The top rate of Income Tax is 45%?

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.

Share:

Share on facebook
Share on twitter
Share on pinterest
Share on linkedin
Accounting in Sheffield and Doncaster Certificates

Recently Added News

What is round the corner?

Having glimpsed the light at the end of the COVID tunnel, many of us will have everything crossed that progress towards normality will continue. The

Read More »

Related News

Tax Diary September/October 2021

1 September 2021 – Due date for Corporation Tax due for the year ended 30 November 2020. 19 September 2021 – PAYE and NIC deductions

Tax collection options

If you do not pay your tax bill on time and cannot make an alternative arrangement to pay, HMRC can take ‘enforcement action’ to recover

Furlough figures continue to fall

Almost three million people have moved off the furlough scheme since March as the economy began to bounce back and businesses reopened, according to new

Quick Links

Web + SEO - LoudCrowd