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thomas davison

The eight taxes that cost Mr & Mrs Average �18,000 every year

By Sam Dunn

PUBLISHED: 01:08, 20 March 2013 | UPDATED: 08:32, 20 March 2013

When most people think about tax, they think of income tax. This, largely, is taken directly from your pay each month, or through self-assessment tax forms if you are self-employed.

Everyone in the UK has an amount of money they are allowed to earn without paying any tax � but this can be stripped away depending on how wealthy you are, or what perks you receive from your employer.

The tax-free personal allowance for most workers is �8,105 for the current tax year (expected to rise to �9,440 for the coming year).
How much of your income goes on tax

This allowance can be whittled away if you get perks such as a company car or private healthcare through work, or earn more than �100,000.

For every �2 your income goes above this level, your personal allowance is reduced by �1. So, once you make �116,210, every penny you earn is taxable.

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Until this April, pensioners have been able to benefit from bigger personal allowances. Those aged 65 to 74 currently get �10,500 tax free, and for 75-year-olds and above it�s �10,660.

However, in what was dubbed the granny tax, the Chancellor scrapped these higher allowances. Anyone who turns 65 after April 6 will get the same allowance as everyone else.

After your tax-free allowance, you pay 20 per cent income tax on the next �34,370 earned (from April, �32,010).

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Any money earned above this � so salaries above �42,475 (�41,450 from April) � is taxed at 40 per cent. This rate applies on all earnings up to �150,000. Above this, you�ll pay tax at 50 per cent � though this falls to 45 per cent on April 6.

What this all means is that if you earn �20,000, you�ll pay �2,379 in income tax. The first �8,105 is tax free, but the remaining �11,895 is taxed at 20 per cent.

If you earn �45,000 and have no children, you�d pay �7,884 income tax. You�d have the same tax-free allowance of �8,105. The next �34,370 is taxed at 20pc, and the remaining �2,525 at 40 per cent. If you earned �160,000, you�ll pay �58,126 in income tax.

The forgotten charge

Income tax is not the only deduction from your pay packet � there is National Insurance, too.

Just as with income tax, everyone is allowed to earn a certain amount before paying NI contributions.

But unlike income tax, anyone over state pension age does not have to pay. NI was introduced as a way of building up an entitlement to certain benefits, including the state pension.

Confusingly, some NI contributions are calculated on a weekly basis. Employees pay it if they�re earning above �146 a week, or are self-employed and make a profit over �5,595 a year.

But the exact amount you pay depends on how much you earn and whether you�re employed or self-employed.

For the employed, if you earn between �107 and �146 per week (�5,564 and �7,592 on an annual basis) this tax year, you are treated as if you had made NI contributions � but you don�t actually have to pay any.

Above �146 but less than �817 (�7,644 to �42,484 a year), you pay 12 per cent of your earnings. And on everything above this, you�ll pay an extra 2 per cent charge.

So if you earn �20,000, you�ll pay �1,487 NI on top of the �2,379 you already pay in income tax � a total of �3,866.

That means roughly a fifth of your salary is deducted in tax before you even see it.

And for every extra pound you earn above �20,000, you�ll pocket just 68p after taxes are deducted.

For higher-rate taxpayers on �45,000, you pay �4,235 in NI on top of �7,884 in income tax � a total of �12,119.

The hike on your shopping

Next is VAT � a sales tax charged on the vast majority of items you buy.

The standard rate is 20 per cent, but there are exemptions and lower rates for certain items.

Goods deemed highly important to help people look after themselves, their families and their health are taxed at just 5 per cent.

These include the price of gas and electricity we use in our homes; children�s car seats; home insulation; and goods that help people to stop smoking.

Items such as children�s clothing and shoes, new homes, books and newspapers are VAT-free, as are most essential foods and drink.

Our analysis shows that a family of four earning �45,000 a year pays out nearly �2,200 in VAT � nearly 7 per cent of their disposable income.

A levy on your home

Everyone who rents or owns a property must pay council tax to the local authority where they live. It brings in more than �25 billion a year.

All homes are given a council tax valuation band.

There are eight bands � from lowest A to highest H � based on the value of your home on April 1, 1991.

The average council tax bill in England for 2012/13 was �1,201. For a typical house in Band D � a two-bed terrace home � the bill is �1,444.

So once you�ve added it to everything else you pay, that�s roughly 32 per cent of a �45,000 salary gone in tax.

The sin taxes

Tobacco, alcohol, petrol and air travel � all incur special excise duties imposed by the Treasury.

They are all subject to these sin taxes because they are deemed to be either bad for your health or the environment.
A pint of beer (at 5 per cent strength) costing �3 has 55.4p of duty in it.

For fuel, on a �1.38-a-litre cost of filling up your car, the Government�s tax take is 57.95p � 42 per cent.

So, spend �60 a week on petrol and over a year you will give the Treasury �1,310. As for air travel, a passenger duty applies but depends on how far you fly from the UK. Go to Australia and you�ll pay �376 per person for a return trip; a jaunt to Europe will cost you just �52.

Smokers pay enormous sums of duty to the Treasury.

Someone who gets through 20 a day � paying �7.72 for their pack � will hand over �4.62 daily to the Exchequer.

Over a year, this works out as �1,686.30.

The basic problem is that Government believes it can solve everyones problems so long as it has the money to do so. So every year the tax take goes up as government expands the scope of its activities. People see 'services' being delivered which have the illusion of being 'free'. At worst, the fosters a psycological state of 'dependency' and 'entitlement'. At best, it merely distorts peoples perceptions as to the actual cost of these services. Both are dangerous as something given for 'free' has a greatly diminished value to the receipient relative to the actual cost. So, to me the way is clear, dramatically reduce the scope of government activities and the taxes raised to pay for them and make the people responsible for their own decisions and pay for the services they consume. Got to pay for health care = you'll going to stop smoking and lose weight. Got to pay for your education = you're not going to bunk off and abuse your teacher.

Major omission - the stealth tax on gas, electricity and water. The government has made them put up our bills for energy and water and the extra goes to pay for the social tariff - the huge discount for benefiters. This is a tax, under another name, to pay more to benefiters but the government is pulling a dodge that stops it from appearing on the welfare budget - but we are still paying for it. "Make work pay" - it will never happen.
So, when you add it all up around 70% of your earnings is tax whether direct or indirect.
So the important question is,
WHERE DOES THIS TAX MONEY GO AS WE ARE THE HIGHEST TAXED COUNTRY IN THE WORLD?