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Are we a high taxed economy - where does all the money go?

In the glorious aftermath of the end of tax return season I have turned my attention to a calculation that has been burning away in the back of my mind for some time. 

Sadly enough I've often wondered what level of profit would a company have to earn to allow an owner/shareholder to fill his car with petrol? - and - of that profit, how much does the Government take a the end of his transaction flow? - I have run the analysis - see below –

Mr Capone would be proud!!  I do wonder where all the money goes?

Assumptions - 1. Individual is a 50% taxpayer and owns 100% of shares in his company, 2. Company at the marginal rate, 3. Diesel 72.5p, 4. split of VAT and fuuel duty is as per

Assume net income of company at £215, Corporation tax is £59, div to shareholder is then £156, IT by shareholder is £56, resultant £100 spent at pump is £42 fuel duty and £17 VAT leading to a net spend of £41.

So the company earned £215 and £41 is received by the retailer - £174 taken by Government - an effective rate of 81%!! 

Yes I know it's the worst case and you may wish to pay salary in the CT marginal rate etc etc but you could of course expand to take account of the tax in the hands of the retailer, I had to stop somewhere and I tried to make it interesting!!  ;-) 


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Precisely the reason why....

I force the firm to stay under £300K of profits, make sure I stay in the basic rate band and cycle, walk or catch the bus to work! 

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.. 50% tax rate ...

not exactly representative 2% maybe?

As to where the money goes ...  will yield your answers.

One benefit of the recession is that such debates have become pretty undesirable. Most people really have no sympathy with high earners and how bad their tax bill might be. Most are just keeping their head down and getting by and that may be the norm for a good time to come.

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17th Feb 2012 14:31

The top earners do pay an

Steve - The top earners do pay an incredible amount of tax - is 81% not high enough? - you may not have sympathy  - is this the politics of envy?? What about the workers that work for that Owner Manager - the PAYE and NIC that they pay and the company pays?  He / she has worked extremely hard to generate those jobs and feels responsible for making sure they can be paid at the end of the month.

Jobs are not created by people "keeping their head down" - they are created by risk-takers and people that look above their desk, back their own judgement and skill and who work hard.  Government should encourage this - if taxation is too high entrepreneurs will leave / set up business elsewhere / never give it a go in the first place - why should anyone work every hour to win that new client or order to generate new jobs if there is no incentive for them? - we can't all be a nation of 9-5 clockwatchers.

You show very little appreciation of how much High Net Worth Individuals contribute to the coffers of this country and little desire to evaluate what the Government does with the money they collect.  There is a clamour for "the rich" to pay more and "their fair share" whatever that is??  I'm merely pointing out that they already are paying through the nose - how about turning the tap off at the other end and dealing with benefit claimants who cannot live without Sky TV but do not want to work?

I see Douglas Alexander says we are "spending" too much on tax relief for the 40% taxpayers (an ever increasing constituency) - what does he mean by "spending" - the relief shelters money that taxpayers earn from Government's taxation - he is not spending our money on this relief - he is denied the ability to extract more - the politicians seem to think that what taxpayers earn is rightfully theirs to spend - it's not - it's their priviledge to collect and responsibility to spend wisely and effectively - unfortunately all politicians are failing and seeking to feather tehir own nests - of shoudl I say duck ponds??   

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Too much tax!

I was clearly thinking along the same lines as the OP when I wrote this recently

Please feel free to check my numbers, but I calculated 78% total tax over the life of marginal new self-employed income for an already higher rate taxpayer.


Too much tax is a disincentive to economic growth, and that ultimately affects high and low earners alike.


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17th Feb 2012 14:33

When was the last time

that you bought diesel at 72.5p?


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17th Feb 2012 14:38

Mouse - 72.5 litres at £1.38p

Mouse - 72.5 litres at £1.38p per litre - my bad

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17th Feb 2012 15:01

Let us not forget the verdict in Rex versus Puddle 1930

The peculiar case of Rex v Puddle

The Hammersmith Blackmail case was concluded at the Old Bailey today.

The Conduct Complained of

Now, Mr Haddock, the complaining witness in this case, received a letter from the prisoner demanding money. The letter was printed in ink of a bright red colour, and that is a circumstance which you may well take into account when you come to consider the intention of the letter and the effect which it may have had upon the mind of the recipient. For red is notoriously the colour of menace, of strife, of bloodshed and danger; and it is worthy of note that the prisoner's previous communications to Mr Haddock had been printed in a quiet and pacific blue. The letter was as follows:

Previous applications for payment of the taxes due from you on the 1st day of January, 1930, for the year 1929-1930, having been made to you without effect, DEMAND is now made for payment, and I HEREBY GIVE YOU FINAL NOTICE that if the amount be not paid or remitted to me at the above address within seven days from this date steps will be taken for recovery by DISTRAINT, with costs.

(signed) E PUDDLE, Collector

Mr Justice Trout (addressing the jury): Gentlemen, this is a very grave case. The prisoner in the dock, a Collector of Taxes for the district of South Hammersmith, stands charged with the odious crime commonly described as blackmail. That expression dates from very early times, when it was the custom to pay tribute to men of influence who were allied with certain robbers and brigands for protection from the devastations of the latter. The practice was made illegal by a statute of Queen Elizabeth's time, and ever since has been classified by our Courts as among the most contemptible and dangerous offences. A person who, knowing the contents, sends or delivers a letter or writing demanding with menaces and without reasonable cause any chattel, money, or other property, commits a felony, and is liable to penal servitude for life. The menace, the 'putting in fear', as our ancestors expressed it, is of the essence of the crime. The spectacle of one man demanding money from another must always be painful to the civilized mind; but when in addition that other is made to fear for his safety, liberty, or reputation the law steps in to protect and punish.

'Collector', I may observe in passing, was in other centuries a word commonly used to denote a highwayman [Footnote 1]. But you will not allow that point to influence you unduly.

Footnote 1: In Rex v Strauss (1928) 9 Cr App R 91, a bailiff acting for the Inland Revenue was struck and killed with a book of sermons while removing, from the premises of the accused, a wireless set belonging to the accused; as well as two Rabbits, the property of a favourite daughter. The defence was that distress for income tax was a gross provocation comparable to the discovery of a wife in the arms of another (see Rex v Mouldy, 1 Ventris 158), and such as to produce an uncontrollable impulse depriving a man of the ordinary powers of self-control. The jury, without leaving the box, returned a verdict of 'Justifiable Homicide'; but the following day was Derby Day, and therefore the decision is not regarded as settled law.

So, Is This Blackmail?

Now the 'demand' is clear; indeed the word, as you will notice, is printed in block capitals. And you have to say, first of all, whether or not that 'demand' is accompanied by menaces. You will take everything into consideration, the terseness, I almost said the brutality, of the language, the intimidating red ink, the picking out in formidable capitals of the words 'DEMAND', 'SEVEN DAYS', and 'DISTRAINT'; and any other circumstances which may seem to you calculated to cause alarm in the mind of the recipient.

You will observe in particular the concluding words, 'Steps will be taken for recovery by DISTRAINT, with costs.'

'DISTRAINT'. What is the exact meaning of that? It means the forcible seizure of a person's goods; it means the invasion of his home by strangers; it amounts to licensed burglary; it means the loss not only of favourite possessions but of reputation; it means distress to wife and family, and it is significant that the correct and common term for the process is 'Distress'. Evidence has been given that a threat 'to put the bailiffs in' brings terror to any home. The complaining witness in this case has sworn that, without opportunity to state his case in a court of law, his goods would be seized and his wife and family put in fear by the prisoner. The prisoner says that that was not his intention: that the words 'steps will be taken for recovery' indicated a preliminary summons to the Court. You may think that in that case he would have done better to print those words in the same large type as the word 'DISTRAINT'; and you may think, as I do, looking at all the circumstances, that the letter was deliberately planned and worded with the intention of creating alarm, and, through that alarm, extracting money from Mr Haddock, who is a sensitive man.

Was There Reasonable Cause for This Menacing Conduct?

You will then have to ask yourselves, was this menacing demand for money made with reasonable cause? You will bear in mind that Mr Haddock is not a debtor nor a criminal; he has not taken another's property nor done any disgraceful thing. His only offence is that by hard work he has earned a little money; and the suggestion is now made that he shall give away a fourth part of that money to other people. That being his position, you might well expect that he would be approached not with brusqerie but with signal honours, not with printed threats but with illuminated addresses. But the whole tenor of the prisoner's communication suggests that in his opinion Mr Haddock is a guilty person. Observe the strange use of the word 'recovery' - as if Mr Haddock had taken money from the prisoner. Mr Haddock has made repeated protests to the Collector and to his confederate, the Inspector, urging that even under the strange customs of our land the sum demanded of him was excessive, that due allowance had not been made for the particular hardships and expenses of his professional calling, and that in his judgment the prisoner and his principals have taken from him during the past years money which they ought in conscience to restore. While this dispute was still proceeding the prisoner sent this letter . Mr Haddock, a public-spirited man, conveyed the letter to the police, and it is for you to say whether he was right in doing so. An official from the Inland Revenue Department has drawn your attention to the difficulties of a certain Lord Snowden, the prisoner's principal, who, it appears, is in need of money. You will pay no attention to that. We are all in need of money; and if this Lord Snowden has an insufficient supply of money he must spend less money, as the rest of us have to do. Neither his avarice nor his extravagance can excuse a breach of the law.

The Verdict

The jury eagerly found the prisoner guilty of blackmail, and he was sentenced to penal servitude for life, and solitary confinement for ten years, the sentences to run consecutively. The Court congratulated Mr Haddock.

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You mis-judge me perhaps ..

I am well aware of the disproportionate tax contribution made by the richest in our society. I am a card carrying evangelist of those that work hardest or are the most talented should earn more. I understand that having a high marginal rate of tax may be a disincentive to some (although I would suggest that most entrepreneurs don't actually take risks for the money alone).

However, for those that are fortunate to earn enough so that they never really have to think about money (£150k is doing well), I think you should just shut up and be satisfied when most people are less fortunate. Our household perhaps grosses £80 - £100k p/a and indeed we are fortunate that we never have to worry about a bill or bank statement arriving. So, I wonder, how people who earn quite a bit more could ever moan about their lot. Surely there is such a thing as enough money?


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17th Feb 2012 16:43

Politics of envy
Steve. I think it's incredibly condescending for you to tell anyone how much money they need or should be satsfied with or telling them to "shut up" when they've earned what you think is enough. That is the politics of envy. Let everyone earn what they can and keep what they have after looking after the less fortunate of society and let them spend it as they will.

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Believe me ... no envy intended!

Re-read what I said. I am happy that they earn as much as they want. I represent many high worth people after all. That they could possibly moan about their lot, however, makes no sense to me. They have enough ... and that's not a subjective or judgemental statement it is a quantitative one. 

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y.o.s it might also be thought condescending to automatically accuse someone of envy just because they question the validity of someone, in the top 2% of our society, bemoaning his or her financial lot. I'd go further and say it is perhaps far too simplistic a response.  

After all, we have seen many bilious comments on this site directed at the less well off (striking public sector workers comes to mind) and it would be equally silly to accuse the writers of envy, even if they do think the workers have a cushy little number.

There is, I am glad to say, a growing disillusionment with the policy of blindly following a market approach to life when it's clear that, for over 150 years, all it seems to do is create unsupportable inequality, stress and a cycle of excess (for some) followed by nothing for many.

Your point about the high earners creating wealth & jobs is wearing very thin.  It may be the case that large wealthy companies may provide high employment and high earning directors but, again it's a little simplistic to translate that into : high earners create jobs.  They are and have always been the minority, it is more often the case that high earners do it for themselves, for their own wealth, that is the nature of greed that some recognise and work to avoid, others recognise and go for more but most remain unaware thinking they must be doing the country good, because they read it in their papers or on this site.

The above was brought starkly into light by the BBC's Panorama programme on Monday when it investigated America's poor, a huge pool of misery created to perpetuate the free market, where Republican hopefuls lined up on a stage and didn't know what to say when asked "if a guy is brought into the ER in a coma and you have no proof of insurance, do you treat him or let him die?".  At least they stayed silent, several from the audience shouted "die".  Then there's Newt Gingrich suggesting that the way to get 3rd generation unemployed kids out of the cycle is to get them cleaning floors & restrooms (The US don't have enough chimneys).

Yes, I know, I am drifting, but, like Steve, I can assure you that these people are as far removed from any envy on my part as possible.  If the tax system does not suit the wealthy then I'm sure they can afford 1st class tickets to somewhere else and, considering the past few years I'd say the same for "The City", if too hot or unfriendly here get out the kitchen.

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18th Feb 2012 15:27

No - to answer the original question.

We are not a high tax economy.

If however you wish to live in a country where the rich pay lower tax rates then the poor; people die on the streets for lack of health care;  unemployed camp in public parks and scavenge from bins and so on feel free to emigrate.

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By cfield
21st Feb 2012 00:42


No one wants to see soup kitchens or people scavenging from bins, but neither do we like to see single mothers with kids from half a dozen different fathers living in huge Edwardian houses at our expense, Eddie Royle types collecting incapacity benefit all their "working" lives whilst lounging in front of the TV all day, and billions squandered by the Government on failed IT projects or Ministry of Defence procurement cock-ups.

It doesn't matter how much tax they bleed of us, it will never be enough. Yes, high earners should pay more tax (within reason) but far too much money is poured down the drain or "re-distributed" to people who quite frankly don't deserve it, all in the name of equality and cohesiveness.

We should be able to get by on an average income tax rate of 10%. Why should it cost any more than that to run the country? It would do if they didn't keep wasting it.

Once society reaches the point where there is no incentive any more to work hard, study hard, invent things and set up new businesses, that society is on the slippery slope downhill, and will soon be overtaken by more ambitious countries we previously looked down on as Third World.

To be honest, it might do us some good to return to the living standards of the 50s or 60s. Houses would be affordable again, the roads wouldn't be clogged with traffic and people might respect money a bit more. After all, it didn't kill us, and it taught us that you only get the good things in life by working for them, a lesson that seems to be lost on many people today.

One more point - low interest rates are taking more money away from the so-called rich now than taxes. When it comes to paying their fair share, no one ever mentions that. Yet savers are being robbed blind to pay for the extravagance of others. Are all those people benefiting from the lowest mortgage rates in living memory paying their fair share?



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18th Feb 2012 22:59

Cas flows
Paul. I don't think it's condescending to accuse someone of envy but you are correct -you were rambling and off point (now that was condescending).

I do agree with you that employees that take risks with other people's money with upside only bonuses do little to create wealth, indeed as we have all experienced lately they do much to destroy it. I am all in favour of culling their economic reward. Individuals who with their own money take risks to generate wealth and jobs should be applauded and encouraged. It may be "wearing thin" but it's the truth and sometimes that hurts. If you encourage them to go elsewhere you can kiss economic recovery and growth goodbye. Paul - if they leave where are the jobs coming from? We can't all have public sector jobs.

My main point was that there is a tremendous cash flow generated by government from tax - in the example given over 80% of that transaction cycle - it's not just the collection of tax that should be under examination but how it is spent.

Chris - the Government has had and continues to have the money the real question is whether they are spending it wisely and effectively - if they are, there should never be poverty or people scaveging in bins.

As an aside I wonder if Steve has told his HNWI clients that he thinks they have earned more than enough and if he did how long they stayed his clients! I also wonder if he has offered them tax planning advice. If he has, is this hyppocritical? If not, negligent?

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Thanks for your concern ...

I am a good accountant and haven't lost a client for a 'bad' reason in 11 years. Accountancy is a profession like many others where you sometimes need to leave your own views at the door. 

Do you not represent socialists or liberals I wonder? Do they know about your views?

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20th Feb 2012 18:41

Client base

I am glad that you are a good accountant.

I honestly do not know the political views of my clients and I have no interest in finding out.  They all seem to want to know how to save tax however so I suspect there are not too many communists in amongst them.

My main client is extremely wealthy and gives away cash and assets to charity in the many, many thousands every year.  His thinking is that the charity distributes the money more effectively and efficiently than Government - an opinion I share wholeheartedly.  He is very much like Bill Gates is now in that he devotes his whole life to serving his community and supporting the less well off and unfortunate of society.  Do not get me wrong, I believe that the weaker members of society need protecting and encouragement but I cannot stand the "my entitlement / my right to" perspective that seems to be bred by the welfare state. 

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By DMGbus
21st Feb 2012 14:15

Public sector pensions, benefits for imigrants, cost of wars

Three answers as to where taxes get spent.

Plus, cost of putting right HMRC mistakes.

Plus cost of belonging to Europe.


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