Tax return

Today I have submitted my tax return to HMRC.  Looking forward to a substantial refund – my biggest to date – and hoping it won’t be delayed without explanation like last year.

I expect a lot of people due tax refunds will be submitting around this time of year, just as soon as they have the relevant documentation.  I wonder if the level of tax refunds in the first quarter of the tax year might offer a measure of the Laffer effect?

Unfortunately it won’t, because it can’t tell us anything about revenue lost due to economic activity that simply hasn’t taken place because tax renders it worthless.  We know that low-income jobs (and voluntary work) are often taxed at effective rates in excess of 100% due to loss of means-tested benefits, which is why only foreigners can be recruited to many jobs.  I understand now a lot of high earners such as doctors are cutting down on work rather than pay marginal rates of 74% (rising to 76%), and for the same reason I’ve lost the appetite for a payrise.

Posted on May 8, 2010, in tax. Bookmark the permalink. 3 Comments.

  1. I know how it works at the low-income end of the scale, I’ve been there, done that – but how do you pay 74% or 76% at the high end?

    Just curious, ‘cuz I’ve never been there…

  2. Rational economic actors paying a marginal rate below 100% would still want a pay rise.

    Although the evidence in the states suggests that anything over $60,000/annum doesn’t make one any happier. I suspect the happiness cut-off is lower where state health care is available.

    So possibly doctors want more time off, because they know more money won’t make them happier.

  3. vet, the 74% rate (rising to 76%) applies between £100k and £113k annual earned income. It doesn’t apply above that, nor does it apply to unearned income at any level.

    The headline rate of tax is 40%. But to that you have to add:
    * employers and employees National Insurance (at that level, 14% rising to 16% next year).
    * loss of personal allowance, which happens at a rate of £1 for every £2 earned above £100k. That adds another 20% (0.5 * 40%) to your marginal rate. It’s why the rate drops again at £113k – there’s no personal allowance left to lose!

    Bottom line: if you get a rise from £100k to £101k, the government helps itself to £740 (£760).

    Simon, I’d be very happy on $60k or less but for one thing: I’d like to be rich enough to buy a house sometime before I retire (hence, rich enough to retire before I’m so decrepit as to qualify for council housing)! Currently I earn a lot more than that, but I’m catching up on many years of low income. That includes not least the time when I first knew you and had no income at all, but was also ineligible for benefits when my savings ran out due to the fact that I wasn’t totally idle!

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