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Five Million Workers to pay Higher Rate of Tax by 2014 29/03/12

The Institute of Fiscal Studies (IFS) estimates that the government's decisions to lower the threshold at which workers enter the 40p tax band from next year will increase the number of higher-rate payers by 325,000. The IFS added that ‘fiscal drag' could mean that the number of people paying 40% tax could rise from 3.7 million in 2011 to Five Million by 2014.

IFS director Paul Johnson said:
"This is part of a long-term trend towards the encroachment of 40% income tax onto people earning above-average but relatively modest salaries."

The percentage of workers paying the higher rate will hit 15% next year as a result, compared with 5% in the 1980s.

The cut in the threshold, at which people enter the tax band, from earnings of £42,475 to £41,450, helps offset the £3.5bn cost of increasing the income tax allowance to £9,205 in April 2013.

The estimate that cutting the 50p rate will cost the Treasury only £100 million is "particularly uncertain" while there is no certainty that the stamp-duty hike and caps on tax relief will bring in the sums Mr Osborne is expecting, said IFS director Paul Johnson.

Stuart Coleman, Manager of the Tax Department of ABDS says:
"It assumes a "no behavior change" cost of £3bn offset by a behavioral change of £2.9bn. “

If you need any help and advice for your business on Payroll, National Insurance or any other implications of the 2012 Budget, contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar to discuss how ABDS can help

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail: abds@netaccountants.net

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