Past governments – from both sides of the House – would no doubt be amazed to learn that their convoluted tax code is now conspiring to produce weighty tax charges.
The highest published rate of tax is the additional rate of Income Tax. At 45% it pips Inheritance Tax at 40% whilst VAT (20%) and the highest rate of NIC (13.8%) look low in comparison.
The unfortunate truth is that there are times when two or more taxes are triggered by the same event. Consider taxable benefits in kind that apply to a taxpayer in the income range £100,000 to £125,000. Income tax in this band is generally charged at a marginal rate of 60% – 40% Income Tax plus the effects of losing the tax personal allowance (this happens when your income exceeds £100,000).
Unfortunately, employers providing the benefits that are driving employees’ income over £100,000 are obliged to pay an NIC charge of 13.8%. They will get tax relief for paying this charge, but even so, the combined Income Tax and after tax NIC charge is tipping the scales at just over 70%.
Ironically, practitioners benefit from these effects as they constantly strive to keep clients’ tax bills to a legally acceptable minimum.
It would appear that this onward march towards ever increasing complexity is set to continue. There is nothing in the major parties’ offerings that would indicate tax simplification is on the menu for future action. It will be interesting to see if the Office for Tax Simplification can come up with any suggestions.
In the meantime, vigilance is required if you want to avoid paying too much tax…