plonkee money an english-er's thoughts on personal finance

August 18, 2008

do Brits really pay more tax than Americans?

Filed under: tax — Tags: , — plonkee @ 2:00 am

A little while ago, I tried to estimate the differences between the US and UK tax burdens. Keen to give more accurate figures, and on the suggestion of deepali, I contacted my friend rocketc, a great personal finance blogger from middle America to compare some actual costs. Since rocketc has kids, and UK taxes are easier to work out, we’ve gone for a notional family with 2 adults, and 2 kids with one income and one SAHP. Don’t forget to check out rocketc’s matching post on the Fiat Bravo to estimate taxes paid on a car.

Fuel prices have gone up since the data was compiled, so I’ve assumed that they will average £1.20 per litre over the year, giving a total fuel price of £1767.74. A combination of fuel duty and VAT means that the tax component of that is £1004.99. Vehicle excise duty is dependant on emissions. The Fiat Bravo has carbon emissions of 158g/km and so falls into Band D which costs £145 per year.

Total Tax on Car – £1149.99 (= $2193.49)


We agreed that 40% of gross income was the right amount spent on purchases, but then I remembered that VAT is charged at different rates on fuel (7.5%), food and other non-luxury goods (0%) and luxuries (17.5%). I’ve used the average cost of heating a 3 bed house using gas with a condensing boiler (I have one) is £728 per annum which gives VAT of £50.79 and an electricity bill of £600 per annum, which gives VAT of £41.86. Food costs I’ve suggested would be £100 per week, of which approximately 40% is 0 rated for VAT which means that the VAT on food per week is £8.94. Other purchases all have full VAT and the tax charged would be £594.06.

Total Purchase VAT – £1151.59 (= $2196.54)

Just to show you that this is a fairly consistent family, if they are saving 10% of their gross income, the above figures leave them with a mortgage payment of up to £720 and a total mortgage of about £117k which, assuming at least a 10% deposit, is about right for the purchase of a 3 bed house in my city within the last two or three years.

Total Taxes

In the UK, the net direct taxation paid directly to government agencies works out to be £2744.84 (= $5235.51), a total of income tax, national insurance, council tax, vehicle excise duty and tv licence, minus child benefit and tax credits.

Additional indirect taxation works out to be £2156.58 (= $4113.84), this is fuel duty and VAT.

This gives a total tax burden of £4901.42 (= $9348.97) which is 18.7% of gross income.

Check out rocketc’s post if you want to see the US tax burden. And just to plug life on the right side of the Atlantic, don’t forget that British tax covers comprehensive health care, reasonable but not generous unemployment benefits, and some retirement provision. Added to which, if you’re a British passport holder you get all the benefits of EU membership. And, just to keep it topical, you get to be the best country in the world at track cycling. 😉

August 1, 2008

compare and contrast: UK and US tax burdens

Filed under: tax — Tags: , , , , , — plonkee @ 6:00 pm

Ok, this probably falls under things that I think are interesting, but am not sure if anyone else does.

Over here at least the United States is considered to have the following features compared to the UK:

  • lower taxes
  • reduced public services
  • higher salaries
  • lower cost of living

Now, I suspect that some of this is quite variable, in particular some things will be dependent on the exchange rate and others on location, and personal income. But, I thought I’d investigate the extent to which the first would be true for me if instead of living in Blighty, I lived in America.

I’m assuming that the exchange rate is £1 = $2, and that I would have had exactly the same income in the US as I enjoyed in the UK last year. Since Americans have state taxes as well as federal taxes, I needed to pick a state.

I live in a not very fashionable or exciting city somewhere vaguely near in the middle of the country. So, I reckon a comparable place would be a fly-over state, and since my alter ego in the US is rocketc who last year lived in Wisconsin (he’s since moved to Colorado), I’ve decided to pick Wisconsin. I hear it has good beer, so that’s a bonus.

I used the 1040 to estimate the federal income tax. I stuck just to my salaried income, and assumed that I would have made the same level of contributions to a 401(k) as I actually made to my work pension. This gave me a federal income tax of approximately $7,500 (so about £3,750). The FICA (like NI) contribution was calculated as about $2,250 (£1,125), and the Wisconsin state income tax as $2,800 (£1,400).

My actual UK income tax last year was around £4,500 ($9,000) and my NI (like FICA) contributions were around £2,400 ($4,800).

People quick at arithmetic will note that my tax burden would indeed be lower in the US (as represented by Wisconsin) than the UK. It turns out to be approximately £50, or $100, lower.

Now my big caveat is that my UK taxes include access to very comprehensive health care provided by the NHS and I’m not sure what a typical health insurance premium would be. If anyone could give me a vague figure for an HMO plan in WI I think that would make a reasonable comparison.

I have to be completely honest and say that if I was offered an extra £50 a month to live in Wisconsin, I’m pretty sure I would turn it down. America, nice country, but I prefer to live on the right (hand) side of the Atlantic. But still, I thought it was interesting.

May 10, 2007

taxing plonkee

Filed under: tax — plonkee @ 11:43 am

Those of you who have been reading my blog for a little while may have noticed that I’ve added some adverts to the site. They’re adsense ads from Google, and I don’t think that they detract too much.

When you sign up for adsense you have to make a declaration regarding tax. As Google is a US company, this is declaration concerns US Federal Tax. As a non-resident of the US without any business interests in the States, the declaration that I made basically means that any earnings from adsense will not be reported to the IRS. Of course, for me, this is a good and logical thing as I can see no reason why I should pay income tax to a country with which I have no connection other than the location of my debtor and hosting server. I’m glad that the IRS agree with my position as in general tax authorities can be a law unto themselves.

However, I think that this means that I will need to file a tax return to HMRCS for this financial year. Some web advice on Ebay sellers suggested that if the amount earned is not much then its probably ok to put it down as casual earnings. On the other hand if it gets to be a more substantial amount (unlikely but plausible) then I’d need to register as self-employed. I think I might need to contact the tax men (or women) themselves to find out for sure. In any case, I plan to save at least half the earnings in a high interest account and keep proper records to ensure that I don’t get in any trouble.

Aah the joys of generating additional income.

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