Expanding on the example provided at 08:30 - Please note this is a simplified example that has been used to illustrate the high level difference between salaried income and dividend income. It does not factor in NIC on salaries, or the tax free personal allowance for the first £12,570 of income received by a shareholder, or any dividend allowance. The effective tax rate will further depend on the profile of the business (as well as how money is extracted.) If you require more information, please consult your accountant to understand the best option for your personal circumstances. Thanks for watching :)
Dear Kiran, nice video and agree with most of the part especially tax system design to keep you in the middle. 50k threshold shows this exactly. US is the best example how it should be in my opinion. You shouldn't penalize people who wants to do more or earn more. Why should people do more? To pay more tax which people doesn't believe it's spending wisely. (Way too much people on benefit especially the ones that can do something but choose not to do so. ) I disagree with you about another things though. You show and apple on the left side and then tomato on the right side and then you are comparing them. LTD company owner pay less tax compare to employee who makes same amount of gross income? Are you sure about it? Do it most effective way to extracted money from the company i.e. low salary, how dividend. You take all the burden to run company and then pay CT Tax and then take dividend if only you are profitable in the business, bla bla bla... Most business fail within couple of year, 80% doesn't see 5 years, etc. Why? Because it needs more effort compare to working in a company in any position for regular people. I do believe that dividends are quite high in this logic, it supposed to be much more lower.
I think if people have the mindset that there is no benefit in being a director they will hinder growth in the economy. Entrepreneurs will be discouraged from putting themselves out there and they are the ones whom start businesses and create jobs and opportunities. System needs a good overhaul as the few benefits of running a firm, I fear, are Not enough to encourage people to start up businesses. Obviously there are many reasons why people start a business but I am Talking about pure start ups which drive the economy and create jobs Super videos btw. Have subscribed. If your free some time I’d love to have you on my podcast or some sort of collaboration
@@aminckone. I never buy on credit. Just because that option exists doesn’t mean you should go for it. It’s popular cuz it plays into your psychology of having something before you can afford it.
The UK tax system in a nutshell: - Honest worker - Taxed to hell to prevent you from getting rich. - Rich donkey - Can invest, start a business, etc to pay less tax, or set up an offshore account in a tax haven to bypass tax entirely, to get richer. It's almost like working backwards.
@@recycle_your_money You are missing a big thing or two. Honest workers face multiple problems: 1. Lack of money to invest. 2. Investment works multiplicatively. 1. You should really read up on how close to the bone most people are living in. Tell me where they have money to risk in investments. 2. This is actually more important. The more you are able to invest, the more returns you get, which, you know, is logical, and tying in with point 1, people who have little or no money to invest will get less out of it. You can't tell me an honest worker, let's say, earning £50000 a year, invests £25000, which is probably half their wealth, and gets double in return is ever going to catch up to a super rich donkey, let's say Rishi, who can afford to invest £10 million, where a single percentage point in return is more than our honest worker. See where the issue is now? If you think the average honest worker can catch up to Rishi's wealth through investment, please enlighten me how that is done, because I really want to find out which investment bars out the rich from investing to give the average person a chance to catch up in wealth. I'm not asking for "wealth equality" or anything ridiculous like that. Hell no to commie ideas, but taxing investments less than taxing productivity work is a ridiculous idea to begin with.
@@recycle_your_money true! Everyone could bypass the system. The trouble is with education. If you don’t know these things exist you won’t go for them. Also.. some require quite a bit of capital and skill. These things take time.
@@LiquidFlower I don’t mean bypass the system. I mean to invest legally. Then people’ll find out quickly whats on the other side. Putting money up to risk with a possibility of losing it all plus the headache that comes with it plus the tax. Trust me, many dont want to be on that boat. Regarding the requiring a bit of money. Everybody has a bit of money. Even €5/week. Just about anyone can get Revolut, start buying €5/week stocks. They’ll see how much commission and tax they pay.
I like the way you explained that people who are working hard 40-60 hours a week for years on end, have similar lifestyles and access to resources through currency, as those who do not work. Most people dont discuss this
Nobody can become financially successful overnight. They put in background work but we tend to see the finished part. Fear is a dangerous component, hindering us from taking bold steps we need in other to reach our goals. you have to contend with inflation, recession, decisions from the Feds and all. I was able to increase my portfolio by $289k in months. You have to seek for help in the right places.
I think it's not always about fear, Sometimes realistic factors discourage people from reaching their goals in life. For instance, I've tried investing in the stock market several times but always got discouraged by fluctuations of stock value
It's often true that people underestimate the importance of financial advisors until they feel the negative effects of emotional decision-making. I remember a few summers ago, after a tough divorce, when I needed a boost for my struggling business. I researched and found a licensed advisor who diligently helped grow my reserves despite inflation. Consequently, my reserves increased from $275k to around $750k.
Certainly, there are a handful of experts in the field. I've experimented with a few over the past years, but I've stuck with ‘’Melissa Terri Swayne” for about five years now, and her performance has been consistently impressive.She’s quite known in her field, look-her up.
It's not only tax - you try to get a mortgage/car loan as a business owner or self-employed person, the system is designed to keep you in the system, then taxes keep you down. I left the UK last week.
I have never earnt £100k a year but I think it is absolutely disgusting that someone can put in the hard work and get their income to that level only for the blood sucking gov to take £1 out of every £2.
It is more! 100-125k is the tax trap if you earn between 100-125k all that money is taxed a 62%, besides losing all benefits of course even if you are with child. Children the country needs.
When I was in Portugal, I worked in two jobs paid the same amount of tax. Total earnings were counted. Here in UK I worked in two jobs my other job was getting taxed 50% and I would get the tax return only during the return period. Now I am planning to leave the UK. I invest a lot, and waiting for my hard earned money and losing investment opportunities and potential returns is driving me crazy. Leaving UK for good. I thought this country was a land of opportunities and dreams, but it is a shit hole and wasting life in pubs and nightclubs.
No Richy's IR35 has prevented that one. I've just closed my consultancy, I'd even saved over £70k to employ someone and rent an office. It's just not worth in the UK, engineering degrees, years of experience in R&D in robotics, MSc in rocket science, setting up your own company, inventions/ideas you want to develop, it's all impossible, shopping at ALDI and living like pauper is the only way, spending everything you earn just to get to work and back, that's Richy's way.
I know the feeling. Brexit ruined my business. 65% was overseas customers and now the import tax they have to pay has stopped them buying. Spent 10 years building my business and now have to claim working tax credit to survive. Hard to find employment anywhere when you’ve worked for yourself for so long.
I freelance under a limited company as well. While on contract the company unilaterally decided that everyone was now on IR35. All objections were met with "there's the door" (illegal but they were a huge multinational, so I guess it's ok when they do it). I had to switch to PAYE with an umbrella company which took income tax, national insurance and a whole bunch of other taxes related to apprenticeships and hardship funds because the umbrella company had more than X number of "employees" so we all had to pay our share of that too. While all this is going on I still have my limited company with all its operating costs and taxes to pay. The government treated me like I was an employee and an employer at the same time and some of that money was taxed twice. The accountant did a stella job of clawing back as much as he could but for some of it he said I'd have to take the double hit. I've always been a good financial planner so I could suck it up in the short term, but it really stung. Reform said they will get rid of IR35 so they get my vote on that alone !
Ltd company owner here. Best thing I ever did. My effective tax rate is very low. £12570 salary, the rest in dividends. Anything else stays in the company as cash or assets. With the capital purchase write-offs, it's an excellent way to build wealth.
In a nutshell, if you live/work in the UK, anything over 100k just dump into a pension and retire early, that's the only way to avoid the mafia stealing all your hard earned money. Also try to invest as much as possible into ISAs, so again the grubby mafia don't tax the hell out of your savings. Compared to the US income tax system, the UK tax system can only be described as punitive!
Thanks for this, a small nudge re income tax bands would be to clarify that in Scotland there are additional income tax bands than in England. Appreciate though that this may be too granular given that the pitch is for the broad strokes of tax, but perhaps worth a mention that there is a difference.
Thanks for the video. My wife did some temping using a limited company, which was great, looked like payments were coming in a lot higher but after corperation tax, paying a base salary of £10k to keep pension status and then drawing rest from dividents it worked out she lost more than 50% to taxes and would have been better off just being paid normal salary. Very difficult to avoid the system without already having money in the first place.
Can’t agree more. That was very evident that corporation tax + dividend tax = more that salaried tax. For small businesses there is not tax advantage and all the risk. Only multi million companies can write off expenses, company buyout etc.
Thanks for watching! The 'effective' tax rate can be lower for owners of limited companies. It all depends on how the money is extracted, and the profile of the business, and mine was of course a high level example. Thank you for sharing your experience!
I have been self employed most of my life. Well until I broke my back and I'm not working right now. But while working I claimed for everything including washing my clothes. And when buying things I put almost everything through my expenses.
Im from Brazil, moved here 2019, I have Italian citizenship, so I was able to stay before brexit finish, at first everything here is so much easier, I can have a brand new iphone for £40 with unlimited data, groceries have great quality and are cheap, is more expensive to do groceries in Sao Paulo than in London, clothes are cheap, perfumes are extremally affordable, I need to work 6h to buy a chanel perfume my friend back home 2 weeks, WATHAVER, reach a point, I dont need anything anymore, I already have a good phone, few perfumes, clothes, I want more, maybe my first property? then I realize there is a glass sealing in this country, even if I saved every penny I earned, ate baked beans everyday, shared a room with other 3 and pay £200 in rent, have done way more overtime, I still not gonna have 20% of a flat in London, and thats turns me off my motivation to save, work more, I felt the whole 2023 stagnated, I didn't touch my savings, but I had no joy to save more, I worked less, spent more on unnecessary things...
Nice and clear Kiran. I'd like to see a discussion of how to hold personal investments in the most tax efficient manner - investment company, trusts etc.
I'm so happy I made productive decisions about my finances that changed my life forever,hoping to retire next year.. Investment should always be on any creative man's heart for success in life
I'll advise you to work with a financial advisor.....Building a good investment portfolio is more complex so I would recommend you seek Fergus Waylen's support. This way you can get strategies designed to address your unique long/short-term goals and financial dreams .
Investing has proven to be an incredibly beneficial decision. My cryptocurrency profits continue to play a substantial role in growing my overall wealth, reducing my reliance on my salary
It’s disgusting it should be one person one tax and tax maximum should be 15%. 25k - 50k 16% 60k-100k 20% 100k+ and if there’s no money for the gov tuff do without like we have to. God when will we revolt in the uk it’s long over due.
Gary's economics explained how the normal distribution is by design to prevent wealth inequality, the fact that there's ways out of it with assets is what's causing wealth inequality and strong bias towards those with the assets accumulating more and more etc.
With all due respect, everyone knows or should know the UK tax system is designed to take as much from you as possible, even ceasing to exist doesn't save you. Inheritance tax has to be the most disgusting tax going
This is all true, but still only scratches the surface. Once you've got your salary you will be forced to pay more tax, e.g. VAT and all sorts of other charges. And then there is a nasty chain of socialistic redistribution where you're forced to pay "fair" salaries to all sorts of bureaucratic structures producing nothing but headache for everyone. And this is another process that drives the same process of averaging people into a mid-low-class mass. This system is especially hard on single-earner families and basically forces both family members to go to work.
Interesting video and a lot of good info; I worked for 40 years as a salaried employee paying UK tax. One thing not promoted in this video is the fact that paying into an approved pension receives tax relief...I worked in a relatively highly paid industry paying into defined benefit and SIPP pension schemes since I was 20 years old, but for the last 10 years of my working life I rarely paid 40% tax. Each tax year I paid the maximum possible into my pension with tax relief at the basic rate, claiming the 40% band tax relief on my annual HMRC self assessment form. Retired at 58 with a comfortable defined benefit pension and around £450K invested in a global index tracker averaging around !0% per year still growing tax free. I have to limit my withdrawals to avoid paying 40% tax now I am retired...it all depends on what your definition of rich is.
Corporate tax is lower than income tax... 😢 Says a lot right there. Brilliant video! Thanks Kiran. I'm starting me off as a corporation! Employment sucks!
Once my kids are self sustaining. I will be selling all my assets and house, buying a big RV so me and my wife can live off grid. Using our left over money for essentials, while foraging as much as possible. Doing cash in hand work completely tax free whenever needed. We are not meant to live the way we do. Being woken up by alarms to go and be a modern day slave for the elite for the illusion of a salary, that ultimately all ends up back in the same pot it came from.
Excellent video! I am in the same field as yourself, and I am using Stocks & Share ISA to eliminate Capital Gain Tax entirely. Not only this, I am investing in an asset type that beats Bitcoin itself. For example, in the last cycle Bitcoin yielded just under 20x whereas the asset I am in yielded more than 10x of that of Bitcoin and zero tax, how wonderful is that! Once again, thank you for your video that is informative for Joe Public. And I must say your accent is so clear and concise it is reminiscent to an accent I found on another channel on UA-cam. Best of luck with your channel, and I have subscribed to your channel.
I personally know several people who are on various benefits and haven’t worked in years. They are financially stable and have no intention of going back into work. I also personally know several people who work full time and are financially struggling. The UK tax regime needs a serious overhaul.
I know plenty that are on benefits (through no choice of their own) and are struggling. They "exist". They don't live. They would love nothing more than to get off them, but sadly not everyone can. They're not really a safety net anymore like they used to be. They're a tool for dividing society, used by politicians to get votes and turn us against each other.
Thanks for putting it in plain words! I tried the salaried life and buying a house but I still felt poor. I’m starting a limited company soon but worried about all the extra services I now I have to pay for due to the complexity of all the rules and systems..
useful video thou the last part, PAYE vs Dividends isn't quite the whole picture. PAYE part is missing the NI element (employee and employer), also the 0 band allowance and the Divi part is ignoring the Corp tax in the comparison vs PAYE. i.e. 19% + 8.75%
One piece of proof for your observations being spot on is IR35. For those unfamiliar, many middle-class contractors set up limited companies to access the same tax advantages that are afforded to the wealthy. IR35 was introduced in response to this which essentially attempts to separate how a middle-class director operates vs a wealthy director and subsequently allows HMRC tp tax the middle-class director as if they were an employee. The wealthy need the middle-classes to keep working their whole lives, they are no good to the wealthy of they become wealthy.
You know, I keep trying to explain this to people and I get hit back with "pay your fair share" by middle class 9 to 5ers. The vast majority of middle class workers do this to themselves and vote these policies in.
Let's move on from the topic for now. I'm more interested in how you explain things. You find a good balance between keeping it concise and clear. Thank you for that!
If the Government stops spending our taxes on their friends/CEO's through Government contracts, we and our services would be much better off. Having to work for a month and practically be taxed a week's wages, is a joke.
All of the UK's tax rules should occupy no more than one side of a single of A4 paper, with absolutely no fine print. Then there will be zero tax loopholes for the rich to shaft the poor with.
I agree and also scrap vat and just make income tax 35% and tax corporations and business in a fair way. Give business tax breaks for investment hopefully this will grow and when sold they pay capital gains.I just want a fair system to provide for our public services we all need. Lack of investment in UK plc that's why my gas bill is almost £600 so far for 2024. Some fat cat getting rich and not paying there fair share
A prime example of our tax not going were it should is taking a look at the roads. With the amount of vehicles on the roads they should be in perfect condition, but very much not the case.
Paying corporation tax first and then dividend tax after is actually worse than income tax. If you don't have many expenses, you are worse off having a company.
You forgot to mention as a Ltd company owner you have to have your books audited by a chartered accountant and although their fees are deductible they aren’t cheap
Very informative 👏👏.I have just started my career as an account practitioner.I searched to gain some experience in accounting tax rates .I found your channel and it gave me all the clarity.Thank you so much .
Thanks for a well explained overview of the ripoff UK tax system. As April approaches, even worse changes are taking place for us in the middle people 😬 🙄
I'm hearing a lot from people who are downing tools at the £50k mark. Turning down overtime for example. £50k nowadays doesn't make you wealthy with the high levels of inflation we've experienced. This does not bode well for the UK economy. Also the £100k mark. You are effectively taxed at 60% when you lose the "personal allowance". Many may say that £100k is plenty but it ignores the other side of the equation; the businesses not started, or not expanded. The employment opportunities not created. The lost growth. Once you reach £100k there really isn't much motivation to push on with your career or business. You will be punished for your efforts. My advice is if you are going to start a business, keep it small. You don't want a whole load of stress, responsibilty, and long hours just to have the taxman take an enormous cut from your efforts. It just isn't worth it.
Good video. However, corruption through lobbying and backhanders is what keeps prominent MPs in wealth. Then, they reinvest that money through multiple means where they get a heads up on stocks and various other profitable enterprises
It's designed so the rich get richer and the poor get poorer. Money goes to money. If you've got it you can afford to invest or buy property or whatever and earn a nice nest egg. There's always a way to not pay tax or not pay as much while the poorer people can barely put food on the table and having heating on when it's cold is a luxury most can't afford. Yet the government don't even buy their own lunch the everyday person struggling to make ends meet pay for their lunch and they moan about it. Half the seats are either empty or the old buggers sleep through it. But we pay them to work for us? Or go on holiday? Or live in big houses? Nice cars? Summer homes? Yet most of us can't even afford our house hold bills and put food on the table let alone heat our house in winter. It's a joke and a piss take.
The picture is more complicated. Before anyone gets too excited aboit setting up a company. For example, surely your business needs to be growing and profitable beyond your usual employed work if the tax relief is to compensate for the loss of a more favourable employer contribution pension scheme. Your company needs to be achieving more than it would as just an incorporated version of a middle or higher (not highest) tax bracket income if this to be advantageous. And running that business is additional work on top of what your usual employed work would be, with additional risks.
I dont smoke myself but i see a pattern: poorer people tend to smoke (that's not a rule but in general) and poorer people tend to drink alcohol a lot (again, not a rule). Both of those items are highly taxed. I was with a friend recently and she asked me to buy cigarettes for her while she was in the bank. 15 pounds ++ for 20 cigarettes !!! I was shocked. It cannot be manufacturing costs because the exact same brand and type in japan is £2.80. And even in Japan there is a heavy tax on cigarettes.
They put up prices on things they generally don't want people to do, but historically its never worked (now your seeing an absolute prohibition of smoking in the UK for the next generation) they did the same with horses way back, but it didn't stop people using them, they are doing the same by having ULEZ. they try and outprice to make people consider better options, but it usually just leads to more poverty. what stopped people using horses I hear you ask? Cars! of course. just like vaping stopped people smoking traditional cigarettes its only when a new product comes out that people change the way they live. never from price hiking.
@@Bobby-k2q 👍 agreed. My husband's mother is a smoker but also a doctor at the local general hospital. She will never give up smoking despite the price hikes and I think the government knows this. So people with plenty of money will continue despite the increase and poorer people will suffer.
It was all peaches and cream until the crackdown on solo business owners via the IR35 in the UK. this then limited peoples ability to contract and utilize the favourable tax rates of a business.
Useful information. Important to know that the system is designed to maintain the status quo. Designed by the rich for the rich to keep the plebs busy worrying about paying bills. The whole state apparatus is designed for this not just the tax system. If you look around at the one's who have made it rich, it's mostly people who are not necessarily academic or hard working. The establishment who made the rules made it rich through might is right philosophy plundering from weaker people and countries then surrounded themselves with sycophants/protective layers in the form of class or caste systems along with rules/laws to prevent others from acquiring wealth the way they have done it. They have major advantages built into the system to prevent themselves from ever becoming poor. While they worry about becoming poor, the poor worry about not going to heaven.
In reality this confirmed what I already know the system is anything but fair when viewed logically , I realised this and moved to a low Tax Country and now enjoy a better lifestyle lower stress and more of my money in my pocket …no regrets , great easy to listen explanation thought thanks..
I am completely fine with paying taxes. The problem is that paying taxes is what you get in return. Indeed, we don’t pay more tax compared to Scandinavia, but they get a lot back; we don’t. The second problem is that people like Rishi dodge the tax because they can .Big companies like Amazon, Google, etc., dodge billions of taxes every year, and no one cares. God forbid a person like me don't pay his £200 tax. These are the real problems we have.
Lots of people care that the big companies dont pay tax. The entire socialist left is obsessed with this. The problem is that they are a 1-trick pony and try to solve this by either demanding increasing tax, or introducing new taxes like a wealth tax or poll tax, which the big companies also dont pay, but the poor cant avoid, thus making the average person poorer and increasing the wealth inequality they claim to want to solve. The solutions to all of these problems is to lower the tax on the middle class, help them to earn more (so the lower tax rate still yields the same absolute cash value), and make government function more efficiently by massively reducing the bloat in the system and streamlining our systems. We piss so much potential up the wall its unreal.
❤❤❤❤ I Need more! Please 🙏🏾 Your delivery, structure and clarity was perfect to digest n simple enough to follow, with no jargons! ❤❤❤❤ I need more please! Great editing as well from your camera man n effects! Salute 🫡
Main thing to consider is the pay disparity between rich and poor… it’s ever bigger now so the only way to correct it is to increase taxing on super rich who exploit bottom earners and ease tax on lower earners
You can legally avoid many taxes. Example- I built a house using my own labour- which is not taxed (income or VAT) at all. Materials VAT free. When I sold it, I paid no capital gains tax (personal residence). £1M tax free, kerching!
Working class don't get taxed as much but they get taxed in the fatigue, injury and time it takes in recovering from a physically demanding job. If you have an easy you should thankful.
I’m an expat. Left the UK 2021. Have residency in Cyprus at the moment & looking to get my investments optimised so I don’t trigger a tax liability to the UK when I start to draw down. Plan B is a move to Bali (cheap cost of living) if markets aren’t favourable over the next few years.
@@tangomike15 Not needed here, as everyone speaks good English. It’s their second language. The term Immigrant is more especially used for a permanent re-location. The term Expat is more accurate in my case as it’s temporary.
Very simplified. Earned a subscriber. Keep it up. Are there any reading your recommended buying to gain a vast understanding of the topics/technical terminologies you spoke on that may be worth buying.
But we don't need people to become middle class. Historically, those in the middle class have always been troublemakers. Revolutions have been led by the middle class: Lenin, Napoleon. Hitler was born into the middle class as well. Lower classes typically don't cause trouble, as they are usually focused on survival and don't harbor higher ambitions. Additionally, it's difficult for them to organize, as no one wants to follow someone from the lower class. On the other hand, the rich and super-rich don't have any interest in starting trouble, as according to the risk/reward ratio, they stand to potentially lose more than gain if they engage in risky behavior. Moreover, they don't have much to gain, as they already possess most of what they desire. That is my conclusion. If you disagree, please let me know your opinion. I am open to others' views and may adjust my beliefs if persuaded.
There are some truths in your statement. However, the middle class is also the ones that helps create the balance in the economy, and also in the society in general that could lead to positive change. As you said, they aren't too poor to just worry about survival, not too rich to think everything is good. I, however, noticed that from the explanation in this video: essentially it just sounds like communism? High tax bracket people pushed middle, low tax bracket people pushed middle. Like everyone is the same. Or rather, quite similar to the European peasantary economy that never evolves since the middle age. They are however, the aristrocats that rules of things, has the biggest companies, or land ownerships, and the rest of us merely living under them.
The tax bands are a bit different in Scotland but in essence, the principle is the same. I really like how you explained the different types of tax rates whether you're investing, an employee or self-employed. Really easy introduction for beginners.
One thing you can do, is do your job in another country. I was a captain with BA. I got paid twice as much flying the same aircraft in India- and didn't have to pay any tax at all!
I’m afraid I rather disagree with some aspects of your presentation. The dividend tax rates are in addition to the corporation tax. So if we set aside the polemic issue of employers NICs, those working through limited companies and extracting their income by dividends are in a similar position to employees up to around £50k but above that, now find themselves paying considerably more tax than employees. So above £50k for an additional £10k of dividend, one is paying say 20% CT and then an additionally 33.75% of higher rate (40%) income tax plus dividend tax which works out around 47% marginal rate of tax. As an employee you would be paying 40% plus NICs which drop off to 2% above £50k so you are better off being employed. But the basic premise of your piece about the glass ceiling preventing most people becoming high earners is bang on the money.
Thank you for watching and taking the time to comment! Great points, but don't forget tax deductible expenditure, the ability to control when you take money out of your business vs reinvesting it for growth and finally the eventual sale of your business which will be taxed more favourably. It depends on the profile of the business in question though!
Even if you run a limited company, taking 500k a year from it will attract 64.24% tax. I just don't see the UK as a viable option for commerce anymore.
The comparison you make at 8.30 isn't accurate. You call the 60k profit and then proceed to subtract expenses from it - it should be turnover, not profit. The taxable income is in fact what should be called profit. It's not a fair comparison in any case - if you have 22k worth of business expenses that money isn't yours, so even if you pay less tax because of it, you're still worse off in terms of money in the bank. Also it's not fair to compare dividend taxes to personal income taxes when you will have already paid corp tax on that profit before dividend tax applies. This kind of comparison can lead people to think it's more profitable running your own company when it's really not, at least not anymore - not at numbers like 60k. Also consider that VAT applies to businesses turning over 85k+, a tax which isn't payable by employees.
Thank you for watching and taking the time to comment. It was very a simplified example, and I agree with you that there many expenses to consider when running a company. However it can be the most profitable option for many people - of course it depends on the profile of the business!
@@KiranKaurFinanceSo does it mean that a higher earner would pay 25% in Corporation Tax and then 33% Dividend Tax? It would be almost 60% compared to 45% on PAYE. How does it make it better?
Hi there. It can be better, but this depends on the level of expenses that the limited company can deduct before tax, and because of the difference in NI on dividends vs salary. I didn't get into the detail in this video, but I would be happy to as part of a future video - I appreciate its not easy to see how the calculation works when adding up the percentages in my simplified example@@damian1690
@@damian1690was going to say the same question. At moment it is better to set up my online business abroad in a U.S. LLc state with no corporation tax and then just taxes on dividends - otherwise as a solo entrepreneur, I'm working all hours to give 65% to the govt!
@@KiranKaurFinance Yea, it would be perfect if you could explain it in more depth in your future videos, as I think it would be useful for many people, and not easy to get our head around ;)
🎯 Key Takeaways for quick navigation: 00:00 *📊 The UK tax system is designed to prevent individuals from becoming rich, but legal strategies can help reduce tax burdens.* 00:41 *💰 Income tax in the UK has three bands: basic rate, higher rate, and additional rate, with rates increasing as income rises.* 04:15 *📉 Taxes and benefits aim to push most individuals into a middle distribution, limiting extreme wealth or poverty.* 04:43 *📈 Realized capital gains and dividends offer lower tax rates compared to earned income, benefiting wealthier individuals.* 07:01 *🏢 Operating as a company owner can significantly reduce tax liabilities compared to being an employee.* 09:48 *💼 Reducing reliance on traditional employment by exploring other income avenues, like equity shares, can help build and retain wealth.*
Use of pension contributions to control tax bands and build capital growth potential a 3rd option. Also use of isa allowance before getting in to cgt planning)
I think some people are missing the point here. Though true that for low end earners this doesn’t work as well, having your own business not only can help high earners but can also help you become one. As an employee there’s a clear cap of how much you can earn. Having your own business and working smart has potentially no limits of income. Yes, it’s not for everyone I agree but saying having a business is no better than a 9-5 is absolutely wrong and obsolete. Good video, thank you.
To be clear, there isn't a single UK tax system. There is a system in place that covers England and Wales (and perhaps NI) but Scotland has a different system with more tiers.
Question. If a person earns less than the personal liability allowance how can that person be liable for paying council tax. It is obvious to anyone that council tax is in fact a second income tax.
I am a higher rate tax payer but not by much, i have a student loan also, whixh with the current interest rate of 7.6% i am only paying off interest with the 300pm they are taking off me. Even though i dont need the qualification for the job i do, with any overtime i do, i now have to pay 40% tax 9% student loan ( graduate tax) And 2% ni meaning i take home less than half the money i am being paid. plop 14% on for employers NI im I am taking home 49p per 1.14 that my company is paying for me to work overtime. How is it right that i am taking home a little more than a third of the amount my company is paying for me to work? And there are people getting handouts left and right, you are very right. The system is built to stop us from being able to achieve financial freedom, keeping us slaves.
work hard and earn a high salary to be taxed a lot. meanwhile big corporations pay nothing. 100k seems high but in reality there are so many people which much more than this.
The current tax regime in the UK is totally broken. I have just got a second job, first time in my life which will see me get another 2720 a month of which 1088 will go to Tax. If your working 5 days per week 2 of those days you are working for nothing. This is why generation Gen Z don't want to work, so while Rishi is focussed on getting the sick notes back to work he needs to lower income tax so that people feel the value of actually going to work. If not there will be a whole generation of people not working, not being taxed at all, and the country will fall deeper into debt.
Expanding on the example provided at 08:30 -
Please note this is a simplified example that has been used to illustrate the high level difference between salaried income and dividend income. It does not factor in NIC on salaries, or the tax free personal allowance for the first £12,570 of income received by a shareholder, or any dividend allowance.
The effective tax rate will further depend on the profile of the business (as well as how money is extracted.) If you require more information, please consult your accountant to understand the best option for your personal circumstances.
Thanks for watching :)
Dear Kiran, nice video and agree with most of the part especially tax system design to keep you in the middle. 50k threshold shows this exactly. US is the best example how it should be in my opinion. You shouldn't penalize people who wants to do more or earn more. Why should people do more? To pay more tax which people doesn't believe it's spending wisely. (Way too much people on benefit especially the ones that can do something but choose not to do so. )
I disagree with you about another things though.
You show and apple on the left side and then tomato on the right side and then you are comparing them.
LTD company owner pay less tax compare to employee who makes same amount of gross income? Are you sure about it?
Do it most effective way to extracted money from the company i.e. low salary, how dividend. You take all the burden to run company and then pay CT Tax and then take dividend if only you are profitable in the business, bla bla bla... Most business fail within couple of year, 80% doesn't see 5 years, etc. Why? Because it needs more effort compare to working in a company in any position for regular people.
I do believe that dividends are quite high in this logic, it supposed to be much more lower.
I think if people have the mindset that there is no benefit in being a director they will hinder growth in the economy. Entrepreneurs will be discouraged from putting themselves out there and they are the ones whom start businesses and create jobs and opportunities.
System needs a good overhaul as the few benefits of running a firm, I fear, are
Not enough to encourage people to start up businesses.
Obviously there are many reasons why people start a business but I am
Talking about pure start ups which drive the economy and create jobs
Super videos btw. Have subscribed. If your free some time I’d love to have you on my podcast or some sort of collaboration
Hi, can you please make a video on crypto tax for uk, thanks.
Someone told me in my early 20s, "The system's designed to keep you poor".....20 years later, he wasn't wrong.
The poor designed it that way.
Stop pretending you are poor
No wonder everythings on credit and finance in this country. From cars to holidays....
@@aminckone. I never buy on credit. Just because that option exists doesn’t mean you should go for it. It’s popular cuz it plays into your psychology of having something before you can afford it.
I lied. I bought my house on a mortgage haha. But who doesn’t.. the 5%
The UK tax system in a nutshell:
- Honest worker - Taxed to hell to prevent you from getting rich.
- Rich donkey - Can invest, start a business, etc to pay less tax, or set up an offshore account in a tax haven to bypass tax entirely, to get richer.
It's almost like working backwards.
Nothing stops the honest worker from investing. Or am I missing something?
@@recycle_your_money
You are missing a big thing or two.
Honest workers face multiple problems:
1. Lack of money to invest.
2. Investment works multiplicatively.
1. You should really read up on how close to the bone most people are living in. Tell me where they have money to risk in investments.
2. This is actually more important. The more you are able to invest, the more returns you get, which, you know, is logical, and tying in with point 1, people who have little or no money to invest will get less out of it.
You can't tell me an honest worker, let's say, earning £50000 a year, invests £25000, which is probably half their wealth, and gets double in return is ever going to catch up to a super rich donkey, let's say Rishi, who can afford to invest £10 million, where a single percentage point in return is more than our honest worker.
See where the issue is now? If you think the average honest worker can catch up to Rishi's wealth through investment, please enlighten me how that is done, because I really want to find out which investment bars out the rich from investing to give the average person a chance to catch up in wealth.
I'm not asking for "wealth equality" or anything ridiculous like that. Hell no to commie ideas, but taxing investments less than taxing productivity work is a ridiculous idea to begin with.
@@recycle_your_money true! Everyone could bypass the system. The trouble is with education. If you don’t know these things exist you won’t go for them. Also.. some require quite a bit of capital and skill. These things take time.
@@LiquidFlower I don’t mean bypass the system. I mean to invest legally. Then people’ll find out quickly whats on the other side. Putting money up to risk with a possibility of losing it all plus the headache that comes with it plus the tax. Trust me, many dont want to be on that boat.
Regarding the requiring a bit of money. Everybody has a bit of money. Even €5/week. Just about anyone can get Revolut, start buying €5/week stocks. They’ll see how much commission and tax they pay.
I like the way you explained that people who are working hard 40-60 hours a week for years on end, have similar lifestyles and access to resources through currency, as those who do not work. Most people dont discuss this
Nobody can become financially successful overnight. They put in background work but we tend to see the finished part. Fear is a dangerous component, hindering us from taking bold steps we need in other to reach our goals. you have to contend with inflation, recession, decisions from the Feds and all. I was able to increase my portfolio by $289k in months. You have to seek for help in the right places.
I think it's not always about fear, Sometimes realistic factors discourage people from reaching their goals in life. For instance, I've tried investing in the stock market several times but always got discouraged by fluctuations of stock value
It's often true that people underestimate the importance of financial advisors until they feel the negative effects of emotional decision-making. I remember a few summers ago, after a tough divorce, when I needed a boost for my struggling business. I researched and found a licensed advisor who diligently helped grow my reserves despite inflation. Consequently, my reserves increased from $275k to around $750k.
Glad to have stumbled on this conversation. Please can you leave the info of your investment advisor here? I’m in dire need for one.
Certainly, there are a handful of experts in the field. I've experimented with a few over the past years, but I've stuck with ‘’Melissa Terri Swayne” for about five years now, and her performance has been consistently impressive.She’s quite known in her field, look-her up.
She appears to be well-educated and well-read. I ran a Google search on her name and came across her website… thank you for sharing.
It's not only tax - you try to get a mortgage/car loan as a business owner or self-employed person, the system is designed to keep you in the system, then taxes keep you down. I left the UK last week.
Really that's good. I'm getting depressed here. No privacy either.
Curious where you moved to and also how old you are.
@@LiquidFlower Over 50 yrs old and moved to the US.
I have never earnt £100k a year but I think it is absolutely disgusting that someone can put in the hard work and get their income to that level only for the blood sucking gov to take £1 out of every £2.
It is more!
100-125k is the tax trap
if you earn between 100-125k all that money is taxed a 62%, besides losing all benefits of course even if you are with child. Children the country needs.
When I was in Portugal, I worked in two jobs paid the same amount of tax. Total earnings were counted. Here in UK I worked in two jobs my other job was getting taxed 50% and I would get the tax return only during the return period. Now I am planning to leave the UK. I invest a lot, and waiting for my hard earned money and losing investment opportunities and potential returns is driving me crazy. Leaving UK for good. I thought this country was a land of opportunities and dreams, but it is a shit hole and wasting life in pubs and nightclubs.
Where you thinking of going?
Where are you thinking of going?
@@eduns123 middle east potentially. Potentially looking at somewhere in Africa as I've heard such good things
No Richy's IR35 has prevented that one. I've just closed my consultancy, I'd even saved over £70k to employ someone and rent an office. It's just not worth in the UK, engineering degrees, years of experience in R&D in robotics, MSc in rocket science, setting up your own company, inventions/ideas you want to develop, it's all impossible, shopping at ALDI and living like pauper is the only way, spending everything you earn just to get to work and back, that's Richy's way.
I know the feeling. Brexit ruined my business. 65% was overseas customers and now the import tax they have to pay has stopped them buying. Spent 10 years building my business and now have to claim working tax credit to survive. Hard to find employment anywhere when you’ve worked for yourself for so long.
I’m pretty sure there’s a ton of grants you can apply for. You sound like you should be doing what you’re passionate about.
You should srsly consider using your skills and knowledge and startup in Japan. They are looking for people like yourself.
I freelance under a limited company as well. While on contract the company unilaterally decided that everyone was now on IR35. All objections were met with "there's the door" (illegal but they were a huge multinational, so I guess it's ok when they do it). I had to switch to PAYE with an umbrella company which took income tax, national insurance and a whole bunch of other taxes related to apprenticeships and hardship funds because the umbrella company had more than X number of "employees" so we all had to pay our share of that too. While all this is going on I still have my limited company with all its operating costs and taxes to pay. The government treated me like I was an employee and an employer at the same time and some of that money was taxed twice. The accountant did a stella job of clawing back as much as he could but for some of it he said I'd have to take the double hit. I've always been a good financial planner so I could suck it up in the short term, but it really stung. Reform said they will get rid of IR35 so they get my vote on that alone !
Ltd company owner here.
Best thing I ever did. My effective tax rate is very low.
£12570 salary, the rest in dividends. Anything else stays in the company as cash or assets.
With the capital purchase write-offs, it's an excellent way to build wealth.
In a nutshell, if you live/work in the UK, anything over 100k just dump into a pension and retire early, that's the only way to avoid the mafia stealing all your hard earned money. Also try to invest as much as possible into ISAs, so again the grubby mafia don't tax the hell out of your savings. Compared to the US income tax system, the UK tax system can only be described as punitive!
Thanks for this, a small nudge re income tax bands would be to clarify that in Scotland there are additional income tax bands than in England. Appreciate though that this may be too granular given that the pitch is for the broad strokes of tax, but perhaps worth a mention that there is a difference.
Thanks for the video. My wife did some temping using a limited company, which was great, looked like payments were coming in a lot higher but after corperation tax, paying a base salary of £10k to keep pension status and then drawing rest from dividents it worked out she lost more than 50% to taxes and would have been better off just being paid normal salary.
Very difficult to avoid the system without already having money in the first place.
Can’t agree more. That was very evident that corporation tax + dividend tax = more that salaried tax. For small businesses there is not tax advantage and all the risk. Only multi million companies can write off expenses, company buyout etc.
Thanks for watching! The 'effective' tax rate can be lower for owners of limited companies. It all depends on how the money is extracted, and the profile of the business, and mine was of course a high level example. Thank you for sharing your experience!
I have been self employed most of my life. Well until I broke my back and I'm not working right now. But while working I claimed for everything including washing my clothes. And when buying things I put almost everything through my expenses.
Best not to work over a certain amount of hours, claim benefits and keep a simple life.
No wonder business are closing ...better off not working
Really? I'd love to see you "enjoy" a life on benefits.
16hours top on the books, rest cash in hand. life goal for brittens
Im from Brazil, moved here 2019, I have Italian citizenship, so I was able to stay before brexit finish, at first everything here is so much easier, I can have a brand new iphone for £40 with unlimited data, groceries have great quality and are cheap, is more expensive to do groceries in Sao Paulo than in London, clothes are cheap, perfumes are extremally affordable, I need to work 6h to buy a chanel perfume my friend back home 2 weeks, WATHAVER, reach a point, I dont need anything anymore, I already have a good phone, few perfumes, clothes, I want more, maybe my first property? then I realize there is a glass sealing in this country, even if I saved every penny I earned, ate baked beans everyday, shared a room with other 3 and pay £200 in rent, have done way more overtime, I still not gonna have 20% of a flat in London, and thats turns me off my motivation to save, work more, I felt the whole 2023 stagnated, I didn't touch my savings, but I had no joy to save more, I worked less, spent more on unnecessary things...
Do you work as a fast food delivery rider by any chance?
@@ij1014 no, I’m a senior florist, pay is around 600/800week, but still far from a £500k flat in london
Nice and clear Kiran. I'd like to see a discussion of how to hold personal investments in the most tax efficient manner - investment company, trusts etc.
With high inflation, the tax band should have been moved up to match the cost of living. This has not happened.
Indeed. It’s even got a name: fiscal drag.
Exactly
I'm so happy I made productive decisions about my finances that changed my life forever,hoping to retire next year.. Investment should always be on any creative man's heart for success in life
That's awesome!! I know nothing about investment and I'm keen on getting started. What are the strategies?
I'll advise you to work with a financial advisor.....Building a good investment portfolio is more complex so I would recommend you seek Fergus Waylen's support. This way you can get strategies designed to address your unique long/short-term goals and financial dreams .
Investing has proven to be an incredibly beneficial decision. My cryptocurrency profits continue to play a substantial role in growing my overall wealth, reducing my reliance on my salary
Wow! wow! please is there any way to reach his services?
He often interacts on facebook , using the user name
I am 66 and still working and paying far too much tax in the 40% band plus the VAT i seem to be working just to pay the tax,
It’s disgusting it should be one person one tax and tax maximum should be 15%. 25k - 50k 16% 60k-100k 20% 100k+ and if there’s no money for the gov tuff do without like we have to. God when will we revolt in the uk it’s long over due.
Gary's economics explained how the normal distribution is by design to prevent wealth inequality, the fact that there's ways out of it with assets is what's causing wealth inequality and strong bias towards those with the assets accumulating more and more etc.
Why cant everyone buy more assets?
With all due respect, everyone knows or should know the UK tax system is designed to take as much from you as possible, even ceasing to exist doesn't save you. Inheritance tax has to be the most disgusting tax going
I worked all my life to be skint at the end of it, somethings badly wrong.
Great video, let's not forget National Insurance UEL and LEL, all added for your overall tax
That’s why richest people in the world will always come from United States not United Kingdom
This is all true, but still only scratches the surface. Once you've got your salary you will be forced to pay more tax, e.g. VAT and all sorts of other charges. And then there is a nasty chain of socialistic redistribution where you're forced to pay "fair" salaries to all sorts of bureaucratic structures producing nothing but headache for everyone. And this is another process that drives the same process of averaging people into a mid-low-class mass. This system is especially hard on single-earner families and basically forces both family members to go to work.
Interesting video and a lot of good info; I worked for 40 years as a salaried employee paying UK tax. One thing not promoted in this video is the fact that paying into an approved pension receives tax relief...I worked in a relatively highly paid industry paying into defined benefit and SIPP pension schemes since I was 20 years old, but for the last 10 years of my working life I rarely paid 40% tax. Each tax year I paid the maximum possible into my pension with tax relief at the basic rate, claiming the 40% band tax relief on my annual HMRC self assessment form. Retired at 58 with a comfortable defined benefit pension and around £450K invested in a global index tracker averaging around !0% per year still growing tax free. I have to limit my withdrawals to avoid paying 40% tax now I am retired...it all depends on what your definition of rich is.
Corporate tax is lower than income tax... 😢 Says a lot right there. Brilliant video! Thanks Kiran. I'm starting me off as a corporation! Employment sucks!
LOL ... just buy bitcoin keep it 2 years and sell for triple. stop crying
Once my kids are self sustaining. I will be selling all my assets and house, buying a big RV so me and my wife can live off grid. Using our left over money for essentials, while foraging as much as possible. Doing cash in hand work completely tax free whenever needed. We are not meant to live the way we do. Being woken up by alarms to go and be a modern day slave for the elite for the illusion of a salary, that ultimately all ends up back in the same pot it came from.
Excellent video!
I am in the same field as yourself, and I am using Stocks & Share ISA to eliminate Capital Gain Tax entirely. Not only this, I am investing in an asset type that beats Bitcoin itself. For example, in the last cycle Bitcoin yielded just under 20x whereas the asset I am in yielded more than 10x of that of Bitcoin and zero tax, how wonderful is that!
Once again, thank you for your video that is informative for Joe Public. And I must say your accent is so clear and concise it is reminiscent to an accent I found on another channel on UA-cam.
Best of luck with your channel, and I have subscribed to your channel.
Hi, could you expand on what methodology your using with the ISA and what asset your talking about? Thanks
I personally know several people who are on various benefits and haven’t worked in years. They are financially stable and have no intention of going back into work. I also personally know several people who work full time and are financially struggling. The UK tax regime needs a serious overhaul.
I know plenty that are on benefits (through no choice of their own) and are struggling. They "exist". They don't live. They would love nothing more than to get off them, but sadly not everyone can. They're not really a safety net anymore like they used to be. They're a tool for dividing society, used by politicians to get votes and turn us against each other.
Thanks for putting it in plain words! I tried the salaried life and buying a house but I still felt poor. I’m starting a limited company soon but worried about all the extra services I now I have to pay for due to the complexity of all the rules and systems..
useful video thou the last part, PAYE vs Dividends isn't quite the whole picture. PAYE part is missing the NI element (employee and employer), also the 0 band allowance and the Divi part is ignoring the Corp tax in the comparison vs PAYE. i.e. 19% + 8.75%
I have listened to several channels, but I finally found you here. Your explanations are very clear and easy to understand!
Thank you so much for watching - I'm glad you found this video helpful
One piece of proof for your observations being spot on is IR35. For those unfamiliar, many middle-class contractors set up limited companies to access the same tax advantages that are afforded to the wealthy. IR35 was introduced in response to this which essentially attempts to separate how a middle-class director operates vs a wealthy director and subsequently allows HMRC tp tax the middle-class director as if they were an employee. The wealthy need the middle-classes to keep working their whole lives, they are no good to the wealthy of they become wealthy.
You know, I keep trying to explain this to people and I get hit back with "pay your fair share" by middle class 9 to 5ers. The vast majority of middle class workers do this to themselves and vote these policies in.
Let's move on from the topic for now. I'm more interested in how you explain things. You find a good balance between keeping it concise and clear. Thank you for that!
If the Government stops spending our taxes on their friends/CEO's through Government contracts, we and our services would be much better off.
Having to work for a month and practically be taxed a week's wages, is a joke.
The UK tax system is that you pay tax, nino, council, and VAT! All of these are 65% of what you earned. Thank you
Deal in cash is the best answer for most of us
This is the best video, hands down, on the subject. To the point and so much covered in it. Great work, Kiran.
Thank you, so glad you liked it!
All of the UK's tax rules should occupy no more than one side of a single of A4 paper, with absolutely no fine print. Then there will be zero tax loopholes for the rich to shaft the poor with.
I agree and also scrap vat and just make income tax 35% and tax corporations and business in a fair way. Give business tax breaks for investment hopefully this will grow and when sold they pay capital gains.I just want a fair system to provide for our public services we all need. Lack of investment in UK plc that's why my gas bill is almost £600 so far for 2024. Some fat cat getting rich and not paying there fair share
That is a very helpful piece of content. As an expat living in the UK, I really appreciate it.
A prime example of our tax not going were it should is taking a look at the roads. With the amount of vehicles on the roads they should be in perfect condition, but very much not the case.
Nation of potholes
This video was brilliant! You are an excellent educator. I wish I had known this 20 years ago.
Paying corporation tax first and then dividend tax after is actually worse than income tax. If you don't have many expenses, you are worse off having a company.
This is the most straight forward explanation on the tax system I have heard. Also are they not getting rid of dividend rates ?
You forgot to mention as a Ltd company owner you have to have your books audited by a chartered accountant and although their fees are deductible they aren’t cheap
How often?
Every year
Thanks for your comment. An audit of a private limited company’s annual accounts is not always required. See the audit exemption for more information.
Thank you Kiran, please make a video about stock/forex day traders, how they are taxed in UK.
Remember.... Dividend income is taxed on the already taxed income from corporate tax. Effectively you pay more tax on dividends than salary.
Very informative 👏👏.I have just started my career as an account practitioner.I searched to gain some experience in accounting tax rates .I found your channel and it gave me all the clarity.Thank you so much .
Inflation is the biggest tax / theft from workers. Print money, give it to banks, devalue our savings, make us work forever.
Yep, it was designed by the Rich for the Rich.
Thanks for a well explained overview of the ripoff UK tax system. As April approaches, even worse changes are taking place for us in the middle people 😬 🙄
I'm hearing a lot from people who are downing tools at the £50k mark. Turning down overtime for example. £50k nowadays doesn't make you wealthy with the high levels of inflation we've experienced. This does not bode well for the UK economy.
Also the £100k mark. You are effectively taxed at 60% when you lose the "personal allowance". Many may say that £100k is plenty but it ignores the other side of the equation; the businesses not started, or not expanded. The employment opportunities not created. The lost growth. Once you reach £100k there really isn't much motivation to push on with your career or business. You will be punished for your efforts.
My advice is if you are going to start a business, keep it small. You don't want a whole load of stress, responsibilty, and long hours just to have the taxman take an enormous cut from your efforts. It just isn't worth it.
MANY PEOPLE ARE QUESTIONING THE BENEFITS OF LIVING IN THE UK DUE TO THE EXTREMELY POOR GOVERNING.
That's the Tory government for you
Good video. However, corruption through lobbying and backhanders is what keeps prominent MPs in wealth. Then, they reinvest that money through multiple means where they get a heads up on stocks and various other profitable enterprises
It's designed so the rich get richer and the poor get poorer. Money goes to money. If you've got it you can afford to invest or buy property or whatever and earn a nice nest egg. There's always a way to not pay tax or not pay as much while the poorer people can barely put food on the table and having heating on when it's cold is a luxury most can't afford. Yet the government don't even buy their own lunch the everyday person struggling to make ends meet pay for their lunch and they moan about it. Half the seats are either empty or the old buggers sleep through it. But we pay them to work for us? Or go on holiday? Or live in big houses? Nice cars? Summer homes? Yet most of us can't even afford our house hold bills and put food on the table let alone heat our house in winter. It's a joke and a piss take.
The picture is more complicated. Before anyone gets too excited aboit setting up a company. For example, surely your business needs to be growing and profitable beyond your usual employed work if the tax relief is to compensate for the loss of a more favourable employer contribution pension scheme. Your company needs to be achieving more than it would as just an incorporated version of a middle or higher (not highest) tax bracket income if this to be advantageous. And running that business is additional work on top of what your usual employed work would be, with additional risks.
I dont smoke myself but i see a pattern: poorer people tend to smoke (that's not a rule but in general) and poorer people tend to drink alcohol a lot (again, not a rule). Both of those items are highly taxed. I was with a friend recently and she asked me to buy cigarettes for her while she was in the bank. 15 pounds ++ for 20 cigarettes !!! I was shocked. It cannot be manufacturing costs because the exact same brand and type in japan is £2.80. And even in Japan there is a heavy tax on cigarettes.
They put up prices on things they generally don't want people to do, but historically its never worked (now your seeing an absolute prohibition of smoking in the UK for the next generation) they did the same with horses way back, but it didn't stop people using them, they are doing the same by having ULEZ. they try and outprice to make people consider better options, but it usually just leads to more poverty. what stopped people using horses I hear you ask? Cars! of course. just like vaping stopped people smoking traditional cigarettes its only when a new product comes out that people change the way they live. never from price hiking.
@@Bobby-k2q 👍 agreed. My husband's mother is a smoker but also a doctor at the local general hospital. She will never give up smoking despite the price hikes and I think the government knows this. So people with plenty of money will continue despite the increase and poorer people will suffer.
It was all peaches and cream until the crackdown on solo business owners via the IR35 in the UK. this then limited peoples ability to contract and utilize the favourable tax rates of a business.
Useful information. Important to know that the system is designed to maintain the status quo. Designed by the rich for the rich to keep the plebs busy worrying about paying bills. The whole state apparatus is designed for this not just the tax system. If you look around at the one's who have made it rich, it's mostly people who are not necessarily academic or hard working. The establishment who made the rules made it rich through might is right philosophy plundering from weaker people and countries then surrounded themselves with sycophants/protective layers in the form of class or caste systems along with rules/laws to prevent others from acquiring wealth the way they have done it. They have major advantages built into the system to prevent themselves from ever becoming poor. While they worry about becoming poor, the poor worry about not going to heaven.
In reality this confirmed what I already know the system is anything but fair when viewed logically , I realised this and moved to a low Tax Country and now enjoy a better lifestyle lower stress and more of my money in my pocket …no regrets , great easy to listen explanation thought thanks..
Where did you move?
@@cola109 Portugal
I am completely fine with paying taxes. The problem is that paying taxes is what you get in return. Indeed, we don’t pay more tax compared to Scandinavia, but they get a lot back; we don’t. The second problem is that people like Rishi dodge the tax because they can .Big companies like Amazon, Google, etc., dodge billions of taxes every year, and no one cares. God forbid a person like me don't pay his £200 tax. These are the real problems we have.
Lots of people care that the big companies dont pay tax. The entire socialist left is obsessed with this. The problem is that they are a 1-trick pony and try to solve this by either demanding increasing tax, or introducing new taxes like a wealth tax or poll tax, which the big companies also dont pay, but the poor cant avoid, thus making the average person poorer and increasing the wealth inequality they claim to want to solve.
The solutions to all of these problems is to lower the tax on the middle class, help them to earn more (so the lower tax rate still yields the same absolute cash value), and make government function more efficiently by massively reducing the bloat in the system and streamlining our systems.
We piss so much potential up the wall its unreal.
❤❤❤❤ I Need more! Please 🙏🏾
Your delivery, structure and clarity was perfect to digest n simple enough to follow, with no jargons! ❤❤❤❤ I need more please! Great editing as well from your camera man n effects! Salute 🫡
Thank you so much for watching, and I am glad the explanations were helpful!
makes me chuckle when they say we are "allowed" to earn 12k.
Main thing to consider is the pay disparity between rich and poor… it’s ever bigger now so the only way to correct it is to increase taxing on super rich who exploit bottom earners and ease tax on lower earners
easiest way would be to raise the personal allowance to somewhere around 20K
@@Bobby-k2q I've always thought the personal allowance should be the same as the living wage. I think that's around 21k currently
You can legally avoid many taxes. Example- I built a house using my own labour- which is not taxed (income or VAT) at all. Materials VAT free. When I sold it, I paid no capital gains tax (personal residence). £1M tax free, kerching!
YES ,hard work , done it twice before they put stamp duty on building plots , and mortgage free . ✌💣
Amazing!
Working class don't get taxed as much but they get taxed in the fatigue, injury and time it takes in recovering from a physically demanding job. If you have an easy you should thankful.
Also £8 of every £10 you pay for car fuel go’s to the Government. 80% duty/tax your paying.
Worked all my life as a PAYE employee, had a decent salary yet after taxes was left with peanuts now I’m self employed and much better off
The UK tax systems. Rob, the poor, give to the rich and blame immigrants.
More like … Rob normal people, give to the lazy and immigrants.
I’m an expat. Left the UK 2021. Have residency in Cyprus at the moment & looking to get my investments optimised so I don’t trigger a tax liability to the UK when I start to draw down.
Plan B is a move to Bali (cheap cost of living) if markets aren’t favourable over the next few years.
Why do Brits call themselves expats and not immigrants when they move abroad? Have you bothered to learn the local language? Just curious.
@@tangomike15
Not needed here, as everyone speaks good English. It’s their second language.
The term Immigrant is more especially used for a permanent re-location.
The term Expat is more accurate in my case as it’s temporary.
Very simplified. Earned a subscriber. Keep it up. Are there any reading your recommended buying to gain a vast understanding of the topics/technical terminologies you spoke on that may be worth buying.
But we don't need people to become middle class. Historically, those in the middle class have always been troublemakers. Revolutions have been led by the middle class: Lenin, Napoleon. Hitler was born into the middle class as well. Lower classes typically don't cause trouble, as they are usually focused on survival and don't harbor higher ambitions. Additionally, it's difficult for them to organize, as no one wants to follow someone from the lower class. On the other hand, the rich and super-rich don't have any interest in starting trouble, as according to the risk/reward ratio, they stand to potentially lose more than gain if they engage in risky behavior. Moreover, they don't have much to gain, as they already possess most of what they desire.
That is my conclusion. If you disagree, please let me know your opinion. I am open to others' views and may adjust my beliefs if persuaded.
There are some truths in your statement. However, the middle class is also the ones that helps create the balance in the economy, and also in the society in general that could lead to positive change. As you said, they aren't too poor to just worry about survival, not too rich to think everything is good.
I, however, noticed that from the explanation in this video: essentially it just sounds like communism? High tax bracket people pushed middle, low tax bracket people pushed middle. Like everyone is the same. Or rather, quite similar to the European peasantary economy that never evolves since the middle age. They are however, the aristrocats that rules of things, has the biggest companies, or land ownerships, and the rest of us merely living under them.
Youre bloody right mate. You’re not wrong in the slightest
The tax bands are a bit different in Scotland but in essence, the principle is the same. I really like how you explained the different types of tax rates whether you're investing, an employee or self-employed. Really easy introduction for beginners.
great video, everything was articulated so clearly and at a perfect pace that was easy to follow.
One thing you can do, is do your job in another country. I was a captain with BA. I got paid twice as much flying the same aircraft in India- and didn't have to pay any tax at all!
People start companies because they have a business idea. Without one, the tax rate is of no use.
Thanks Kiran clear and easy to follow advice. I just subscribed! ❤
Thanks for watching and subscribing!
I’m afraid I rather disagree with some aspects of your presentation. The dividend tax rates are in addition to the corporation tax. So if we set aside the polemic issue of employers NICs, those working through limited companies and extracting their income by dividends are in a similar position to employees up to around £50k but above that, now find themselves paying considerably more tax than employees. So above £50k for an additional £10k of dividend, one is paying say 20% CT and then an additionally 33.75% of higher rate (40%) income tax plus dividend tax which works out around 47% marginal rate of tax. As an employee you would be paying 40% plus NICs which drop off to 2% above £50k so you are better off being employed.
But the basic premise of your piece about the glass ceiling preventing most people becoming high earners is bang on the money.
Thank you for watching and taking the time to comment! Great points, but don't forget tax deductible expenditure, the ability to control when you take money out of your business vs reinvesting it for growth and finally the eventual sale of your business which will be taxed more favourably. It depends on the profile of the business in question though!
Thank you so much for explaining it all to everyone...can we have more like this..❤
Even if you run a limited company, taking 500k a year from it will attract 64.24% tax. I just don't see the UK as a viable option for commerce anymore.
What is learnt from this video , keep being the director of my ltd company. Thanks
The comparison you make at 8.30 isn't accurate. You call the 60k profit and then proceed to subtract expenses from it - it should be turnover, not profit. The taxable income is in fact what should be called profit. It's not a fair comparison in any case - if you have 22k worth of business expenses that money isn't yours, so even if you pay less tax because of it, you're still worse off in terms of money in the bank. Also it's not fair to compare dividend taxes to personal income taxes when you will have already paid corp tax on that profit before dividend tax applies. This kind of comparison can lead people to think it's more profitable running your own company when it's really not, at least not anymore - not at numbers like 60k. Also consider that VAT applies to businesses turning over 85k+, a tax which isn't payable by employees.
Thank you for watching and taking the time to comment. It was very a simplified example, and I agree with you that there many expenses to consider when running a company. However it can be the most profitable option for many people - of course it depends on the profile of the business!
@@KiranKaurFinanceSo does it mean that a higher earner would pay 25% in Corporation Tax and then 33% Dividend Tax? It would be almost 60% compared to 45% on PAYE. How does it make it better?
Hi there. It can be better, but this depends on the level of expenses that the limited company can deduct before tax, and because of the difference in NI on dividends vs salary. I didn't get into the detail in this video, but I would be happy to as part of a future video - I appreciate its not easy to see how the calculation works when adding up the percentages in my simplified example@@damian1690
@@damian1690was going to say the same question. At moment it is better to set up my online business abroad in a U.S. LLc state with no corporation tax and then just taxes on dividends - otherwise as a solo entrepreneur, I'm working all hours to give 65% to the govt!
@@KiranKaurFinance Yea, it would be perfect if you could explain it in more depth in your future videos, as I think it would be useful for many people, and not easy to get our head around ;)
Kiran: That's a really good explanation. Thankyou for this. You've made my replay list
🎯 Key Takeaways for quick navigation:
00:00 *📊 The UK tax system is designed to prevent individuals from becoming rich, but legal strategies can help reduce tax burdens.*
00:41 *💰 Income tax in the UK has three bands: basic rate, higher rate, and additional rate, with rates increasing as income rises.*
04:15 *📉 Taxes and benefits aim to push most individuals into a middle distribution, limiting extreme wealth or poverty.*
04:43 *📈 Realized capital gains and dividends offer lower tax rates compared to earned income, benefiting wealthier individuals.*
07:01 *🏢 Operating as a company owner can significantly reduce tax liabilities compared to being an employee.*
09:48 *💼 Reducing reliance on traditional employment by exploring other income avenues, like equity shares, can help build and retain wealth.*
Hmm😪
@@adedayofajemisin4767 Whats wrong?
Use of pension contributions to control tax bands and build capital growth potential a 3rd option. Also use of isa allowance before getting in to cgt planning)
Thank you for watching. Good points!
You just realized that now? It seeks to keep you dependent - and by extension, pliable.
I think some people are missing the point here. Though true that for low end earners this doesn’t work as well, having your own business not only can help high earners but can also help you become one. As an employee there’s a clear cap of how much you can earn. Having your own business and working smart has potentially no limits of income.
Yes, it’s not for everyone I agree but saying having a business is no better than a 9-5 is absolutely wrong and obsolete.
Good video, thank you.
Great point!
Who pays tax in UK ? Cash in hand is the king 👑
To be clear, there isn't a single UK tax system. There is a system in place that covers England and Wales (and perhaps NI) but Scotland has a different system with more tiers.
Question. If a person earns less than the personal liability allowance how can that person be liable for paying council tax. It is obvious to anyone that council tax is in fact a second income tax.
Thanks Kiran, very useful information about taxes as an IT contractor using own limited company
I am a higher rate tax payer but not by much, i have a student loan also, whixh with the current interest rate of 7.6% i am only paying off interest with the 300pm they are taking off me. Even though i dont need the qualification for the job i do, with any overtime i do, i now have to pay 40% tax 9% student loan ( graduate tax)
And 2% ni meaning i take home less than half the money i am being paid. plop 14% on for employers NI im
I am taking home 49p per 1.14 that my company is paying for me to work overtime. How is it right that i am taking home a little more than a third of the amount my company is paying for me to work? And there are people getting handouts left and right, you are very right. The system is built to stop us from being able to achieve financial freedom, keeping us slaves.
Thank you for putting this together! Really appreciate the insights
Glad it was helpful!
What I've learned from this video is not to have kids. This system is so unfair.
work hard and earn a high salary to be taxed a lot. meanwhile big corporations pay nothing. 100k seems high but in reality there are so many people which much more than this.
And then you go to the supermarket, petrol station... and you give them even more tax.
The current tax regime in the UK is totally broken. I have just got a second job, first time in my life which will see me get another 2720 a month of which 1088 will go to Tax. If your working 5 days per week 2 of those days you are working for nothing. This is why generation Gen Z don't want to work, so while Rishi is focussed on getting the sick notes back to work he needs to lower income tax so that people feel the value of actually going to work. If not there will be a whole generation of people not working, not being taxed at all, and the country will fall deeper into debt.