Why some workers will pay 93pc tax.
Pay rises will be swallowed up by the erosion of tax allowances after the Autumn Statement
Some workers are paying an effective top tax rate of 93 per cent, a new analysis has shown.
Taxpayers crossing certain tax thresholds will see pay rises “arbitrarily” and “unfairly” swallowed up by the erosion of tax allowances and benefits. They could effectively be taxed at rates as high as 60pc – or even 93pc.
The tax burden has been made worse by Jeremy Hunt's Autumn Statement, which lowered the starting level for top-rate tax from April next year.
An extra 232,000 taxpayers are now expected to pay additional rate tax as a result, joining the existing 600,000 or so people already caught.
Many people in high-paying sectors such as law, banking and software development often earn high salaries while still paying off their student loans.
Mike Warburton, the Telegraph's tax columnist and a former director at Grant Thornton, said today's so-called marginal tax rates were the highest since 1979.
He said: "These high marginal tax rates are the result of politicians attempting to limit tax relief and benefits for those on higher incomes. This may be understandable politically but it both adds to complexity and provides a disincentive to work extra hours."
These high marginal rates – which only apply to portions of your income – are the result of successive governments tweaking the tax system and clawing back benefits that their predecessors have introduced.
The personal allowance is tapered away at a rate of £1 for every £2 of income for those earning between £100,000 and £125,140, which works out at an effective 60pc tax rate.
But once earners earn more than £125,140 and, from April 2023, pass into the additional-rate bracket, they will not only start paying income tax at 45pc but also lose their personal allowance of £12,750 completely.
