Allowance threshold change in Budget will be a blow to struggling majority

accapr —  15 March 2013 — Leave a comment

Chas Roy-Chowdhury-14

By Chas Roy-Chowdhury, head of taxation, ACCA

As the 2013 UK Budget approaches next week, ACCA called for the Chancellor of the Exchequer to use the Budget to increase the personal allowance threshold further than planned, without decreasing the level at which the 40 per cent tax band bites.

From 6 April this year, those turning 65 years old will no longer benefit from the higher personal allowance pensioners receive, which means some pensioners, who fall into the new 40 per cent tax bracket because of income from savings, dividends and part-time work, will be bitten by their tax bill.

This is a classic example of giving with one hand and taking with the other. It looks good for the Government to say that they are extending the personal allowance, but it is only true for the ever-shrinking population of 20 per cent taxpayers. By dropping the threshold for the 40 per cent income tax bracket, many hardworking people who will begin paying 40 per cent for the first time will lose the benefits of the increased personal allowance and they will need to pay additional tax on such things as savings and dividend income.

This is no longer the 1980s where only a small number paid the 40 per cent income tax. Many people who are working but struggling at the lower end of that bracket will not get much respite from an increase in the personal allowance. The Chancellor of the Exchequer should use the Budget on 20 March to give taxpayers a much-needed boost and raise the personal allowance for all income tax rates otherwise it is being less than honest.

Thirty years ago only five per cent of workers paid the 40 per cent tax rate – this has now more than doubled to more than 15 per cent today, which means more people will be affected by this change, even if their salaries do not sit comfortably in that threshold i.e. are on the borderline.

Is it fair to do this to pensioners who have paid their taxes throughout their working lives, only to penalise them for saving some of their pay for later in life?

It will be interesting to see how the Budget pans out and how the general public react to it as I believe it will be challenging times ahead.

Don’t forget to follow our Twitterfeeds for live coverage and comment on the Budget as it is announced on Wednesday 20 March from 12.30pm.

@ACCANews

@ACCATaxation

@ACCA_SME

@ACCA_UK

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