The Prime Minister and George Osborne are planning to slash the top rate of tax from 50 percent to 45 percent, which may happen as early as March 2012. According to Treasury figures, cutting the top rate to 45p wouldn’t cost as much as initially thought by the Chancellor. Figures show that approximately £750 million a year may be lost as a result of cutting tax by 5p, leaving scope for the announcement of a tax cut to be made in the next budget.
This decision may not be popular with the Liberal Democrats, who pledged to cut tax for the low income population of the United Kingdom, increasing the threshold for tax to £10,000. The chancellor is being urged to cut the rate of tax for high earners to encourage them to invest their income here rather than put it into offshore accounts and pensions. Treasury figures show that collecting tax at 50p has raised as much as £2.4 billion a year, although officials believe that 70 percent of that tax yield would still be collected if tax was due at 45p on income over £150,000 per annum. High earners would be less likely to use tax avoidance methods if the tax rate was lowered.
As self assessment tax returns are received by the end of January 2012, the figures collated from those receipts will show how much revenue was generated by the 50p tax rate, which was introduced April 2011. Officials say that it isn’t a case of whether to reduce the higher rate of tax, but when they should cut tax.
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