[Ramrod]

Originally Posted by Big Brian

What angers me is he is planning on cutting disability benefits but as usual making the rich richer. Why doesn't her go after them in order to sort out the economy if it's as bad as he makes out?

My accountant sent me this email a week ago:

In this country if you earn over about £40k you will no doubt be familiar with the fact that you have to pay the maximum tax rate: 42% including NI. But thanks to an amazingly sneaky manoeuvre from HMRC, deftly and quietly executed about five years ago, you will be wrong. And not just a few per cent wrong.

Nowhere is it written in any legislation, but the maximum tax rate is in reality 62%, and I am continually staggered to find a lack of awareness about this fact among those it affects: people paying tax on earnings between £100k and £120k.

If that’s you and you are reading this and your accountant hasn’t told you, their laxness could easily have been costing you £12k a year. They really should have told you about this.

Here’s a simplification of how it works:

the first £10k of earning is tax free
the next £30k is taxed at 29% (inc NI)
the next £60k is taxed at 42% (inc NI)
at £100k you lose the £10k tax free allowance
so the next £20k is effectively taxed at 62% (inc NI)

However skilfully this may have been dressed up as a “removal of the personal allowance”, it’s effectively a jump from a 42% tax rate to a 62% tax rate for the segment between £100k and £120k.

Say you earn £120k: for starters, you’ll now pay 29% on the first £10k you earn, basically a surcharge of £2,900. On top of that, the 42% rate kicks in earlier, so you pay £1,300 extra on your earnings between £30k to £40k. That’s already a £4,200 bill for going over £100k. Add to that another £8,400 to pay on earnings between £100k and £120k and you’ve racked up a whopping £12,600 bill on just £20k of earnings – an effective rate of about 62%.

You may as well be living in Finland, at least there the trains work properly.