The whole Adele thing

Adele kicked up a bit of a fuss about having to pay 50% tax, as reported (and denigrated) by the Guardian, here: http://www.guardian.co.uk/music/musicblog/2011/may/25/adele-tax-grievances

As Tim Worstall points out, the article is not entirely accurate, but leaving that aside, I'd be very surprised if Adele did have to pay 50% tax.

The agreement that she has with the record company will say that she gets x% of the sales of her album. I've no idea what x is, but bear in mind that all CD sales are subject to VAT.  This is at 20% currently, added on to the pre-VAT price, so effectively removing 16.67% of the money long before Adele sees it.  For a given amount of sales, where Adele would have earned £100, she's now down to £83.33.

Then there's income tax and NI.  Adele mentions paying £4m in tax.  I'm not entirely sure whether she's treated as self employed or as an employee of the music company, but I'd assume the former, meaning NI is 2% and income tax is 50% on the vast majority of the income.

(Of course it'd be better if she was set up as a small company and paid herself dividends, in which case the income tax is 42.5% and I don't think there's any NI - I could be wrong though.  It's worse if she's a normal employee, because then there's Employer's NI, Employee's NI and income tax to worry about.)

This means that of the £83.33 that she would theoretically get, she'll only actually receive £40.00.  This, the actual tax rate that she's paying is more like 60%. 

The money that she will still have to spend VAT on anything she spends on "non-essentials" (and I never really understood how clothing is non essential, but books are essential?), making the effective rate for the money spent thusly 66.67%.  If she spends any money on things like cigarettes or alcohol it's considerably worse.

So there you have it - Adele's tax rate is really more like 60%