Are YOUR wages passing inflation? Mine aren't!

[scaryjim]

... If a job is worth £XX000 PA, employer has to deduct the 13.8 percent before coming up with the salary.

No they don't. They have to work out what the job's worth, then add 13.8%* as one of their additional costs of employing that person. There are other costs to employing people, like workspace, equipment, utility bills, insurance etc. And if, once they've worked out the total cost of the employment, they can't afford it, they need to work out where they want to save money - do they cut the wages and pay below market rate for the job (so probably miss out on better candidates), do they increase the prices to their customers (and so possibly miss out of business), do they try to reduce other costs like stationary? If you work out the amount you want to spend then deduct 13.8%, you're always going to have the calculation wrong, because a) that's not how employer's NI works, and b) you're not considering all the incidental costs of employment.

* that is, 13.8% after deductions, of course

[Zak33]

gents.. office furniture... telephones.. carpet and electricity could ALL be considered a tax on salary.. if the bloke coming to work for you wore soft carpet slippers, bought his own portable desk and used no electricity, in theory you could pay him more.

But... it's not gonna happen

So while I agree that having to pay Employers NI is a cost... so is the photocopier and the new bloke will use that too,a dn make it wear out faster.....

if we removed the Employers NI bill would everyone get a pay rise by the same amount?

nah

[Saracen]

I am aware of this (own my own company with myself as an employee)
Look at it like this:
the 13.8% tax the government gets all of.
However that reduces your business earnings by that amount. If the company does not make a profit, this means that (ignoring the ability to profit shift) all of that 13.8% goes to the government.
If they do, they will not pay corporation tax of ~20% on that tax they have already paid on your wages.
I suppose you could argue that on that basis, ~80% of that 13.8% (11.04%) is actually the tax rate.
However that is still a tax on wages that in the same way that the amount you see on a payslip is a tax on wages. The employer pays all of your tax whether you see it or not, whether employers contributions or employees contributions.

The fact that people on this thread know how the tax system works, but do not see that all taxes based on your wages are funnily enough a tax on wages shows the power of the printed word and that people will get used to seeing things in the way the government wants them to simply because they have done so for so long now.

I'll repost the part I posted that people seem so keen to disagree with:

That was me agreeing with Saracen's figures and that - in context, he was correct. i.e. not disagreeing with him at all. I introduced the information that there is also another stealth tax on wages that a lot of people are unaware of.

I suppose someone could argue that I was wrong on saying "you Pay £15365 in tax." because of course your employer pays it all. However you would then also be arguing that you in fact pay no tax for the same reason - your employer pays it all. The difference is that you see some of it on your payslip and you don't see some of it.

I hope this clears up some confusion.

No, because for employee's NI and IT, the employee is liable. The employer merely deducts, and pays to HMRC. Or rather, they do if the employee is subject to PAYE. But if they're not, like a self-employed contractor, the 'employee' is still liable for IT and NI, albeit calculated rather differently, and NOT for employer's NI.

In the case of conventionally employed people, the employer is merely a collection agent for IT and employee's NI, and is neither better off nor worse off because of it .... like VAT, where the consumer pays and the VAT-registered business is merely an unpaid tax collector for the government.

In the case of employer's NI, at no point, and under no circumstances I can think of, is an employee ever liable for employer's NI. If the employer gets the calculations wrong, he (not the employee) is liable. If he gets the calculation right (or wrong) the employer, not the employee, is liable for prosecution, fines and late -payment charges, not the employee.

Employer's NI is a business tax, per employee, calculated by reference to employee's earnings, not a tax on those earnings.

The fact that people on this thread know how the tax system works, but do not see that all taxes based on your wages are funnily enough a tax on wages shows the power of the printed word and that people will get used to seeing things in the way the government wants them to simply because they have done so for so long now.

Nope. It's not the power of the printed word. It's that I don't agree with your view on this. At all. Employer's NI is not a tax on wages. It's a tax on business operations, calculated by reference to wages.

And, most businesses tend to pay wages according to what they have to, to get the right number and quality of people. Most won't increase wages at all if employer's NI goes down, or disappears, though the reduction in costs might mean they employ more people. And, they won't cut wages if employer's NI goes up, because they can't - the employee isn't liable .... though they might take on less new staff or make some redundant, or just become less profitable. Or, cease trading.

If you own a small business, in company form, I can see why it feels like a tax on wages. But it isn't. As the employee, you get taxed on income. But, as a business owner, you (hopefully) make a profit and hence employer's NI comes out of your pocket too. But so does corporation tax. The majority of employees don't own the company, and are never, directly or indirectly, liable for employer's NI, or affected directly by changes in rates, unless they end up redundant because of it.

[Amantus]

Nope.

[peterb]

Is it? I have to pay mine well before I've filed my accounts.
Not so. NI is a tax on every employee we have in the UK. If we have a situation where we have no direct control on pricing, the only variable that can give is his wage.

This is really common for small businesses.

If it was a tax on profit made on the business or something, you could argue it wasn't a direct tax on jobs.

Yes. I assume that as you are a director, you are a director of a limited company. As such, when you file your CT600, employers NI contributions are taken out of the turnover, and before annual profit, and the company will not pay Corporation Tax on that element. Salaries and wages are also deductable expenses.

You may be a director, but you are still an employee, of the company, and therefore both your salary and employer's NI contributions are tax deduct able against corporation tax.

Dividends are NOT tax deduct able, the come out of net profit, after corporation tax has been deducted. That is why dividend payments attract a notional personal tax benefit, they have already been paid out of (Corporation) taxed profit, and they are not subject to income tax unless you are personally a high rate tax payer.

[badass]

No, because for employee's NI and IT, the employee is liable. The employer merely deducts, and pays to HMRC. Or rather, they do if the employee is subject to PAYE. But if they're not, like a self-employed contractor, the 'employee' is still liable for IT and NI, albeit calculated rather differently, and NOT for employer's NI.

In the case of conventionally employed people, the employer is merely a collection agent for IT and employee's NI, and is neither better off nor worse off because of it .... like VAT, where the consumer pays and the VAT-registered business is merely an unpaid tax collector for the government.

In the case of employer's NI, at no point, and under no circumstances I can think of, is an employee ever liable for employer's NI. If the employer gets the calculations wrong, he (not the employee) is liable. If he gets the calculation right (or wrong) the employer, not the employee, is liable for prosecution, fines and late -payment charges, not the employee.

Employer's NI is a business tax, per employee, calculated by reference to employee's earnings, not a tax on those earnings.

I'm picking this one because it is the only counter argument to my counter to Scaryjim's post since my last post.
The rest are simply reworded repeats of what Scaryjim has said.

The liability - it's a good point, not that I agree.
VAT is considered a tax on goods and services that you buy. I'd like to see anyone disagree with that one.
The liability for collecting VAT is with the supplier of the goods - not the consumer.
Just like the liability for employers NI contributions really.

It's just that we're conditioned to think of it differently.

Can anyone point out any relevant difference between VAT and employers NI contributions that makes one a tax on goods/services bought and the other not a tax on wages?
I don't consider the fact that VAT is claimable back whilst employers NI contributions can only be offset against profits to be relevant unless I see a damn good argument.

[wasabi]

How about the Insitute of Fiscal Studies opinion on the subject....

David Phillips, an IFS economist, said: “National insurance is, ultimately, paid by workers. In the short-term, bosses might take on the cost themselves. But, in the long term, many employers will cut gross pay.”

[j.o.s.h.1408]

Lo people.

I'm genuinely surprised by this statement!

http://www.bbc.co.uk/news/business-27010326




Now, frankly I dont' see that tbh.

Inflation still feels relatively strong in essentials like bread, diesel, milk etc.

And my salary has certainly not moved up.

So,,... where does this Economics forecaster get off the train?

unless your self employed like me, its hard to get payrises that are above inflation.
i am currently enjoying freelance work. pays very very well and i get to pick and choose the projects i want to work on

[TheAnimus]

Yes. I assume that as you are a director, you are a director of a limited company. As such, when you file your CT600, employers NI contributions are taken out of the turnover, and before annual profit, and the company will not pay Corporation Tax on that element. Salaries and wages are also deductable expenses.

You may be a director, but you are still an employee, of the company, and therefore both your salary and employer's NI contributions are tax deduct able against corporation tax.

Dividends are NOT tax deduct able, the come out of net profit, after corporation tax has been deducted. That is why dividend payments attract a notional personal tax benefit, they have already been paid out of (Corporation) taxed profit, and they are not subject to income tax unless you are personally a high rate tax payer.

I'm not the majority owner of the one in question.

But the main thing is, that NI contributions are not at all related to turnover, but directly too how much you pay someone.

In that respect, as someone who runs a small business, I can tell you it's money out of that persons pocket in my cases. As we have such tight budget and income for the next few months / years. Such is the nature of software.

In some cases, where the skill is low, and the supply of staff so plentiful, then yes NI won't make much difference, but in anything with low margins, it will.

[scaryjim]

... we have such tight budget and income for the next few months / years. Such is the nature of software. ...

So how do other companies in your industry manage to pay higher wages? They face the same market forces, they pay the same NI contributions, yet apparently they can afford to pay more than you can (otherwise the going rate wouldn't be higher than you can pay).

[herulach]

I'm picking this one because it is the only counter argument to my counter to Scaryjim's post since my last post.
The rest are simply reworded repeats of what Scaryjim has said.

The liability - it's a good point, not that I agree.
VAT is considered a tax on goods and services that you buy. I'd like to see anyone disagree with that one.
The liability for collecting VAT is with the supplier of the goods - not the consumer.
Just like the liability for employers NI contributions really.

It's just that we're conditioned to think of it differently.

Can anyone point out any relevant difference between VAT and employers NI contributions that makes one a tax on goods/services bought and the other not a tax on wages?
I don't consider the fact that VAT is claimable back whilst employers NI contributions can only be offset against profits to be relevant unless I see a damn good argument.

VAT is a tax on the value added by the business doing the selling, the clue is in the name. a sales tax is a tax on goods and services. The fact that they're calculated with reference to the same thing doesn't mean they're the same.

I think everyone agrees that Employers NI is a tax calculated based on the value of an individuals wages. The point is that it isn't a tax imposed directly on those wages, but a running cost of employing a staff member, just like the cost of providing them with a desk, phone, pension, healthcare etc (infact in the latter 2 cases, pretty similar indeed).

Your VAT example is an (I think unintentionally) not a bad one, in that it like VAT it is a tax on the value generated for the company (presumably proportional to their wages) rather than on the wages themselves. Hence (like as in the example on the previous page) you don't pay it for low value employees.

[Saracen]

....

The liability - it's a good point, not that I agree.
VAT is considered a tax on goods and services that you buy. I'd like to see anyone disagree with that one.
The liability for collecting VAT is with the supplier of the goods - not the consumer.
Just like the liability for employers NI contributions really.

It's just that we're conditioned to think of it differently.

Can anyone point out any relevant difference between VAT and employers NI contributions that makes one a tax on goods/services bought and the other not a tax on wages?
I don't consider the fact that VAT is claimable back whilst employers NI contributions can only be offset against profits to be relevant unless I see a damn good argument.

No, the liability for paying VAT is on the consumer. The retailer has a legal duty and statutory obligation to collect and remit to HMRC, not to pay it. Other than the overhead implied by that imposed collection duty, VAT doesn't impact on the businesses bottom line. Or not directly, anyway. Yes, an argument can be made about competitiveness against non-registered small business, but that's a knife that cuts both ways, and isn't relevant anyway.

That aside, any VAT a (registered) business collects it remits to HMRC, less any input VAT it has paid. Or, in the event of input VAT exceeding output VAT, you get a refund from HMRC. Either way, VAT does not come off a company's P&L, above or below the line. Employer's NI does.

Oh, and for the pedantic types out there, what might have an impact on bottom line is interest earned on VAT collected and held on deposit, prior to remitting it, but it is, of course, offset by interest lost on the VAT you've paid on inputs, prior to reclaim. And yes, it is (or was, but HMRC have tightened up a LOT in recent years) possible to play some games with timing of payments, especially between international branches of group companies. I'm not current enough to know if, or to what extent, that still happens, but I have seen some, erm, imaginative interpretations of regs, in the past. But again, that's in the realms of expert interpretation of tax law, and beyond the basic implications of liability, or indeed, beyond the reach of any but large companies.

Essentially, the consumer pays the VAT. That's the whole point of the net-offs of value-added, up and down the production chain. But business do pay employer's NI, and it does affect profitability, and is a valid deduction. VAT isn't, because they're just a collector .... albeit one with a legal responsibility to do it, and do it right, because if not, then they will be liable to pay it.

This is, however, all rather off the point, which was, in the first place, wages and inflation, and in the second, the extent of a specific case of figures that seemed unrealistic.

[Spreadie]

January was the first time since 2007 I have had a pay rate increase. In the same period inflation has risen 17.5%.

So accounting for my recent 3% increase, I'm effectively 14.5% worse off than seven years ago?

[Saracen]

January was the first time since 2007 I have had a pay rate increase. In the same period inflation has risen 17.5%.

So accounting for my recent 3% increase, I'm effectively 14.5% worse off than seven years ago?

Not necessarily. It's more complex than that.

First, pay might not have gone up, but personal allowances (for the majority) have, so you gain a bit there. Secondly, lots of people have benefitted from very low interest rates which were, along with "austerity" a direct result of the credit crisis. So, for example, people with tracker mortgages tend to have done pretty well. Those paying rent, not so much. Property prices have also taken a hit, so those getting on, or possibly moving up, the property ladder may well have gained. Those relying on savings, and income from then, got clobbered, though.

I would also point out that it's unrealistic to expect things to always beat inflation in good times, and never to fall behind in bad times. We can't just bank the good years. We get good, and bad. Some above average, some below.

Oh, and one other thing. Considering the nature of the crash, and the underlying issues, perhaps we ought to be thanking our lucky stars that falling behind inflation a bit is all it amounted to for many. Quite a few lost jobs, but it could oh so easily have been FAR worse. We could have eeen a depression-style disaster, with mass unempliyment. And yet might. For all that the economy is doing moderately well now, we aren't out of trouble yet, and there are still massive underlying problems.

[AndyDel]

My wages have been gone up far above inflation for the last 7 years but that's because i've steadily moved into larger companies and left where i was, loyalty often doesn't go rewarded i'm afraid.

I pay roughly £1400 a month in tax / NI (Including benefit in kind tax from company car), i'm 30.

I've meet people who do the same job at age 45, have done so at the same company for 10-15 years and are on less. This is despite the fact they're far more experienced and in allot of cases very good performers.

If you are not earning the average to top end of the market rate (Try itjobswatch to see if you work in IT industry) and your company isn't willing to give you raises to meet that, leave. Your employer then has three options, hire somebody in who is less experienced that they can get cheaper than market rate, hire somebody in at market rate or retain you and give you the salary you require.

If you're good enough to warrant a market rate salary from your current employer in terms of performance reviews, you're good enough to do that job elsewhere for more money and not worry about lack of safety probation period wise within the first year. Also, unless you've worked for a company 20-30 years any comfort afforded by redundancy pay in the worst case will normally be countered over time if your pay increases enough.

[badass]

VAT is a tax on the value added by the business doing the selling, the clue is in the name. a sales tax is a tax on goods and services. The fact that they're calculated with reference to the same thing doesn't mean they're the same.

I didn't say they are the same

I think everyone agrees that Employers NI is a tax calculated based on the value of an individuals wages. The point is that it isn't a tax imposed directly on those wages, but a running cost of employing a staff member, just like the cost of providing them with a desk, phone, pension, healthcare etc (infact in the latter 2 cases, pretty similar indeed).

And just like the cost of paying them their wages too

Your VAT example is an (I think unintentionally) not a bad one, in that it like VAT it is a tax on the value generated for the company (presumably proportional to their wages) rather than on the wages themselves. Hence (like as in the example on the previous page) you don't pay it for low value employees.

A tax calculated on the value of something is a tax on that thing.

VAT on 20% on a shiny new CPU for me is a tax on that CPU. Whoever is responsible for paying it.
I could buy that CPU from a retailer and the government passed a law that VAT for CPU's must be paid by the queen, even though she has no connection with these transactions.
The imaginary VAT is still a tax on that CPU.
Any anyone that thinks that cutting out the 13.8% charge wouldn't positively increase wages obviously never paid cash for a job performed by a tradesman
Just because removing the tax wouldn't put the whole amount in your pocket immediately doesn't miraculously mean that we can't consider the item to be taxed.