Millions Of UK Taxpayers Could Pay 50% Income Tax Under New Inland Revenue Rules

by Robert Lee, Tax-News.com, London

25 February 2004

According to a report which appeared in The Times this week, the Inland Revenue is proposing to bring several million UK taxpayers with additional income streams into the PAYE system, a move which could dramatically increase their effective income tax rate.

Currently, the vagaries of the tax system mean that taxpayers who earn additional income, for example from freelancing or property lettings, and pay tax through the self assesment system, can wait up to sixteen months before having to pay any income tax. However, under the Inland Revenue's new plans, the entire earnings of these individuals may be taxed through the PAYE (Pay As You Earn) system on a monthly basis.

As a consequence, many taxpayers may find themselves in the short term being taxed at an effective rate of 50% on their earnings. The report states that these changes could affect upwards of three million, mainly higher rate, taxpayers.

Martin Donn, personal tax partner at Blick Rothenberg, told The Times: “Many people will have already made payments on account through their self-assessment return. I estimate that, if the Revenue decides to enforce its new powers this April, a lot could end up paying three years’ worth of tax in less than fifteen months.”

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