No one likes paying tax and everyone everywhere complains about it. But does the UK have it right? Do other countries have a fairer system? The fundamentals are always who pays what, is that fair, and what tax revenue gets spent on.
If you’re planning to leave the UK, figuring out your tax position is fraught with difficulty. For example, discovering that there is no Double Taxation Treaty with your new home country is usually not good news. But successfully submitting a UK expat tax rebate is a welcome boost to your moving costs.
When it comes to tax, knowledge gives you the power and freedom over your financial choices.
Who pays what in the UK system?
According to the Office of National Statistics, the UK is taking the highest amount of tax since the 1960s. More than 30% of our national income total is from our assorted taxes. Of that total, almost half comes from our income tax, National Insurance payments, student loan repayments and pension contributions. All the amounts we never see, that come straight out of our bank account.
As you know, the amount of income tax we pay depends on how much we earn. For middle income earners, by the time the taxpayer pays income tax and their employer pays NICS, 28% of their income goes to the government in tax. For higher rate taxpayers, this increases to 51%.
Obviously, there are other taxes that we may be liable to pay. Businesses have to pay 19% Corporation Tax on their profits and 20% VAT is added to a lot of goods and services.
Are you a UK expat? Have you claimed your UK tax rebate?
It’s not all bad news with the UK tax system. There multitude of tax reliefs and allowances that are available. These rules include the entitlement to reclaim UK tax, if you leave Britain to live in another country. They apply to anyone that has worked and paid tax in Britain, not just native Britons.
You are eligible to get an expat UK tax rebate if:
- You let before the end of the UK tax year (April to April) and didn’t use up your whole Personal Allowance
- You have unclaimed work expenses tax allowances or reliefs.
- You are employed in another country, are defined as ‘non resident for tax purposes’ in the UK and pay UK income tax.
- You live in another country and earn pension or property rental income in the UK.
How does this compare with other countries?
In developed countries the taxes which generate the highest revenue are income tax, social security and VAT. Together they make up an average of 70% of each government’s earnings from tax.
The most notable differences are with the amount middle earners are taxed in different countries, with Britain ranking at the lower end.
Figures from the OECD in 2016, show the proportion of each country’s national income that is from
Taxation:
Denmark: 45.9%
France: 45.3%
Belgium: 44.2%
Sweden: 44.1%
Finland: 44.1%
Italy: 42.9%
Germany: 37.6%
Portugal: 34.4%
Spain: 33.5%
UK: 33.2%
New Zealand: 32.1%
Canada: 31.7%
USA: 26%
Turkey: 25.5%
Ireland: 23%
This is not all of the countries involved in their statistics, but a comparative overview of similar of more developed nations.
Using IFS numbers, we can also have a brief look at how much different countries’ governments make from taxing middle and higher taxpayers.
Taking a higher income of £344,000 in one year, the amount of tax earned is:
Belgium: 67%
France: 59%
Denmark: 54%
UK: 51%
Italy: 50%
Germany: 47%
Spain: 44%
And with a middle income of £28,000, the figures look like this:
Belgium: 49%
France: 48%
Italy: 47%
Germany: 47%
Spain: 40%
Denmark: 38%
UK: 28%
So if Britain were ever to adopt the tax policies of one of those other European countries, it is our middle earners that would feel the impact the most.
Why does understanding our tax system matter?
The workings of any country’s tax system matters enormously to the ability of its government to look after its citizens. The funding of healthcare, education, defence, social care, fire service, police and local councils is the determiner of their quality. Layering on other factors, like our older people living longer, complicates the prioritisation of public spending. But it does not distract from the fundamental role of budget distribution.
Digging into the finer detail of who really pays what tax and who benefits from different rates, cuts, allowances or reliefs, can give us a more rounded picture.
For example, having 0% rated or reduced rated VAT on certain items is meant to support lower income families. But, as it is those with a higher income that can afford to buy these items, it is higher earners who benefit most. The argument could be made that making everything liable for 20% VAT means that there would be more money earned by government to directly support lower income families through tax cuts or benefits.
And that’s just one issue.
Tax regulation remains a complex entity. It is good to appreciate the comparative benefits of our system and check your own tax position to ensure that you are making the most of all the tax allowances and reliefs you are entitled to.
