Sneaky taxes
Sneaky taxes
In what creative ways are the government plucking people's wallets today?
September 26, 2016

Tax cuts! In this day and age, it sometimes seems like you can’t move without hearing the incumbent political party shouting out from the nearest rooftop about how they have reduced the tax burden of so many people. Indeed, last April it was announced that nearly half of us pay no income tax at all (from The Telegraph), thanks to the Conservatives.

This makes me wonder – if we have reduced the tax burden on the nation so significantly, how is the government actually balancing the books? Now, disclaimer time, there are obviously a plethora of ways through which they are doing this (including cutting back on spending), but I wanted to quickly touch on a subject that you may not hear a lot about – sneaky taxes.

As Jean-Baptiste Colbert (King Louis XIV’s finance minister) put it, “The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing”. So the question is, in what creative ways are the government plucking people’s wallets today?

Abatement of Personal Allowance

We have spoken on this one before (See Ross’ blog here).  We are often surprised to find how few people know that effectively the highest rate of income tax you can pay is in fact 60% – not the 45% additional rate that is often quoted. Essentially this is dressed up as a “removal of the personal allowance” which occurs between profits of £100k and £120k. The upshot of this is that the £20k of profit within these brackets is taxed at 60%.

Benefits-in-Kind

If you think you are getting tax free benefits from your employer, guess again! Your employer will, in fact, be deducting PAYE at source on these.

Dividend Tax

This one was particularly clever. What do you do if you promise not to increase Income tax, but want to raise the taxes people pay on dividends? Solution? Call it something different!

Knowing full well that they shouldn’t raise “Income tax” on dividends, the government decided that effective from 6th April 2016 dividends over £5,000 would actually suddenly fall under a new dividend tax (see our previous blog on the subject here). By the way, this tax still looks suspiciously like Income tax, however, is called something different (so that’s okay then…).

Levies, Duties and Insurances

Now we turn to another way that taxes tend to hide in plain sight, when they are called a levy, duty or insurance (if you name don’t call something a tax then surely it doesn’t count, right?). There are a few which qualify under this heading, so I will give you a quick whistle-stop tour of the main ones:

  • Air Passenger Duty – A tax by another name on flights out of the United Kingdom.
  • Lottery Duty – A tax of 12% on the National Lottery, and some other lotteries.
  • Vehicle Tax (also known as the Road Fund Licence) – Again, a tax which people genuinely don’t associate with general taxation.
  • Insurance Premium Tax – Another tax which has recently risen (from 6% to 9.5%).
  • Auto-enrolment – Coming into force soon, taking a look at the broad picture (a mandatory expense to be made to cover pensions), is this really much different from the National Insurance contributions already made? Now that I mention it, isn’t National Insurance itself a bit of a sneaky tax?

National Insurance is such a strange little tax. There are four of them (not including the “A’s” and “B’s”), so forgive me if I don’t go into too much detail. These payments are just kind of “there”, and I’m sure if you cornered someone and asked them what they were for, about the closest we would get is something about state pension and similar benefits.

Suffice to say, this little contribution to Government spending is one we tend to pay without thinking about it, although they actually end up in the same pot (after some clever accounting by the government)!

Now, even after all of the above, I haven’t scratched the surface of all the creative ways governments manage to collect their required revenue. We haven’t even touched on the following large ones:

  • Stamp Duty Land Tax – Including the oft-neglected 0.5% tax on share purchases.
  • Inheritance Tax (IHT)
  • Value Added Tax (VAT)

The plethora of sneaky taxes are all nice little earners which allow the government to continue telling us how much they are saving us tax, whilst actually increasing the tax burden on certain parts of society.

Now, there is a glimmer of light in this tunnel. Many of the taxes you incur can be managed, but you need to proactively organise your finances – feel free to get in touch to find out how we can help on  01872 300232 or email us at hello@hivebusiness.co.uk.

The information contained in this article is based on the opinion of Hive Business and does not constitute formal tax advice. Any tax outcomes will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future. You should seek specific advice before embarking on any course of action. Hive Business does not provide regulated Financial Advice, including advice on investment, insurance or lending products or their suitability for you. This article is provided for information only and does not constitute, and should not be interpreted as, investment advice or a recommendation to buy, sell or otherwise transact, or not transact, in any investment including Bitcoin and other crypto. Any use you wish to make of any information contained within this article is, therefore, entirely at your own risk.

By Team Hive
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