contributions from his salary. Sadly Sam still has more tax to pay:
He pays £1,900 Council tax each year on his house
A lot of what he buys has Value Added Tax (VAT) at 20% added to the price
Any fuel he buys for his Vauxhall Corsa has 57.95p fuel duty + 20% VAT on top
Adding all these taxes together means Sam is paying at least 37% of his income to the government in taxes. That’s four and a half months of his annual salary.
Frodo The Project Manager
Frodo is a project manager for The Shire County Council organising events. He earns £75,000 a year which makes him a higher rate tax payer and he pays 40% income tax.
He also pays National Insurance Contributions from his salary. Frodo still has more tax to pay:
He pays £2,500 Council tax each year on his house
A lot of what he buys has Value Added Tax (VAT) at 20% added to the price
Any fuel he buys for his BMW M5 has 57.95p fuel duty + 20% VAT on top
Adding all these taxes together means Frodo is paying at least 43% of his income to the government in taxes. That’s over 5 months of his annual salary.
Bilbo The Managing Director
Bilbo earns an income as the Managing Director of a property company. He earns £400,000 a year which makes him an additional rate tax payer and he pays 45% income tax.
He also pays National Insurance Contributions from his salary. Frodo still has more tax to pay:
He pays £4,000 Council tax each year on his house
A lot of what he buys has Value Added Tax (VAT) at 20% added to the price
Any fuel he buys for his Porsche 911 has 57.95p fuel duty + 20 %VAT on top
Adding all these taxes together means Bilbo is paying at least 53% of his income to the government in taxes. That’s over 6 months of his annual salary.
The Table Below Shows Our Workings & Assumptions
So there you have it. We don’t feel the tax pressure because its baked into our lives, sucking away at our finances like a thousand leeches.
What Can We Do About This?
Unfortunately the tax system is designed to ensnare as many tax payers as possible. Having said that there are ways you can reduce your tax burden. It requires risk, planning and sacrifice but it can be done. Find out how next week.
Until Next Time
The Wealth Gap