Named the additional rate, the highest rate of Income Tax is 45%, and some might say 45% is high enough.
However, if the rate of tax is measured as the relationship between income and tax plus tax related penalties paid, there are times when this 45% can rise, to as much as 90%.
For example, if HMRC discovers that a taxpayer has been negligent in declaring all their income for tax purposes, they can charge a penalty. This can be as much as 100% of the tax due – effectively this doubles the rate of tax charged. And so, if you are paying tax on under-declared income at 45%, and if a 100% penalty is levied, the effective rate of tax charged is 90% of the income declared.
Whilst this may be an extreme example, consider taxpayers whose income exceeds £100,000. For the tax year 2018-19, for every £2 your income exceeds £100,000 you lose £1 of your tax personal allowance. This means that taxable income between £100,000 and £123,700 is taxed at an effective rate of 60%.
All is not what it seems.
- Brexit , no end in sight - March 21, 2019
- Pension shakeup - March 19, 2019
- No tax when you sell your home? - March 18, 2019
- Spring Statement 13 March 2019 - March 14, 2019
- Holiday entitlement - March 12, 2019
- Register your trade mark - March 7, 2019
- Tax Diary March/April 2019 - March 6, 2019
- Changes to minimum wage rates - March 6, 2019