Wednesday, August 17, 2011

Why we will have at least 3 years of 50p tax

As some politicians continue to talk about 'scrapping the 50p rate', I thought I'd add a postscript to my earlier pieces where I explained why the 50p rate is "not really raking in huge sums" YET.

Despite being announced in Budget 2009, the 50% top rate tax was first charged in the tax year 2010/11. Many people will not be paying the extra tax arising from the 50p rate until 31 January 2012. It is only after that date that anyone will be able to determine how much tax has been raised at 50%.

The 50% rate has also applied during the current tax year which ends on 5 April 2012. The 2012 Budget will need to be planned and will be announced before that date. These days it is almost impossible to introduce changes to the rates of income tax that take immediate effect. So even if the Chancellor decides to abolish the 50% rate (or reduce it to 45%) this will almost certainly not take effect until 6 April 2013. By which time the 50% rate will have been in operation for 3 tax years.

HMRC gets enough grief for the way the PAYE tax system operates without the extra challenge of trying to manage the impact of last minute changes to tax rates. This is why the 50% rate did not take effect immediately it was announced. Abolition will also be delayed a year so that HMRC's systems can be suitably modified.

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