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

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Former_MSE_Guy
Former_MSE_Guy Posts: 1,650 Forumite
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in Cutting tax
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 ..."
Read the full story:
750,000 more to become higher rate taxpayers



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Comments

  • Niksan
    Niksan Posts: 309 Forumite
    edited 31 January 2011 at 12:26PM
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    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_Herring
    Paul_Herring Posts: 7,481 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.)
    Conjugating the verb 'to be":
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  • Former_MSE_Guy
    Former_MSE_Guy Posts: 1,650 Forumite
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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.
  • dori2o
    dori2o Posts: 8,150 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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  • Mikeyorks
    Mikeyorks Posts: 10,369 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?
    If you want to test the depth of the water .........don't use both feet !
  • Paul_Herring
    Paul_Herring Posts: 7,481 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.
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
  • haras_nosirrah
    haras_nosirrah Posts: 2,208 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.
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • Paul_Herring
    Paul_Herring Posts: 7,481 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.
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
  • Mikeyorks
    Mikeyorks Posts: 10,369 Forumite
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    Paul_Herring wrote: »
    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.
    If you want to test the depth of the water .........don't use both feet !
  • Paul_Herring
    Paul_Herring Posts: 7,481 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":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
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