2 minute read

Money Matters

from North Glos

by The Local Answer

from North Glos, page 49

TLA Sport

with Roger Downes of Andorran

Who pays the most tax?

Ever since it was invented centuries ago, the idea of the tax system has been that those earning the most pay the highest contribution in taxes. It seems perfectly logical and fair. The system increases the rate as your income gets higher. Those earning the least pay 0%, increasing to 20%, through 40% to a maximum of 45%. Easy? Sadly no.

There are a number of intricacies that mean that many people pay more than 45%, even though they don’t earn anywhere near the threshold at which that rate kicks in.

It works like a tax in everything but name

Firstly there is student loan repayment. It works like a tax in everything but name for those who have university finance to repay. It starts every year when your income reaches what for graduates is a relatively modest £20,000 or £27,000 depending on when you were at university. Above that they pay an additional 9%, making their effective tax rate 29%, 49% or even 54%.

Next you hit the child benefit repayment challenge. This generally affects a different group to the student loan issue, but there will be taxpayers, probably a growing number of them, who are penalised by both ‘taxes’ . If either parent earns over £50,000, the child benefit they have received starts to be repaid. If that parent’s income goes over £60,000, all of the benefit is recalled.

This clawback increases the effective tax rate for those involved by anything from 6% upwards, depending on how many children they have. If you have as many as six children, your effective rate on this band of income goes over 90%!

Loss of personal allowance for those earning over £100,000

Still further up the scale is the loss of personal allowance for those earning over £100,000 a year, who suffer a 60% tax on their next £25,000 of income.

Sound complicated? It is and it keeps tax advisers in business!

Happy NewYear.