Tax trap

Posted on 10 Dec 2013
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Quirk leaves some taxpayers with 62% rateThe Sunday Telegraph’s Harry Brennan considers the impact of a quirk which is leaving some people with an effective tax rate of more than 60%. He reports that a gradual removal of the £12,500 tax-free personal allowance by £1 for every £2 earned over £100,000 a year is leading to people turning down pay rises or quitting the workforce. With National Insurance contributions factored in, the rate can be as high as 62%, with the issue currently affecting around 360,000 taxpayers. Stuart Adam of the Institute for Fiscal Studies describes the spike in the marginal rate of income tax as “silly" and "bizarre", adding: “Higher rates of tax put people off work. Relative to flattening the spike we are worse off - it is having a disproportionately negative effect on the economy.” The think-tank has called on the Prime Minister to abolish the tapering of the personal allowance.

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