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Should the Chancellor have introduced a new income tax band?

Should the Chancellor have introduced a new income tax band?

Accountants may be interested to learn that one senior tax expert believes the Chancellor missed a golden opportunity to introduce a new tax band for people on middle incomes when he delivered his recent Budget.

According to Stephen Herring from BDO, the tax changes announced by George Osborne were unimaginative. The government is increasing the personal tax allowance by more than £1,000 next year, and to pay for it, it is lowering the threshold for the 40p tax band from £42,475 to £41,450.

Herring believes that the government continues to ignore the middle income group and should have introduced a 25% or 30% tax band in order to restore some measure of fairness to the tax system. He went on to say that the coalition needs to be more imaginative in future budgets if we are to have a fair income tax system across the entire income spectrum.

The Institute of Fiscal Studies recently estimated that the Chancellor’s decision to lower the 40% threshold will mean at least one million additional taxpayers will be caught in the higher income tax band.

Some people will be quick to argue that adding another tax band would add further complexity to a system that is supposed to be being simplified. Balancing the books, whether in government or business, is never an easy thing to do and the introduction of a 25%/30% band could well lead to more tax avoidance as people think up ways to avoid it being caught in it!

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Image: Golden Egg by Mykl Roventine

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