How much do we pay?

[neonplanet40]

Hi guys,

Basically I was talking to my friends at the weekend and we started discussing tax and all the other things we pay. In the end we were curious about how much of a yearly salary does the average person lose?

By lose, I mean things such as National insurance, Tax, Vat, House Rates/Council tax, Car tax, Petrol, Fuel, Water charges etc etc that an average couple of a man and wife would pay.

So basically a family of a wife and a husband who both earn £23,000 a year. They own one car and have an average house in England. Not in a very expensive area but just normal? How much does the government get from them? They buy a normal amount of fuel an food etc.

We were all wondering how much the government actually gets from that yearly wage. We predicted it was quite a lot. Which then made us wonder how the economy was still screwed up desipte the fact we pay more money to the government than we ever have.

Now I know this is all relative and some of the areas are vague but im just looking an average not 100% concise. It is just for a little bit of information between ourselves.

[kalniel]

Which then made us wonder how the economy was still screwed up desipte the fact we pay more money to the government than we ever have.

And we also get more from the government than we ever have.

The economy screw up has little to nothing to do with the proportion of money that is central vs held by individuals. If anything, the screw ups have been bigger in countries like America where less money is held by the state, while countries where more money is held by the state have coped significantly better. The layman's conclusion might be that we should be paying far more taxes if we want to avoid future screw ups.

[neonplanet40]

Well that may be true, and I dont want to start argueing about the credit crisis etc. But I would like to know one average how much we pay.

Im not dismissing your argument by the way. I just dont want it to become the focus of the thread.

[Jay]

work it all out and it will be 110%

[GheeTsar]

Depends on a multitude of factors but here's a very rough calc:

Nat insurance = 11%
Tax = 20% after first £6475

= £5835 of the £23k salary

Council tax depend on where you live etc, but in my instance it's about £800/yr each
Petrol tax is about 60p a litre, so maybe about £500/yr if you drove 10,000 miles

Total = £7135/yr

Then, assuming a 17.5% VAT on the rest of the money, assuming none was put into savings or spend on a VAT exempt item (or on things with more duty like cigs/booze) = £2776/yr

Grand total = about £10k = ~43%

[Rob_B]

Well I don't think you can really count 'bills' or even council tax as they vary wildy & some people don't pay some things, some people don't drive etc so it's tricky.
At a very basic level...

Someone earning 20K

Tax = £2,793
NI = £1,599
5% Vat on utility bills (avg UK bill are approx what, say £1,000?)

So 20000 - 2793 - 1599 - (1000/100*5) = £15,558

So from whats left VAT @ 17.5% on everything you buy (some exclusions ie childrens clothes) so its still nearly 25% on the very basics not even including food.

[CAT-THE-FIFTH]

The taxes on savings and inheritance tax also need to be included too.

Basically,we get taxed on our earnings. Many items we buy also are taxed. The money we saved is taxed if we earn interest and the amount saved is above the ISA threshold. Any property or other assets you have will also be taxed when you die if they are above the threshold. If you live in the property you are also taxed.

It is more likely that more and more people will need to take out private healthcare in the future too. So you will need to pay for this too.
The old age pension may also not be around in the near future so people will have to make bigger contributions to their pension schemes.
On top of this if you have kids you may need to set aside a lot of money if they want to go to university.

[Saracen]

Well I don't think you can really count 'bills' or even council tax as they vary wildy & some people don't pay some things, some people don't drive etc so it's tricky.
At a very basic level...

Someone earning 20K

Tax = £2,793
NI = £1,599
5% Vat on utility bills (avg UK bill are approx what, say £1,000?)

So 20000 - 2793 - 1599 - (1000/100*5) = £15,558

So from whats left VAT @ 17.5% on everything you buy (some exclusions ie childrens clothes) so its still nearly 25% on the very basics not even including food.

To directly answer the OPs question, he did say two people both earning approx £23k.

Council tax is a tricky one. To get anything beyond a finger-in-the-air guesstimate, you'd need to know how many household in each area (and therefore with each base charge) are in each band. I'd then say you calculate a loading each band to reflect that. Then, you'd need to know the average council tax bill for each area. Then, you'd need to decide what you mean by average? Mean, median, mode, etc? Presumably we'd mean mean.

And in case anyone thinks I'm being facetious (heaven forbid), official annual stats for 2010-11 show median gross income of of £506.60 and a median of £603.50, and Income tax (not NI) as a percentage of those being 15.0% and 15.9% respectively .... dropping to 7.1% and 14.1% respectively if the couple (previously assumed to be childless) have two kids, because of the effect of child tax credits.

So .... percentage of "average" income paid in income tax could be anything from 7.1% to 15,9% depending on what you mean by "average", and whether the couple have kids or not.

VAT is another tricky one. It does include a lot of things, but it also doesn't include a lot of things, and generally, the worse off you are, the more things you buy will be VAT-less. For instance, most foodstuffs (* see next post) are exempt (or to be more accurate, zero-rated, because exempt is technically something different in VAT terminology) but luxury items are not. That includes alcoholic drinks, confectionery, crisps and savoury snacks, food for catering or hot takeaways, ice cream, soft drinks and mineral water. Bit on some of those, most noticeably alcohol (and cigarettes) you're not only paying VAT, but excise duty, and even VAT on the excise duty. Much the same applies to petrol and most (but not all) forms of diesel.

But, when you buy, say, a TV or camera or computer part, how do you know what tax you're paying? Yes, it'll include VAT, but it'll also almost certainly include import duty, and the duty rates vary hugely according to the commodity code, of which there are thousands, ranging between zero and one hell of a lot.

The best way I can think of, short of a LOT of detailed research and a honking great spreadsheet, or some very broad assumptions, is to look at government statistics and see the total number of households and the total VAT revenue for the year, and divide it out. But it WILL give a pretty distorted view if you do that. Suppose I decided to buy a new Aston Martin at £170,000 ..... and also suppose I either just won a lottery jackpot or got a large inheritance from a multi-millionaire Aunt I didn't know I had). Anyway .... suppose I did - I've just paid about £25,000 in VAT, which is going to kind-of distort the total tax burden on your average family's tax burden. Tax distribution is VERY uneven, in cash terms, because income distribution is very uneven and so doing an average across the population is a huge fudge.

Or you could make some assumptions about average weekly spend based on average weekly income. It'll be a far guess for someone earning £23k/year that if post-IT/NI earnings are about £18k, i.e, £340/week, that they aren't spending all of it on VATable goods.

If you make an allowance for rent/mortgage, car costs and petrol, general insurance, council tax, maybe a cheap annual holiday, etc, you'll wind up with a figure so low it's fair to assume most of it is going on food and essentials, much of which (for that very reason) is zero-rated.

This ties in with am argument I've often had when people call VAT regressive. The basic principle certainly is, but in the implementation? Not so much, because the very poorest spend a far larger proportion of their income on zero-rated goods than the better off, which is just how it should be.


All told, it'll be a very brave individual that comes up with any sort of a figure for total tax paid in all it's various overt and hidden forms, or tax as a percentage of average income, and pretends it's anything other than very speculative indeed.

[Saracen]

From my last post, what's covered by VAT?

Foodstuffs aren't, but luxuries are. Apparently, cake is a foodstuff, but chocolate-covered biscuits are not. The moral of that .... don't buy chocolate hobnobs, buy hobnobs and cover them in chocolate yourself, and join the legion ranks of "tax avoiders".

Okay, I'm kidding a bit, But this is not ..... is a Jaffa cake a cake or a choc-covered biscuit?

HMRC maintained it was a choc-covered biscuit, and therefore subject to VAT. McVities argued it was a cake, and therefore not. This argument went on for several years, with millions in VAT revenue at stake as a result. Eventually, before a senior judge, McVities baked a 12" Jaffa and presented it in court as proof it was a cake, and won the argument.

Now, what about those millions in VAT?

If, as a VAT-registered business, you fail to collect VAT from your customers, well, that's just fine with HMRC .... but you get to pay it yourself. They don't much care if the retail customer pays it or the business pays it, but someone pays it. So, faced with an initial ruling that Jaffas were VATable, if the retailers failed to collect VAT, they were on the hook for it if the challenge to the ruling failed. My guess is that they did indeed collect it.

But, when the ruling upheld the challenge, did the (and indeed, could the) retailers refund it to us, the customers, that had paid it, or did they pocket the millions themselves? That, I leave as an exercise for the reader.



Oh, and this foodstuff versus luxury argument isn't just about Jaffa cakes. Are salted peanuts food, or luxury? What about honey-roast? What about peanuts in their shell? Peanut butter? What about bottled water versus mineral water? And so on.

Try working out what the typical family pays in VAT if you're trying to take into account their predilection for dry-roast peanuts or shelled ones. Mind you. they need to be eating lot of nuts for it to much matter, but the principle applies all over the place, and in some very strange ways.

[TheAnimus]

Also don't forget free market theory comes in here too.

By leaving out tax on some items, but not others your distorting the playing field and might make it less incentivising for people to be as efficent as they could.

If choc hob nobs are 17.5% more expensive than a jaffa, then jaffas but cost the same to make (I honestly have no idea, but lets pretend the break-even was the same!) then they would charge 17% more than they need to.

Meaning the poor still get screwed.

[neonplanet40]

I knew i was being too naive to think it would be easy to come up with a figure But thanks for the great replies!!!

[Saracen]

Also don't forget free market theory comes in here too.

By leaving out tax on some items, but not others your distorting the playing field and might make it less incentivising for people to be as efficent as they could.

If choc hob nobs are 17.5% more expensive than a jaffa, then jaffas but cost the same to make (I honestly have no idea, but lets pretend the break-even was the same!) then they would charge 17% more than they need to.

Meaning the poor still get screwed.

Well, probably true .... if :-

a) people check the comparative prices and decide on that basis, and don't just buy one and not the other 'cos they like one and not the other, and

b) you assume that consumers have perfect (or nearly perfect) price knowledge, and

c) with that knowledge, they act entirely rationally, and

d) no other factors are affecting their decision.

That's a lotta if's.

[Saracen]

I knew i was being too naive to think it would be easy to come up with a figure But thanks for the great replies!!!

For my part, you're welcome.

And I don't enjoy popping balloons, honest. :|D

[neonplanet40]

For my part, you're welcome.

And I don't enjoy popping balloons, honest. :|D

It's not really popping balloons its better to know the facts than me and my friends walking around thinking we will be giving the government 80% of our pay

[petercook7]

1600 billion has been spent on he war.

[GheeTsar]

1600 billion has been spent on he war.

Which war?