MSE News: 750,000 more to become higher rate taxpayers

in Cutting Tax
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This is the discussion thread for the following MSE News Story:

"Many more will start paying income tax of 40% on earnings from 5 April as the threshold drops from £43,875 to £42,475 ..."

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  • edited 31 January 2011 at 12:26PM
    NiksanNiksan Forumite
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    edited 31 January 2011 at 12:26PM
    I saw this mentioned on sky news website this morning but they said the figures were £35,001, from £37,400, so which is correct?

    EDIT: Ah nevermind, I just saw the other thread, and it's the tax free allowance, doh!
  • Paul_HerringPaul_Herring Forumite
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    Both are 'correct.' It's just that Sky don't bother adding in the tax free allowance of £7,475.

    £7,475 + £35,000 = £42,475.

    So, it's £35,000 after your tax free allowance, or £42,475 if your tax allowance is £7,475 (not everyone's tax allowance need necessarily be £7,475.)
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  • To both the posters above: classic case of the poor way HMRC communicates tax allowances as the £35,000 figure is meaningless to most.
  • dori2odori2o Forumite
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    MSE_Guy wrote: »
    To both the posters above: classic case of the poor way HMRC communicates tax allowances as the £35,000 figure is meaningless to most.
    Maybe people should actually read properly
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  • MikeyorksMikeyorks Forumite
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    MSE_Guy wrote: »
    To both the posters above: classic case of the poor way HMRC communicates tax allowances as the £35,000 figure is meaningless to most.

    It's more the increasingly classic way the media reports everything negatively.

    When the £1000 increase in the personal allowance to £7475 was reported in June it was made crystal clear that 40% taxpayers would not benefit. Accordingly the 20% rate band was reduced by £2000 to claw back the (£2000 @ 20% =) £400. Which had been given in the £1000 extra PA (£1000 @ 40% = £400).

    In other words the neutral effect that was intended! Fairer way of putting it across?
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  • Paul_HerringPaul_Herring Forumite
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    MSE_Guy wrote: »
    To both the posters above: classic case of the poor way HMRC communicates tax allowances as the £35,000 figure is meaningless to most.

    And the £42,475 figure quoted in 'your' article is likewise meaningless if your tax code isn't 747L.

    It's not just HMRC who are poor at communicating it would seem.
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  • haras_nosirrahharas_nosirrah Forumite
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    Will this affect child benefit too? More people will be 40% tax payers so I guess the new 40% tax payers will also lose their child benefit too.
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  • Paul_HerringPaul_Herring Forumite
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    Mikeyorks wrote: »
    In other words the neutral effect that was intended! Fairer way of putting it across?

    But it's not 'neutral' though, is it? It ignores fiscal drag.
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  • MikeyorksMikeyorks Forumite
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    But it's not 'neutral' though, is it? It ignores fiscal drag.

    No. Because the PA increase for 11-12 is well above the rate (approx £400) at which normal indexation would have placed it.
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  • Paul_HerringPaul_Herring Forumite
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    Mikeyorks wrote: »
    No. Because the PA increase for 11-12 is well above the rate (approx £400) at which normal indexation would have placed it.

    Would you care to show how, for example, someone earning £43,875 in 10/11 will be paying less tax (on a par with inflation or whatever your preferred method of indexation is) than in 11/12, assuming they don't get a pay rise, due to the lack of fiscal drag you allude do?

    By my calculations:
    10/11 - 647L: (43875-6475)*20% = £7,480 income tax.
    11/12 - 747L: (43875-42475)*40% + (42875-7475)*20% = £7480 income tax

    That looks like fiscal drag to me.
    Conjugating the verb 'to be":
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