“Taxing capital gains at the same rates as income, so that all the money you make is taxed in the same way.” – Liberal Democrat Manifesto.Fair? When you “earn” money on the Lottery, you don’t pay any tax. Here is a rough working for a company that has been built from scratch by an entrepreneur over 15 years. These numbers are simple and based on some basic (and occasionally unrealistic) assumptions for the sake of simplicity. Assumptions:
- An entrepreneur founds a business and grows it organically (without external investment) over 15 years at a steady rate of 20 per cent a year.
- In year one her turnover is £500,000.
- She has one employee for every £100,000 of revenue.
- Employees are paid on average £30,000, which means that about £7,300 is taken as tax and national insurance.
- She pays corporation tax on her profit – which is 20 per cent of revenue – but ploughs any profit over £100,000 back into the business.
- When she sells the business, she sells it for 5x profit in year of sale.
- Over this time, the entrepreneur has paid over £10,805,000 in wages.
- She has provided employment for 64 people. (Jobs that were not there before.)
- She has paid over £1,800,000 in corporation tax.
- She has paid over £2,629,000 in PAYE and national insurance. (Plus another £1,383,000 in employer contributions.)
- She has taken £1,500,000 out of the business during this time. (Although this is likely to be far less as in the early years, she would not have taken out the full £100,000 as she would have been likely to reinvest this into the business.)
Mark Littlewood is founder of The Business Leaders Network.
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