40% tax 'cancels out personal allowance'

With more and more people are being caught in 40% income tax bracket, families won’t necessarily feel the benefits of a further rise beyond £10,000 in the personal tax allowance.

Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants(ACCA), said:

“Raising the personal tax allowance looks good on paper but many families across the UK won’t necessarily notice a difference in their take home pay.

“The higher tax rate is catching more and more people, which means they are paying more tax.

“The government’s own figures show that in 27 constituencies, the average taxpayer is now paying at 40%. Any rise in the tax allowance should be matched by raising the threshold of the 40% tax band, or freezing it at the very least.”

ACCA said any rise in the personal allowance must not implemented in isolation and that the whole income tax regime is reviewed to ensure the allowance is not cancelled out by more people being caught by the 40% tax bracket.

Mr Roy-Chowdhury added: “Our tax system is looking outdated. Take business rates for example. They were introduced at a time when enterprises were almost always in a physical building.

“Today, internet businesses are growing rapidly and yet any business with a property is immediately penalised and put at a disadvantage to online companies. Business sectors that have to use premises – garages, corner shops, manufacturers – are placed at an instant disadvantage.”

The ACCAhas also warned that Labour and Lib Dem plans for a ‘mansion tax’ will “only harm a fragile economy in the short term” and such a fundamental shift in the basis of taxation shouldn’t be attempted until the economy is far healthier.