Why there is a cash economy

Following my post last Friday, on HMRC's view of the cash economy, I wondered exactly how much tax is paid in the UK on additional income. If someone decides to work harder and earn more, do they get their just reward?

taxburden.png

Following my post last Friday, on HMRC's view of the cash economy, I wondered exactly how much tax is paid in the UK on additional income. If someone decides to work harder and earn more, do they get their just reward?

The above numbers assume a higher-rate taxpayer has generated some self-employed income, perhaps by working evenings and weekends, and has generated £60,000. The new after-tax earnings are spent on a new family car. Unfortunately, our hard-working taxpayer dies suddenly after.

At the end of this little real-world saga, of the extra £60,000 earned, £46,726 ends up in the hands of the Treasury, being paid over in VAT and the various forms of taxation. That's a 78% tax burden.

And we wonder why there is a cash economy?

UPDATE

For the benefit of @RichardJMurphy here are my caclulations (per TaxCalc) of the Tax and NI due before the extra income and after the new self-employed income. The liability increases from £10,010 to £33,333, an increase of £23,323. Add the Class 2 NI paid separately of £130 and we get the figure of £23,453 shown above.

The self-employment work for our example taxpayer consists of advising the general public. Since they cannot reclaim VAT, and he is in competition with other providers on price, he is unable to add VAT to his fees and must bear the cost himself. Working from home, via the internet, his expenses are negligible and he has no cost of sales.