Is the tax system in this country a load of smoke and mirrors?
I am a basic rate taxpayer. If I earn an extra £1 then 20p is deducted in income tax, 12p is deducted in national insurance and 9p is deducted for my student loan = 41p is deducted and I receive 59p.
If I was a higher rate taxpayer without a student loan then if I earn an extra £1 then 40p is deducted in income tax and 2p is deducted in national insurance = 42p is deducted and I receive 58p.
That's a difference of 1p. I know there's pitfalls such as the child benefit tax charge and losing your personal allowance over £100,000 but there's also a lot more tax planning opportunities available to them. I don't get why pensioners don't pay national insurance either.
It seems like there's a lot of fannying around at play that they get away with because most people don't understand the basics of personal finance.
If you were on the higher rate you'd have 9p taken off for your loan, so the difference for you would be 10p. Is your problem that a low rate payer (with student loan) would effectively pay the same as a high rate payer (without loan)?
The tax system isn't that complex to wrap your head around and as I understand it's like that because of how it's been done historically (to combine NI and income tax would make sense but is practically a minefield). Certainly, it's not complex enough for the misguided belief 'I won't take a raise because I'll pay more in tax'.
>>89598 It was a bit of guesswork; student loans have been going for about 22 years so they won't be applicable to most over the age of 40 and people tend to have their highest earnings later in their careers, as well as that most people who are higher rate taxpayers and have a plan 1 student loan will have either paid it off or be very close to.
I know people who think the moment they reach the higher rate tax band all of their income above the personal allowance is taxed at 40%, meaning you lose money at first, which I've never understood.
>>89598 >'I won't take a raise because I'll pay more in tax'.
It's rare, but it's certainly possible to lose out on a raise. When the UEL and the HR threshold have been in different places, it's been possible to find yourself in a position where you pay less tax if you get a bigger raise.
I once lost out on a raise twice in the same year. Working in the NHS, I hit my anniversary and gained a point, but it took me over a pension threshold and so I ended up taking home less. A couple of months later, we got the annual 1% raise, but at the same time lost the contracting-out discount for NI. As a result, my gross salary was around £2k higher, but my take-home was around £50 a month less.
