A third more Britons will be forced to pay higher tax rates

The Momentum UK Team 02 May 2012

The coalition Government's recent changes to tax thresholds are set to push nearly a million Britons into higher tax bands.

Three times as many taxpayers will find themselves paying 40% tax this financial year than 2010/11, according to HM Revenues and Customs. This additional 917,000 taxpayers in the higher bands will take the number of workers paying the highest rate of tax to 4.1million. 307,000 of those will pay the additional 50% tax rate - applicable to those earning salaries of £150,000 or more.

Many taxpayers will suffer these consequences due to the reduction of the 40% tax threshold. The increase also comes as a result of the 'fiscal drag' effect - the notion of tax bands failing to correspond with inflation causing inflation-linked wage increases to become out of sync with tax bands and push more people into paying the higher rates.

Chris Leslie, Labour Treasury spokesperson stated:

"Hundreds of thousands of people will be reeling after checking their pay slips this month. They will be shocked by the sleight of hand in this tax grab."

Another Treasury spokesman suggested:

"The Government has increased the personal allowance, which benefits basic rate taxpayers and most higher rate taxpayers this year and next."

With the increase of the personal allowance also announced in the Budget, many of the lowest paid workers will be altogether exempt from income tax payments therefore the total number of taxpayers is set to fall from 30.1 million to 29.7 million.

The number of Britons paying the basic tax rate of 20% is also set to drop. 2010/11 saw a historical record of 27.1 million taxpayers in the 20% band. This is forecasted to fall to 24.8 million this financial year.

The changes have not been without controversy. The additional 50% tax rate was introduced in 2010/11 by the Labour government as an temporary attempt to generate additional revenue during the aftermath of the recession.

In the recent Budget announcement, Chancellor George Osbourne explicated his believes that the 50% tax rate had failed to generate extra income and would therefore be decreased to 45% in 2013/14.

He later expressed that he was 'shocked' to find out that some of the UK's highest earners were legally able to dodge paying taxes or pay less tax by carefully rearranging their financial affairs.

He pronounced that the Budget's decision to clamp down on charity donations being used to countervail taxable earnings, a technique apparently favoured by the rich to avoid tax payments.

Treasure Secretary, David Gauke explicated that those earning £150,000 were likely to find themselves paying around £1,300 more tax per year with the new changes.

With the announced adaptations to tax bands, the very highest earners could face income tax payments of around £8.1 billion.

6,000 Britons could find themselves paying an average of £591,000 on their salaries of £1 million to £2 million. The 2,000 taxpayers earning multi-million pounds salaries may find themselves footing tax bills of around £1.98m.

Recent research from the Treasury highlighted that over 5% of those earning over £10m per year were paying tax at a rate of just 10% with 20% of those on salaries between £1m and £5m not adhering to the higher tax rates.

HMRC highlighted that 20 of the biggest tax dodgers had legally reduced their annual tax payments by £145 million.