Tuesday 12 February 2013

The true cost of tax

How much tax are you really paying?  With income tax, national insurance, VAT, fuel duty, beer duty etc etc it can be difficult to get a clear picture.

Allow me to illustrate.....

Average Joe has an average wage in his job working for Mr Big.

Mr Big offers Joe some extra cash for working on New Years Eve.  There is £100 up for grabs but first it has to be taxed.....

Before Mr Big can pay Joe he has to pay employers national insurance which comes to £12.13 so Mr Big offers Joe £87.87.

Joe suffers tax of £17.57 and employees national insurance of £10.54 leaving him with £59.76 in his pocket so 40.24% has gone in tax which is a fair chunk but at least Joe gets to spend it on himself now right??

Wrong of course!  I should mention poor Joe has a terrible affliction.  Whenever he buys something the vindictive tax fairy whispers into his ear the tax suffered from that transaction.....

Joe decides to take his lovely wife out for a spot of lunch, he's running low on petrol so he swings by the local generic petrol station and puts in half a tank, that's £30 gone straight away.  £18 fuel duty and VAT whispers the tax fairy into his ear.

Lunch consists of some delightful fish pie, a pint of beer for Joe and a glass of wine for the wife.  £18.35 seems reasonable enough, especially as £4.13 was tax of one sort or another points out the tax fairy.

These constant whisperings are getting Joe down, he doesn't usually smoke or gamble but he decides to buy a pack of 20 and a scratch-card, total cost £8.47.  £6.12 whispers the tax fairy.  Joe could almost hear him rubbing his hands together with glee.

That leaves £2.94 for a generous tip.  No tax there pipes up the tax fairy although the cafe staff will have to declare their tips of course.

So Joe's overtime spending is over.  Total tax to the treasury £68.49, nearly 70%, ouch.

At least Joe can console himself that the tax fairy only has a few more months to live.  Maybe he'll get a nicer one next year.

If you're paying too much tax please get in touch.