PAYE Procedures – Applying the 50% additional rate of taxWednesday, December 23rd, 2009
A new “additional” higher tax rate of 50% is introduced for the 2010/11 tax year and applies to all taxable income, including savings income, above the £150,000 higher rate limit. The Finance Act 2009 made no reference to this change; it should be expected to be included in the Finance Bill for 2010.
To administer the income limit, HMRC will issue 2010/11 tax codes to affected individuals, based on an estimate of their adjusted net income. An explanation will be provided on the employee’s P2 coding notice. There are no software changes involved as the additional rate will be administered by means of tax table calculations.
Individuals with an annual income of £100,000 or more are required to submit a self-assessment tax return. The actual amount of personal allowance they are entitled to for 2010/11 will be established after their tax return has been processed, and will be included in the self-assessment calculation.
It might have been expected that the new 50% rate of tax would prompt the return of tax code D1, the equivalent of tax code D0 but requiring all earnings to be taxed at 50%. The current computer specifications for PAYE tax table routines define the use of tax codes D1 and even D2 for higher rates of tax. Most, if not all, computerised payroll systems are capable of handling tax code D1.
HMRC’s explanation for not using a D1 tax code is that,
“in the time available it was not possible to introduce a new D1 tax code for those circumstances where an individual has a subsidiary source of employment income liable to tax at 50%. In addition the tax codes for those individuals liable to tax at 50% will not include any adjustments to take account of the additional rate of 50%. It is our intention to introduce these changes from the 2011-12 tax year.”
The tax liability for the relatively small number of individuals affected by the additional tax rate will be finalised once their self-assessment tax returns have been processed.
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