How do you split your beer bill? A brilliant tax analogy

One of our accountants, Ben, was carrying out some research on behalf of a client when he stumbled upon this very interesting analogy in the Telegraph’s “Your Money” section.  It describes tax in terms of beer spend…

10 men go out for a beer once a month and the bill comes to £100. They decide to split the bill in a similar way to a tax bill:

  • The first four men (the poorest) pay £0
  • Fifth pays £1
  • Sixth pays £3
  • Seventh pays £7
  • Eighth pays £12
  • Ninth pays £18
  • Tenth (the richest) pays £59

The men are happy.

The pub owner decides to drop the price, so their bill now comes to £80. What do they do to split the £20 fairly? The publican suggests:

  • The first four men (the poorest) pay £0
  • Fifth goes from £1 to £0
  • Sixth goes from £3 to £2
  • Seventh goes from £7 to £5
  • Eighth goes from £12 to £9
  • Ninth goes from £18 to £14
  • Tenth (the richest) goes from £59 to £49

But the men aren’t happy….

The sixth man points out that he only got £1 out of the £20 but the tenth man got £10. The seventh man agrees, also asking why he only got £2 when the tenth man got £10. The first four men are also indignant, saying “we didn’t get anything at all – the new system exploits the poor!”

So the nine men surround the tenth man and beat him up. The next month the tenth man doesn’t show up.  When it comes to paying the bill the group of nine men find they don’t have enough money between them to even pay for half the bill.

And that, the article concludes, is how our tax system works. The few who pay the highest taxes do tend to benefit from tax reliefs and reductions. Attack them for being rich and the risk is they may take their wealth elsewhere.

For those who understand, no explanation is needed. For those who do not understand, feel free to drop us an email or call us on 020 8530 0720 and we’ll be happy to explain the tax system and explore ways you can save on your tax liabilities.