Hacker News Reader

Comment by SketchySeaBeast | Hacker News Reader

Can you provide an example for others? I know I often hear this complaint here in Canada about entering a new tax bracket, but the reality is that only the money earned above the bracket's lower bound is taxed at that higher rate (if the bracket is $10k and you make $10,001, only that $1 is taxed at that higher brackets rate), and so I'm wondering what the UK is doing differently.

Edit: Ah, there's a baseline personal deduction (12.5k) that disappears between 100-125k, meaning, for that narrow band, every dollar earned in that range has a higher effective tax rate due to that deduction slowly disappearing. It's still progressive, so you don't suddenly start paying 60% tax on everything.

https://www.brewin.co.uk/insights/earn-over-100k-beware-the-...

View on HN

See another comment of mine that also shows how going from 99,999 to 100,000 also costs you 2000 for each pre-school aged child you have per year meaning you actually earn thousands less, and to top it off, you now also have to do your own tax returns because you hit 100,000 despite being PAYE.

EDIT: it's interesting that anyone genuinely asking and trying to understand is getting downvoted as opposed to anyone who just disagrees with me.

For those in the US: the UK tax return (actually a partial return and declaration of income) takes 10 minutes. It’s all done online. There are no complicated calculations, you just declare your income, investment income, interest and other sources, minus any tax already paid. You don’t need an accountant and there are no costs for filing.

If it takes you only 10 minutes to declare all your "income, investment income, interest and other sources" then you're either lying or doing taxes wrong. It takes me more than 10 minutes just to download all the tax slips, let alone totalling them up.

I'm in the pay bracket requiring annual self assessment and 10 minutes is probably too generous, purely because you log in to your SA account and the PAYE section from your employer is already pre-filled. You don't need to look at your pay slips, HMRC already has all the info from your employer and literally all you need to do is have a cursory glance whether the numbers look right then click confirm few times and submit at the end.

Obviously very different if you're self employed or have income mostly from investments or properties, but the you have an accountant to do it for you.

The person I responded to was referring to US taxes.

No, I was talking about the amount of time it takes to fill in an high-earner income declaration in the UK, which you only need to do if you are indeed a high earner or have multiple sources of income, and it is not anywhere near as arduous as a full tax return (either in the UK or the US).

Oops you're right.

I edited my post to make it clearer. It was more ambiguous before.

I've been doing UK self assessment tax returns every year for over 15 years. It really does just take 10-15 mins for people that have one job (as an employee) and typical investments - savings accounts, shares, etc.

The income numbers are already there and if I want to check it's easy: my employer gives me a form with the same numbers in the same numbered boxes. I just need to specify how much income I had from bank interest.

The tax witholding system usually works as well - the main exception being straight after starting work for the first time or changing jobs, when you can have a temporary code. In these cases I just called HMRC and told them what was going on. The employer gives my pay numbers to HMRC and HMRC give my employer a tax code that determines how much to withhold each month.

You don't need an accountant because you already know they took almost all your money!

Having to do your own tax returns is funny to hear as a North American, we always have to do them.

I struggle with the child tax credits. If I'm childless and move from 99,999 to 100,000 it doesn't change my situation at all. I don't think we can view that in the same light - it's a tax credit benefit, but it's not just a matter of earnings. The goal is to support lower income families, so the line has to be drawn somewhere, and whether it's gradual or not someone is still going to complain about it going away.

> I struggle with the child tax credits. If I'm childless and move from 99,999 to 100,000 it doesn't change my situation at all. I don't think we can view that in the same light - it's a tax credit benefit, but it's not just a matter of earnings. The goal is to support lower income families, so the line has to be drawn somewhere, and whether it's gradual or not someone is still going to complain about it going away.

Having it go away is less of a problem than having it go away all at once. If it was phased out over a range of incomes such that every marginal dollar of gross is still a marginal increase in net, that'd solve the problem mentioned in this thread. Key property of a tax system: the function from gross income to net income should always be monotonically increasing.

To be fair, the original topic of this thread was "tax traps", one of the most famous in the UK being a gradual decrease of benefit that was still a marginal increase in net, but it was still deemed worth complaining about.

Yeah, to some extent it's also important that the marginal tax rate should always be monotonically nondecreasing. But that's not quite as critical as the marginal tax rate never being above 100% (including all accounting for loss of credits/deductions).

It comes at a problematic point where at 100,000 you also lose your personal allowance. It means that when I received a pay rise from whatever to exactly 100,000 I lost £4000 in tax-free childcare meaning I actually earned less.

Nobody is expected not to use it if they earn below the point it is taken away, it's just an arbitrary tax on parents who earn 100,000, while at the same time a few other paper cuts are piled on.

I know Americans always do tax returns, sounds like a pita for you guys, and I believe until recently you had no choice but to use some sort of service and couldn't DIY it?

Here if you're PAYE (salaries), it's dealt with on your behalf, the tax is deducted before you're paid and you don't have to deal with it, unless you're self employed. It's not necessarily a huge issue, but it's a time cost and that has to have a price, and if you get it wrong, HMRC are notoriously hard and will demand full payment immediately, if you're lucky and they accept your "excuse" (their word), they might let you split it over 3 months.

At this point it's best to make sure you have £10,000+ in savings aside just in case.

I've not had to do a tax return yet, but I've frequently seen tax bills in the tens of thousands from family and friends because their accountant got it wrong, and holds no liability.

I don't think it's as big an issue for me people have taken from my original wording, that's fine, poor choice of words on my part perhaps, but it has certainly been blown out of proportion including some minor jabs at me and (incorrectly) at my political leanings etc. Despite this really all having nothing to do with politics or news and quite clearly as I pointed out at it's direct effect on my family finances.

As the saying goes here in England, "I'm sorry I mentioned it".

> it's just an arbitrary tax on parents who earn 100,000

This seems to be me to be a weird framing. It's a tax benefit for parents that's taken away when you hit £100k. When you hit £100k you don't face an arbitrary tax, instead you're now playing by the same rules everyone else is. You're in parity with your child-less coworker. Not disadvantaged, just no longer advantaged.

I'm not sure I agree with that, but I need to give it a little more thought.

The government has been clear they want you to work harder and earn more, they also want you to have children and raise future tax payers, if you do have children either your career and earnings take a hit or you need to put them in childcare, in that case I think all child care should be tax free, they're only in there so you can work and earn and pay tax. It's typical that your wages should increase with experience but you can't un-have children, perhaps you didn't even know you'd hit that threshold when you had them, or more likey that such a threshold even exists.

If we don't think of it like that, but simply that you're no longer advantaged as you put it, the issue is that it's sudden and affects unevenly, two parents can earn £99,999.99 EACH and still receive it, but a single parent or one person in a couple earns that extra penny they're now £2000/child worse off and still have to put their children in childcare.

Of course there's an option to have or not to have children, but I'd argue that the global consensus in countries with ageing populations, like the UK, is that the government want you to work more, and for longer and have more children, so it should be fair to say that from the government perspective, having children is the expected norm.

Calling people earning over £100k "everyone else" is strange. Surely that's a minority of people.

Reply on news.ycombinator.com