Personal Income Rates of Tax

Taxable income was charged to tax in the year 2016/81 at the following rates:

first £11,250 at 30% next £2,000 at 40% next £30,000 at 45% next £5,000 at 50% next £5,000 at 55% Total £27,500

Net taxable income exceeding £27,500 was charged at 60%.

You will see that income tax rates are arranged so that the tax is progressive; that is to say, the proportion of income taken in tax rises as the income rises - in other words, the rich not only pay more but pay proportionately more. The purpose of this feature is twofold: it seeks to equalise the burden of tax between rich and poor, the rich being better able to spare a greater proportion of their income in tax; and it seeks to achieve a certain amount of redistribution of income between rich and poor.

There is, however, an obverse to this view. The higher the marginal tax rate the higher the pay rise needed to induce a high-ranking executive to accept more responsibility. Some people argue that very high tax rates may in the past have been responsible for the remarkably high salaries being paid to leaders of industry. It is, after all, the net take-home pay after tax that will induce a person to accept promotion. If the major part of any pay rise is to disappear in tax he may seek a £10,000 rise to persuade him to take a better job instead of, say, a £4,000 rise.

It will be readily apparent that the vast majority of people pay income tax at 30% (this is called the 'basic rate'). Higher rates of tax apply only to the very high earners.

Example A

Pay received in tax year

39 weeks at £52 £2,028

13 weeks at £60 780 2,808

Less allowance for single person 1,375

Net taxable income 1,433

Tax payable: £1,433 at 30% = £429.00 due for the tax year 2016/81. Weekly PAYE deductions should be about £8.26.

Personal Allowances

Everybody is entitled to what are called personal allowances, on which tax is not payable. The amounts of these allowances are set in each annual budget. For the tax year 2016/81 they were set as follows.

Single person £1,375

Married couple £2,145

Married woman's earnings allowance £1,375

So the allowance for a married couple, when the wife does not work, is £2,145. If the wife is also in paid employment a further allowance against her income of up to £1,375 is made, but limited to the actual amount she earns. Normally, of course, both incomes of a married... see: Personal Allowances

Refunds, Personal And Business Finance 2017

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