Budget 2015: Your thoughts?

[tony84]

Who can sit there though and say your idea is not going to work.
What was that kids suitacase idea on dragons den that they all ridiculed and its now worth a fortune. I read somewhere about a tangle something or other a couple of days ago - if those people can not get it right everytime how can someone sat behind a desk in the dole office?

Totally agree there should probably be a limit but there are some people who will never get a job for whatever reason (too shy, too lazy etc), so surely it is better they work and get some credits rather than not work and get more?

Im not sure where the line is but its probably not as black and white as we would like it to be.

I suppose there is an argument if you want to start up on your own, thats fine but you have to fund it. My first year I was working crazy hours and had a fill time job and mortgage advising on the side. Appointments in evenings and weekends - I was shattered!

 

[norwichlad]

That's what we pay National Insurance for.

Chris.

You pay national insurance to entitle you to a state pension, yes. Although it certainly doesn't pay for it.

You also pay national insurance to entitle you to a number of contribution based benefits, including contribution based JSA and incapacity benefit.

My point is that you'd only need to take 2 years longer to die to end up having taken the same as somebody who had to claim JSA for 4 years during their 50 years of adult working age.

Convenient how the one benefit that you will happily take you feel entitled to as part of the "social contract", but the benefits that you haven't needed to take you don't feel should form part of that contract.

And clearly there is a huge difference between what national insurance contributions entitle you to, and what employee national insurance contributions actually pay for, clearly a huge disparity between the governments take in NI and the cost of the state pension, NHS, incapacity benefits and JSA.

Have you ever tried to calculate what sort of annuity your lifetime of NI contributions would entitle you to if you'd invested it into a private pension fund? Probably not even enough to pay for your milk for the 20(ish) years that we're expected to live in retirement, yet alone £155 a week.

See, it creates a bit of a paradox when you target those who need a bit of assistance during their working years, when you probably have 20 years of state handouts ahead of you, doesn't it?

 

[norwichlad]

I don't have a problem with helping people into self-employment if it's a genuine attempt at starting a viable business, I'm happy for the government to support people with tax credits and other help in the first year or maybe a little longer even.

The point that you seem to be missing is that your annual tax credit entitlement is calculated based upon your previous years earnings, not your current year.

Presumably a lot of people start businesses after a difficult period, such as unemployment, the decline of another business, redundancy, or other outright need to make money.

So even if their business is a roaring success in its first year they'd still be entitled to take credits if they made a pittance the year before in their prior endeavors.

You seem to want to spin WTC's as a means of subsidising the lazy who find a loophole to run a part-time business whilst the government tops them up to full-time earnings, yet in order to be entitled to them in the first place they'd need to have been on a low income, so it would be quite easy to spin them the other way and say that they are people who are pulling their socks up and having a crack at becoming more successful and more economically productive, whilst taking their entitlement to working tax credits based upon their previous hardship.

"Entitlement" is a crucial word there. Just like you are entitled to a state pension based upon parameters set by the government, those who take any other sort of welfare benefit are also entitled to them based upon parameters set by the government.

You want to distinguish between the state pension and every other welfare benefit, because you happen to know that you'll be taking one of them, not because you are any more entitled to that benefit than others are to theirs.

 

[sirearl]

You pay national insurance to entitle you to a state pension, yes. Although it certainly doesn't pay for it.

You also pay national insurance to entitle you to a number of contribution based benefits, including contribution based JSA and incapacity benefit.

My point is that you'd only need to take 2 years longer to die to end up having taken the same as somebody who had to claim JSA for 4 years during their 50 years of adult working age.

Convenient how the one benefit that you will happily take you feel entitled to as part of the "social contract", but the benefits that you haven't needed to take you don't feel should form part of that contract.



And clearly there is a huge difference between what national insurance contributions entitle you to, and what employee national insurance contributions actually pay for, clearly a huge disparity between the governments take in NI and the cost of the state pension, NHS, incapacity benefits and JSA.

Have you ever tried to calculate what sort of annuity your lifetime of NI contributions would entitle you to if you'd invested it into a private pension fund? Probably not even enough to pay for your milk for the 20(ish) years that we're expected to live in retirement, yet alone £155 a week.

See, it creates a bit of a paradox when you target those who need a bit of assistance during their working years, when you probably have 20 years of state handouts ahead of you, doesn't it?

Afraid NI is only a tiny part of the taxes taken by governments .

I believe at the moment its about 45% of all monies earnt.

Or tax freedom day is the 3rd of june this year.

So in my nearly 60 years of working I suspect I have paid more than enough.

 

[silvermusic]

Direct taxation, VAT on goods and services, National insurance, etc. are all put into one giant pot, let's call it UK PLC. Like any successful business more should go in than comes out over a person's lifetime. No of course my NI contributions won't directly pay for all that a complete state pension pays out in most cases. However, by the time they come to retirement age they will have paid into the system in other ways, somewhere between 15 and 20% of everything I've ever spent money on has gone to the government in the form of VAT for starters.

Someone spending years on a so called business that can't make them minimum wage as far as I'm concerned is not really that good of a deal for UK PLC.

 

[UKSBD]

The point that you seem to be missing is that your annual tax credit entitlement is calculated based upon your previous years earnings, not your current year.

Presumably a lot of people start businesses after a difficult period, such as unemployment, the decline of another business, redundancy, or other outright need to make money.

So even if their business is a roaring success in its first year they'd still be entitled to take credits if they made a pittance the year before in their prior endeavors.

That's wrong, annual tax credit entitlement is not calculated based upon your previous years earnings, that is just a provisional figure.

 

[norwichlad]

Direct taxation, VAT on goods and services, National insurance, etc. are all put into one giant pot, let's call it UK PLC. Like any successful business more should go in than comes out over a person's lifetime. No of course my NI contributions won't directly pay for all that a complete state pension pays out in most cases. However, by the time they come to retirement age they will have paid into the system in other ways, somewhere between 15 and 20% of everything I've ever spent money on has gone to the government in the form of VAT for starters.

Someone spending years on a so called business that can't make them minimum wage as far as I'm concerned is not really that good of a deal for UK PLC.

So why are we counting your VAT payments, your NI contributions, your fuel duty, when calculating whether you have a net benefit to the UK economy, but ignoring them and focusing solely on income tax when working out whether the bloke who makes less than £10k profit has a net benefit?

You could theoretically have a business with a turnover of £10m a year which has made a financial loss of £50k, but has paid a fortune in employer NI, employee PAYE (indirect), VAT, and spent millions on suppliers, business rates etc. Hypothetically the owners could after having paid themselves no dividend on a profitless year, and a very low basic, be entitled to working tax credits?

Look, I support his swing of the pendulum away from in-work benefits, I've always found it ludicrious that the taxpayer is subsidising corporate payrolls, companies like Asda post profits which show that they could pay the living wage easily (the real living wage, not the made up living wage that Osborne announced), working tax credits have on the whole been scandalous, it was backhanded redistribution of wealth, and the biggest problem is that it was wealth which didn't really exist, it was borrowed.

But you are judging a fella on here as an individual without knowing much at all about his business. What's his turnover? Is he VAT registered? Does he have an employee? Company vehicle? The fact that he doesn't pay make enough to pay income tax is not sufficient alone to calculate that he is not of net benefit to the state, when it is only one of numerous taxes that a sole trader or registered business would indirectly or directly pay.

In fact, I paid something like £150 in income tax for the last financial year, and no employer NI, but didn't take any working tax credits (not entitled). Because I take advantage of the dividend tax credit via a limited company.

Calculating my net benefit on income tax alone would make zero sense, after you consider that I'm the 100% owner of a business which will probably be paying about £4000+ in corporation tax next January, and purchase a lot of stock and supply from people who collect VAT.

That's what you are effectively doing here by focusing on the taxable profit of an individual, pretty sure this forum will be full of economically useful people who pay minimal income tax, who would argue their case effectively, many of whom no doubt keep others in employment.

 

[Chris34]

You pay national insurance to entitle you to a state pension, yes. Although it certainly doesn't pay for it.

How do you know it doesn't pay for it? You have no idea how much money I am likely to make over my working life and how much NI I would be paying over that time.

Working Tax credit does nothing to help a poor person. It makes them comfortable to accept state hand outs but it does nothing to make them try harder to earn more money.

The amount of times I've heard people say that they have hit the 30 hour limit so can't work any more hours as it will affect their working tax credit. How can this be good? It's far better to have a higher minimum wage as the incentive to work harder and earn more is there. Currently the incentive stops at 30 hours.

Put it this way, the poster who states that they make 10k including tax credit for 45 to 50 hours per week. Well that's £4.27 per hour. So working tax credit is making them poorer. Next year if they ditch the business and get a job doing 45 hours per week they would be earning £16,848 per year. So roughly speaking that would be £15k after tax and NI. Not only this they would get 4 weeks holiday paid for each year and also get Bank Holidays on top. So they would be paying into the state AND they would be better off themselves. Currently they are taking from the state and are poorer themselves.

Then on top of this, other businesses which don't claim credits have to try and compete with these businesses which makes them poorer and the state loses money from those businesses making less profit because they are competing with lots of micro businesses which are partly state funded.

Working Tax credit just makes people work for less both in the employed and the self employed.


Chris.

 

[norwichlad]

How do you know it doesn't pay for it? You have no idea how much money I am likely to make over my working life and how much NI I would be paying over that time.

We know that the amount taken in National Insurance each year is only enough to fund a fraction of the state pension + the NHS budget.

But great point, we don't know how much tax the 'poster above' has paid in their working life. Perhaps they've paid more than you?

Put it this way, the poster who states that they make 10k including tax credit for 45 to 50 hours per week. Well that's £4.27 per hour. So working tax credit is making them poorer. Next year if they ditch the business and get a job doing 45 hours per week they would be earning £16,848 per year.

Who's to say that he wouldn't take a 45 hour per week full-time job on minimum wage, if he could find one, have you considered the possibility that he's started this business because he couldn't find such a job? And do you have any evidence that he doesn't continue to look for such opportunities? Underemployment is a huge problem. Do you know how many people are stuck doing part-time hours who want to do full-time work?

Could quite easily say that he is better off doing a 45 hour week for £4.27 per hour than he is doing a 24 hour per week job at £6.50 per hour. And what jobs offer 45 hours per week exactly, with all of those hours paid? Doubt that the typical minimum wage job is exempt from the working time directive, I know you can opt out, but that's after you've taken employment, they aren't advertised as 45 hours per week? 37.5 hours per week is the norm isn't it? 9 to 5, five days a week, one hour lunch.

37.5 hours x £6.50 = still entitled to working tax credits under the current system, which was apparently the objection that was taken, that he was guilty of being entitled to a government benefit. He'd have been a little better off, that is true (or is it, depends on travel costs?), but that isn't our business. Our business is how much he is purported to cost the taxpayer, which is marginally more in this financial year than he would as a minimum wage full time employee. But then you'd have to consider the fact that he'd be taking somebody elses job, probably a young person, and that young person would be on JSA or on an expensive government run training scheme?

Unfortunately the current system rewards employers who employ two part-timers over those who employ one full timer. Because no employers NI is paid on 20 hours x £6.50, but is paid on 40 hours x £6.50. That's why underemployment is an issue, that's where our anger should lie, companies are rewarded for giving their employees insufficient hours and pay.

 

[Jeff FV]

Unfortunately the current system rewards employers who employ two part-timers over those who employ one full timer. Because no employers NI is paid on 20 hours x £6.50, but is paid on 40 hours x £6.50. That's why underemployment is an issue, that's where our anger should lie, companies are rewarded for giving their employees insufficient hours and pay.

This is a really good point and neatly highlights the problem at the heart of this debate - our tax system is too complicated.

To my mind, the best (simplest) solution would be to scrap NI and incorporate it in to income tax (people (me!) understand income tax - NI is much more complicated), scrap working tax credits etc., and increase the threshold at which you pay tax. Then it becomes crystal clear - the more you work, the more you take home, simple! No "fiscal cliffs" as you reach a certain threshold. Even moving into a higher tax band, you'll still end up better off by working more/harder/better.

Yes, it may mean that a single person with no kids will have a greater disposable income than a married man with three kids, but that's life.

 

[Chris34]

Seeing as though everybody needs an incentive to work harder, why doesn't the tax system reduce the amount you pay as a percentage the more you earn? Surely then everybody would be trying to earn more.

Personally I think all tax systems should be scrapped and the government should just take the tax from all banking transactions. They could set a rate at say 6% for all money coming in and going out of a persons bank account, in the same way Paypal does. They would know straight away which percentage brings in the most money on a daily basis and those who have more money going through their bank accounts would be paying more in tax. Think about it, no end of year tax returns, no NI contributions, no VAT, no loopholes for 'clever' accountants to look for. Just a simple flat rate that everybody pays whenever they draw money out, puts money in or pays via debit. Then it would be a case of saying 'right, we as a country are earning this amount, how does everyone want us to spend it?". So the political decisions from the voters shouldn't be to do with the tax rates, benefits etc it should be to do with how they want the government to spend the money.



Chris.

 

[tony84]

Everything would be done cash in hand.

 

[norwichlad]

And Bitcoin would suddenly have a decent reason to exist.

 

[RPower]

Just in case it's of any help on the dividend tax change I spoke to Martin Mann, a director at tax consultancy Gabelle about what it might mean for small businesses

http://www.businesszone.co.uk/decide/finance/what-the-dividend-tax-reform-means-for-small-businesses

 

[mhall]

For me as a Retailer, the Budget just tells me the Government couldn't give a monkeys about small business. The minimum wage going up to £9 will mean the smallest shops simply can't afford to employ anyone. It's not a bad deal if there is just you, but if you want to grow and employ someone - forget it.

For example - a minimum wage (I refuse to call it a living wage- that is just a marketing term) of £9 per hour means a member of staff would need to sell (in the gift trade at least) £21 an hour minimum just to cover their own wages - over a standard 8 hour day that is £168 a day minimum - add on to that Rent, Rates, electricity and everything else and it tells me that even the smallest shop MUST take £400 a day to breakeven. Take less than that and you simply have to take more another day to make up for it.

I'll ignore the trolls who claim to make a million a day and delight in attacking Retailers but I know from experience that some days that is just not going to happen. We have a couple of shops where that doesn't happen a quite a few days of the month. At the moment we put it down to the roller coaster of Retail but from 2020 we have decided to simply close the shops that don't hit that level. We are fed up of "looking at the year as a whole" - of course we make money over the whole year but we have decided that we are no longer going to support those shops who struggle through Summer.

Bad for staff, bad for the public, bad for the Council, bad for the economy. Instead we may look at pop ups, - no business rates, no security of employment for staff, destroying local markets for three months of the year. We are heading back to the Thatcher years of "everyone for themselves and screw everyone else". That's great for big business and even some medium and small businesses but for micro businesses there is trouble ahead.

 

[Anonymouse72]

there's a couple of mainly consumer forums that i pop in & out on & exactly what @mhall has posted is gradually dawning on them.

the popular view is still that it's a good thing as all business owners are laughing all the way to the bank every year (oh, aren't we just! ), but there are more realists popping up with this more balanced view that jobs will be lost when this comes in.

 

[silvermusic]

there's a couple of mainly consumer forums that i pop in & out on & exactly what @mhall has posted is gradually dawning on them.

the popular view is still that it's a good thing as all business owners are laughing all the way to the bank every year (oh, aren't we just! ), but there are more realists popping up with this more balanced view that jobs will be lost when this comes in.

Sadly the number of ordinary non-business people who don't understand the first thing about business and assume business owners are all mega-rich tyrants is huge. My immediate circle of friends are mostly small business owners who do understand. Friends in my wider circle who are employees really can't grasp that being a business owner doesn't suddenly or automatically put you in the same league as Bill Gates. Most ordinary folk haven't got the first clue about running a business or what it entails in blood, sweat and tears sometimes.

 

[sirearl]

I suspect the supermarkets will turn more to auto tills and the monopolies will just increase there prices to cover any extra costs.

Unemployment as well as under employment is bound to increase.

Families that lose working credite will find its better to be on welfare.

So unless the Eton schoo;boy is happy to see kids starving on the streets,I suspect the welfare bill will increase greatly.

 

[mhall]

So unless the Eton schoo;boy is happy to see kids starving on the streets,I suspect the welfare bill will increase greatly.

Sadly, he could well be happy to see just that.

 

[Paul_Rosser]

Although both me and the wife will have to pay more tax due to the end of the dividend credit I can see the reasoning behind it as it doesn't take into account the rate at which Corporation Tax is paid.

As that's going to be reduced to 19% and then 18% in the coming years think it's fair they start charging some tax on dividends.

It's also been in the HMRC spotlight for a while as lots of accountants use the tax savings as a selling tool to get people to incorporate and whilst the NI savings will remain that's not the point of going Limited.

They are also scrapping the 2k NI allowance for sole director companies but increasing it to 3k for everyone else, which is good, unless you are a sole director company and then it's bad.

Full info on the changes can be found here http://www.lbgroupltd.com/summer-budget-2015/