From the Office of Tax Complication

Posted by Simon Sweetman PM | on Thu, 17/02/2011 - 09:15 5107 5 comments

Even comparatively mild adjustments to tax thresholds can produce unintended consequences, writes Simon Sweetman.

For 2011/12 the 40% tax threshold has been reduced from £37,400 to £35,000. The effective basic rate threshold of course goes up by £1,000 to £7,475. Similar arrangements have been made for NIC with the lower threshold being increased while the higher threshold is reduced (and the rate above the threshold increased to 2%).

Continued...

Eh?

richard b | Thu, 17/02/2011 - 09:33 | Permalink

Surely this article is wrong. Higher rate income tax kicks in at £42,475 (personal allowance of £7,475 and 20% band of £35,000) and 12% NIC as article says stops at £42,484 therefore there is just £9 where the 52% band applies

overlooked

Mister E | Thu, 17/02/2011 - 14:15 | Permalink

One thing where the 52% definitely kicks in is if benefits are involved.

Consider:

Salary £40,000 plus car/other BIK of say £4,000 = £1,525 at 40%

But for NI at £40k still paying 12% NI.

Always the case

gbuckell | Thu, 17/02/2011 - 16:48 | Permalink

For someone with a salary within the basic rate band and below the upper NI threshold but with other income - whether benefits, investment income or other - that takes him into higher rate tax, the marginal rate of tax on additional salary has always effectively been higher rate plus ee NI rate - 51% at present.

For someone with a lot of investment income, a marginal rate of 72% will be possible from 6/4/11!!

Office of Tax Complication

dmmarler | Mon, 21/02/2011 - 11:50 | Permalink

If we incorporated employees' NI into personal tax then all these problems would melt away, together with IR35!

Unlikely!

ian339 | Tue, 22/02/2011 - 09:13 | Permalink

"So switching a tax burden from those in work to pensioners looks politically unlikely."

Increase the Personal Allowance for pensioners by the first £x,000 of their pension. Simples.