Higher tax payers

Posted on 15 May 2013
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More than 10m people are expected to move into the higher rate thresholds for income tax by 2033, twice as many as currently, according to forecasts by the Office for Budget Responsibility (OBR) if the current £41,865 threshold rises in line with inflation say Harris & Co accountants Northampton #accountantsnorthampton

The OBR suggests the number of people paying income tax will rise from 29.9m this year to 31.1m in 2033-34, an increase of 1.2m, based on estimates using the HMRC’s Personal Tax Model (PTM).

At present, 4.6 m people pay the 40p higher rate and 300,000 pay the 45p additional rate for those earning more than £150,000.

By 2033 the OBR forecasts 9.2m people will pay the 40p rate and 1.7m the 45p rate, roughly a third of the workforce.

In a supplement to the July fiscal sustainability report, the OBR has produced an analysis of the estimated effect of ‘fiscal drag’ on the numbers of taxpayers liable to income tax and National Insurance up to 2033-34. This is the process by which the average tax rate rises if allowances and thresholds are indexed to prices rather than earnings, resulting in more taxpayers’ income falling into higher tax bands.

It estimates that an additional 4.3m people would pay income tax in 2033-34 if allowances and thresholds were uprated with prices rather than earnings.

The number of people liable at the basic rate of income tax would be 200,000 lower, as there are more people moving into the higher rate than there are entering the basic rate. There would be an additional 3.5m people in the higher rate and 1.1m in the additional rate of income tax.

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