Tax Rates and Bands 2013/14Tuesday, March 27th, 2012
As we reported last week after the Budget, it was little surprise that an announcement was made about the ‘temporary’ Additional rate. From April 2013, The Additional rate will reduce from 50p in the pound to 45p. Mr Osborne claimed that ‘no chancellor can justify a tax rate that damages our economy and raises next to nothing’. This comment was with reference to a HMRC report suggested that a review of recent tax returns had indicated that people had taken steps to reduce their taxable income in response to the 50% rate, meaning that revenue raised in 2012/13 is £2 billion less. The Office for Budget Responsibility (OBR) agreed that this was ‘reasonable’ in terms of its estimation and that other taxes imposed on the wealthy in the Budget would raise up to five times the amount not raised by the 50% rate.
At the same time, the Chancellor announced that the Basic rate limit will be reduced to £32,245, a decrease in the sum of £2,125. This is to ensure that only a quarter of the benefit of the increase in the Personal Allowance is passed on to those paying tax at the Higher rate. The Chancellor said that the remaining three quarters would be used to assist the fairer implementation of the Child Benefit reforms that were also announced.
For 2013/14, the following rates and thresholds will apply:
|Basic rate, 20%||£0 – £32,245|
|Higher rate, 40%||£32,245.01 – £150,000|
|Additional rate, 45%||Over £150,000|
The changes to the thresholds mean that we start to pay tax at the Higher rate sooner – when taxable earnings reach £41,450, being the value of the Personal Allowance (£9,205) plus the Basic rate threshold (£32,245). The Institute of Fiscal Studies has predicted that, considering constraints on economic growth and other tax levels, the number of people paying tax at the Higher rate could increase by 1.3 million by 2014.
Rather than the £170 annual saving in real terms, the predicted tax saving for a Higher rate payer is £42.50.