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Higher rate change 'clarified'

13 May 2008 / Mike Truman
Categories: News , Income Tax
Threshold will drop by £1,200, not £600

The threshold at which an individual begins to pay at the top rate of income tax is to be reduced by £1,200 - not the £600 stated by the Chancellor in his announcment to the Commons.

Alistair Darling Chancellor said that, in order to leaver higher rate taxpayers unaffected by the £600 increase in personal allowances, he was 'therefore reducing the threshold at which an individual starts to pay tax at the higher rate by £600'.

However, following questions from Taxation editor Mike Truman, the Treasury 'clarified' the Chancellor's statement.

Mike noted that a £600 reduction in the threshold would leave higher rate taxpayers £120 better off, just as basic rate taxpayers will be.

The department responded by saying that there had been a 'misunderstanding of terminology', and that the threshold was actually being reduced by £1200.

'It seems very surprising that, in a statement as important as this, the Treasury cannot get their terminology right,' said Mike.

He then pointed out that the increase in the basic rate of tax will benefit the very people who also did well from the reduction of the basic rate to 20%: basic rate taxpayers on incomes above £18,000 or so.

By contrast, added the Taxation boss, the 20% of people who still are not fully compensated by the new package will be the ones who were hardest hit in the first place: those earning just over £8,000. (They lost close to £230 when the 10% rate was abolished and only benefit by £120 from the Chancellor's new deal.)

Sections - income tax and NI

Categories: News , Income Tax
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