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General Chat Thread, What is the "10p Rate of Income Tax"? in General; ...
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    Zoom7000's Avatar
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    What is the "10p Rate of Income Tax"?

    I was listening on the radio about some of the failings of Gordon Brown's Labour government and they kept mentioning the scrapping of the 10p rate of income tax. Even when the whole malarkey was going on I didn't know what the "10p rate of income tax" was.

    Can someone please explain! What is it? How are people affected? And would it affect me on a salary of about £25k/year? If so, how?

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    somabc's Avatar
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    Tax is charged at different rates depending on how much you earn. If you earn £25k you subtract £6475 as tax free (everyone who earns upto £6475 pays no income tax.

    Then you have £18,525 left, this is taxed at 20% now so you lose £3,705 and you have to remember to take off NI so you take home £19,173.65. The old system took the tax free allowance off then the next 2,230 was taxed at 10% and the rest of your pay at 22%.

    You will be £118.80 per year better off.

    Code:
    	 Yearly   	 
    Gross Pay 	£25,000.00 	
    Tax free Allowances 	£6,475.00
    Total taxable 	£18,525.00 	
    Tax due 	£3,705.00 	
    National Insurance 	£2,121.35 
    Total Deductions 	£5,826.35 	
    Net Wage 	£19,173.65 	
    Employers NI 	£2,468.48 	
    Net change from 2008 	+£118.80

    Last edited by somabc; 11th August 2009 at 08:35 PM.

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    Quote Originally Posted by somabc View Post
    You will be better off, the old tax system was a 10% rate and a 22% rate but that has been scrapped to a basic rate of 20% so you are £118.80 per year better off.

    Code:
    	 Yearly   	 
    Gross Pay 	£25,000.00 	
    Tax free Allowances 	£6,475.00
    Total taxable 	£18,525.00 	
    Tax due 	£3,705.00 	
    National Insurance 	£2,121.35 
    Total Deductions 	£5,826.35 	
    Net Wage 	£19,173.65 	
    Employers NI 	£2,468.48 	
    Net change from 2008 	+£118.80
    not everyone gets 25k, especailly working in schools.

    put the income down to 8-14k and are you still better off??

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    somabc's Avatar
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    Absolutely the lower your pay the worse off you will be, at a certain level you will not be gaining or losing any money I think it's around £19,000. Those above 'gain', those below 'lose'. There is a similar effect at the next two tax rates, 40% and now 50%.

    If you earned £10,000 you would now be £130 worse off. This explains why so many people were against the change those on low wages are paying for the rest to have tax cuts. Welcome to capitalism!

    The government would argue that Tax Credits can make up the difference.
    Last edited by somabc; 11th August 2009 at 08:41 PM.

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    In simple terms think of it like this. There are tax brackets and depending on your income of 10% (£0 to £2,440) 20% (£2,441 to £37,400), 40% (£37,401+) and soon 50% (£125,001+).

    What the Government did is abolish the 10% tax bracket and reduce the 22% to 20%. If you're a low earner, it means after the basic wage of £6,475 you're taxed at 20% instead of 10% so you lose out. However in your case you're earning enough money so in practice you are actually bringing more money home.

    To add a twist to this, the Government in 2008 decided to increase everyone's basic wage from £5,225 to £6,035, so in your case you'd be quids in again. The basic wage now (from April 2009) is £6,475 so you'll be quids in again, but then again everyone is!

    As a rough estimate if you're earning something like £7,000 to £19,000 you're going to be hit the hardest which is a very large chunk of the population.

    However to add another twist (due to the economic downturn) I expect the Government will do something drastic such as increasing VAT, increasing fuel duty or increasing some tax (somewhere) so the extra money you're getting now will come into play later, as the cost of living will continue to go up!

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    Quote Originally Posted by somabc View Post
    Absolutely the lower your pay the worse off you will be, at a certain level you will not be gaining or losing any money I think it's around £19,000. Those above 'gain', those below 'lose'. There is a similar effect at the next two tax rates, 40% and now 50%.

    If you earned £10,000 you would now be £130 worse off. This explains why so many people were against the change those on low wages are paying for the rest to have tax cuts. Welcome to capitalism!

    The government would argue that Tax Credits can make up the difference.

    Seeing as most people are on lower wages, thats not a bad little earner for the gov... it had to go in their favour!

    Even better is that you get them to fill out loads of forms, nice bit of data collection and tracking, just to get back the little extra that made a difference before!

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    Quote Originally Posted by Theblacksheep View Post
    Seeing as most people are on lower wages, thats not a bad little earner for the gov... it had to go in their favour!

    Even better is that you get them to fill out loads of forms, nice bit of data collection and tracking, just to get back the little extra that made a difference before!
    That's the point really. No matter how high the tax rates on those earning big money you'll never get enough from them to make a real difference. The real tax take comes from a smaller tax hike on those in the lower tax brackets.

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    Quote Originally Posted by beeswax View Post
    That's the point really. No matter how high the tax rates on those earning big money you'll never get enough from them to make a real difference. The real tax take comes from a smaller tax hike on those in the lower tax brackets.
    Changes in VAT have a big effect on those in the lower tax bracket because they spend a bigger fraction of their income on goods which carry VAT.

    If I were cynical, I'd say that Margaret Thatcher put up VAT from 8% to 15% just after she was elected (and later raised it to 17.5%) because it affects poor people (ie those who mainly don't vote Conservative) more than richer people but I'm not so I won't :-)

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    Further to what I wrote above, it looks like the Government are going to increase VAT from 15% back to 17.5% on January 1st 2010. This is going to play havock with January sales!

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    My money is on 20% for VAT soon.

    There are some interesting stats in the low pay report published today.

    Attached Thumbnails Attached Thumbnails What is the "10p Rate of Income Tax"?-fullreport.pdf  
    Last edited by somabc; 12th August 2009 at 02:02 PM.

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    That's why the Government should of left VAT alone in the first place. Any increase in tax, in any form looks bad. They've been losing 2.5% for nothing to be honest. It certainly hasn't made me go on a spending spree because I can get 2.5% off

    If it did ever go to 20% I think that would jeopardise the situation even further!

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    Quote Originally Posted by Michael View Post
    Further to what I wrote above, it looks like the Government are going to increase VAT from 15% back to 17.5% on January 1st 2010. This is going to play havock with January sales!
    The cut from 17.5% to 15% was only a temporary measure, and was going to revert back to the higher figure. The Government could have picked a less sensitive time to do it though.

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    Quote Originally Posted by Michael View Post
    That's why the Government should of left VAT alone in the first place. Any increase in tax, in any form looks bad. They've been losing 2.5% for nothing to be honest. It certainly hasn't made me go on a spending spree because I can get 2.5% off
    It was never intended to make anyone go on a spending spree - it was more about trying to help people on low incomes have a little bit more money to live on.

    Of course, that has no impact at all on the average journalist - they mostly don't earn low wages so they just mis-report the facts to make the government look stupid.

    If you earn £10,000 a year (minimum wage type income) and spend £2,500 a year on items carrying VAT, dropping VAT from 17.5% to 15% is roughly equivalent to changing income tax to 18.5% (saves about £46 in tax). It doesn't seem much, but it's better than a kick in the teeth.

    If you earn £20,000 a year and spend £2,500 on VAT items then the change is the same in money terms (about £46 per year) but it's almost meaningless as a change in tax - it's equivalent to reducing income tax to about 19.6%

    Increasing VAT is bad for people on low incomes and has little effect on people with average or high incomes. That's why Conservatives increase VAT (basically, they don't care about low wage earners - they don't vote and if they do, they probably vote Labour or BNP) This government has reduced VAT (temporary VAT reduction is no big deal but remember the massive reduction from 17.5% to 5% on fuel which also has a much bigger benefit for lower income people)

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    Quote Originally Posted by srochford View Post
    That's why Conservatives increase VAT (basically, they don't care about low wage earners - they don't vote and if they do, they probably vote Labour or BNP) This government has reduced VAT (temporary VAT reduction is no big deal but remember the massive reduction from 17.5% to 5% on fuel which also has a much bigger benefit for lower income people)
    Whilst you are condemning the Tories, any comments on why Denis Healy increased the rate of VAT to 25% on "luxury goods", which included refrigerators, back in 1974??

    And as for the "low wage earners" - food, public transport, children's clothes etc are all VAT exempt, so there is no impact on essentials!

    mb

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    Quote Originally Posted by srochford View Post
    It was never intended to make anyone go on a spending spree - it was more about trying to help people on low incomes have a little bit more money to live on.
    Sorry. It was part of a *fiscal stimulus package* that was designed to increase demand by encouraging spending - that was it's whole point.

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