Income tax is charged on many different types of income which includes certain state benefits and savings interest. According to recently leaked documents, income tax could be one of the key tools used by the government to cover a coronavirus bill.
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The document, which was put together in early May and was purportedly prepared for Rishi Sunak, detailed that Britain could have a budget deficit of over £300billion for the current year.
This is drastically higher than what was predicted in the March budget where the Chancellor of the Exchequer forecast a cost of £55billion to the economy.
The document revealed that to cover this cost, there may be rises made to personal taxes as well as spending cuts from the government to cover the debt.
In an apparent worst case scenario, up to £90billion could be needed in annual tax rises or spending cuts in the coming years.
Any increases in taxation will be unwelcomed by consumers, especially during this difficult period.
Nigel May, a Partner at MHA Macintyre Hudson, commented on the government’s so-called shopping list of options: “The Chancellor and the Treasury face a dilemma.
“We are in a situation where the economy, and the employment market in particular, is effectively on a ventilator in the shape of the job retention scheme.
“Somehow the patient has to learn to breathe on their own again.”
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Nigel goes on to detail that while raising taxes may be necessary, it must also coincide with creating demand.
This may already be worrying for struggling families throughout the UK but Nigel warns that more painful announcements could emerge: “Further details about the plan will come to light soon.
“Businesses and workers need to be aware that the three big revenue raisers are income tax, national insurance and VAT.
“Today we heard about a potential for an income tax rise but changes to national insurance and VAT could potentially be on the horizon too.”
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Currently, the government has a personal allowance system in place which limits how much tax is paid on income.
People can earn up to £12,500 before any tax is levied.
Beyond this, a person will pay a basic rate of 20 percent on income between £12,501 and £50,000.
A higher rate of 40 percent will be charged on earnings of between £50,001 and £150,000.
Earnings above £150,000 will face an additional rate charge of 45 percent.
The amount of National Insurance a person pays is also based on their income levels as well as employment status.
Employed individuals pay class one National Insurance contributions and the current rates are 12 percent for people who earn between £792 and £4,167 a month.
People who earn more than £4,167 a month will pay two percent.
It’s possible that some employed people will pay less if they are a married woman (or widow) with a valid certificate of election or if the person is deferring National Insurance because they’ve got more than one job.
Self-employed people will pay class two and/or class four National Insurance which is dependent on their profits.
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