Does the government take it all?

[Markymark]

Can someone who understands economics explain this to me as it’s frying my brain!

So, I earn £1 (one of many). I pay quite a fair chunk to hmrc in tax and NI. I go to the newsagents to buy a mars bar with what’s left (go with me here let’s pretend I can!). Some of it goes to hmrc in VAT. The rest is split between the owner buying from a cash n carry and their profit. Their profit is taxed like mine. The cash n carry has the same process so some I of it is taxed as profit. The cash n carry buys it from, Mars. Same again happens (I’ll come to the bit you’re thinking next!) and so it goes on through all the iterations where smaller and smaller bits of my £1 are taken by the government.

How much money is actually left at the end un-taxed?

Some may go overseas. That will presumably be taxed in another country. We export and import so tax is paid on stuff from abroad here – it won’t cancel out nicely but some will be offset.

Somewhere, possibly, Mr FatCat decides to not pay tax with a clever accountant. He then buys a nice Ferrari with his undeclared income. That Ferrari has VAT, the dealership pays tax on the profit.

And so it goes on.

Is there any money ever left over? Who gets it?

 

[Markymark]

No, only you pay the VAT. The shop keeper pays it on VATable stuff coming in but claims that back as a deduction against that which they collect off you.

I know, I get that - I'll be paying around another 10p on my £1. But he'll pay income tax on his profit. As will the supplier he buys it form. As will evryone else in the chain who is making any profit,

 

[Dayvo]

Mick Jagger bought Marianne Faithfull a Mars bar.

 

[Crankarm]

Mick Jagger bought Marianne Faithfull a Mars bar.

Not a Snickers?

 

[PK99]

Can someone who understands economics explain this to me as it’s frying my brain!

So, I earn £1 (one of many). I pay quite a fair chunk to hmrc in tax and NI. I go to the newsagents to buy a mars bar with what’s left (go with me here let’s pretend I can!). Some of it goes to hmrc in VAT. The rest is split between the owner buying from a cash n carry and their profit. Their profit is taxed like mine. The cash n carry has the same process so some I of it is taxed as profit. The cash n carry buys it from, Mars. Same again happens (I’ll come to the bit you’re thinking next!) and so it goes on through all the iterations where smaller and smaller bits of my £1 are taken by the government.

How much money is actually left at the end un-taxed?

Some may go overseas. That will presumably be taxed in another country. We export and import so tax is paid on stuff from abroad here – it won’t cancel out nicely but some will be offset.

Somewhere, possibly, Mr FatCat decides to not pay tax with a clever accountant. He then buys a nice Ferrari with his undeclared income. That Ferrari has VAT, the dealership pays tax on the profit.

And so it goes on.

Is there any money ever left over? Who gets it?

This should explain in for you....

 

[Joshua Plumtree]

Not a Snickers?

It would have been a Marathon in those days, had he bought her one, which he didn't - so it doesn't matter anyway!

 

[raleighnut]

You reckon? I'd bet the tight ******* made her buy it.

The main reason he looks like he does is from screwing up his face every time he unlocks his wallet, tight-wad.

 

[Beebo]

@0-markymark-0
Wiki suggests that the UK government takes 39% of GDP.

 

[green1]

....and if you are in Scotland that money will go to pay for the cost of Alex Salmond's farewell (for now, but I'll be back in a few years) tour.

FTFY

 

[PK99]

It would have been a Marathon in those days, had he bought her one, which he didn't - so it doesn't matter anyway!

Did he give her one?

 

[Dayvo]

It would have been a Marathon in those days, had he bought her one, which he didn't - so it doesn't matter anyway!

Oh no, it would definitely have been a Mars bar if it was true:

NSFW http://www.snopes.com/music/artists/marsbar.asp

Good story, but!

 

[byegad]

Yup you have it right. HMRC get a cut of (very nearly) everything and that proportion is huge.

Imagine a new School is built in your area. The cost of materials attracts tax/import duty The producer/importer pays wages, buys materials, most taxable in some small part. The wages of the work force doing the actual construction get taxed. The untaxed part of their wages is spent, attracting more taxation and so on. How many times the last penny has changed hands before HMRC get their grubby hands back on it or it goes abroad or into someone's life savings is a complex equation. All of which makes running the economy an art rather than science for government.

 

[PK99]

Can someone who understands economics explain this to me as it’s frying my brain!

So, I earn £1 (one of many). I pay quite a fair chunk to hmrc in tax and NI. I go to the newsagents to buy a mars bar with what’s left (go with me here let’s pretend I can!). Some of it goes to hmrc in VAT. The rest is split between the owner buying from a cash n carry and their profit. Their profit is taxed like mine. The cash n carry has the same process so some I of it is taxed as profit. The cash n carry buys it from, Mars. Same again happens (I’ll come to the bit you’re thinking next!) and so it goes on through all the iterations where smaller and smaller bits of my £1 are taken by the government.

How much money is actually left at the end un-taxed?

Some may go overseas. That will presumably be taxed in another country. We export and import so tax is paid on stuff from abroad here – it won’t cancel out nicely but some will be offset.

Somewhere, possibly, Mr FatCat decides to not pay tax with a clever accountant. He then buys a nice Ferrari with his undeclared income. That Ferrari has VAT, the dealership pays tax on the profit.

And so it goes on.

Is there any money ever left over? Who gets it?

Reducing the position to a single tax of 20% vat and a zillion other simplifying assumptions...

You spend £1,
20% = 20p to the VAt man, 80% = 80p to the Newsagent

Newsagent goes to grocer's shop next door and spends his 80p
16p to the vat man, 64p to the grocer

Grocer goes to the butcher, spends his 64p
12.8p to the VAT man 51.2p to the butcher

Grocer goes to the hairdresser, spends his 51.2p
10.2p to the taxman, 41p to the Hairdresser

and so on.

Ultimately, Total spent = £5, total Vat paid = £1

Now, combine that with the diagram upthread....

 

[Markymark]

That's just the VAT. What about the income tax they all pay on their profits? I buy the mars bard for 60, newsagent buys it for 20p. Call it 40p inc. fixed costs, he pays 40% on the 20p profit. The fixed costs (rent, wages, utltiies etc etc) all make profit from that 20p costs and so tax will be paid on that too.

 

[nickyboy]

That's just the VAT. What about the income tax they all pay on their profits? I buy the mars bard for 60, newsagent buys it for 20p. Call it 40p inc. fixed costs, he pays 40% on the 20p profit. The fixed costs (rent, wages, utltiies etc etc) all make profit from that 20p costs and so tax will be paid on that too.

@Beebo is spot on. All the mars bars, Ferraris etc are the GDP. All the taxes (VAT, PAYE, NI, CT etc etc) add up to 39% or so of this. So we get to keep, on average 61% of our "earnings" and we give 39% to the government which then spends it on NHS, Education, Police etc etc