Data commissioned by Tax Policy Associates from polling specialist WeThink suggests that 50% of the UK public do not understand how the income tax bands work. The survey data asked the following question: ‘Suppose that you earn £50,270, the highest amount in the basic rate 20% income tax band. You get a £1 a year pay rise, and are now in the 40% higher rate tax band. How much additional tax do you think you will pay?’
50% of respondents answered ‘a substantial amount of extra tax’ rather than the alternative ‘a small amount of extra tax’, suggesting that half of the population believe that all their income would be taxed at 40%, rather than only the £1 that falls into the higher-rate band. Unless, of course, that 50% knew that their personal savings allowance would be reduced by half when they became higher-rate taxpayers (which, perhaps, seems unlikely).
Awareness of how tax rates work seemed not to vary significantly according to gender, age or income and education (although further work is being undertaken to assess these latter demographics).
TPA flags up several key concerns that could be borne out by the research, including:
individuals may be turning down extra work based on their belief that, should their income cross a threshold, all of their taxable income will be subject to tax at the higher rate (rather than applying only to the income that falls within the higher band). TPA notes that this would not only be a problem for the individuals in question, but also for the country as a whole; and
if income tax bands are misinterpreted, other basic tax concepts could equally be misunderstood.
Data commissioned by Tax Policy Associates from polling specialist WeThink suggests that 50% of the UK public do not understand how the income tax bands work. The survey data asked the following question: ‘Suppose that you earn £50,270, the highest amount in the basic rate 20% income tax band. You get a £1 a year pay rise, and are now in the 40% higher rate tax band. How much additional tax do you think you will pay?’
50% of respondents answered ‘a substantial amount of extra tax’ rather than the alternative ‘a small amount of extra tax’, suggesting that half of the population believe that all their income would be taxed at 40%, rather than only the £1 that falls into the higher-rate band. Unless, of course, that 50% knew that their personal savings allowance would be reduced by half when they became higher-rate taxpayers (which, perhaps, seems unlikely).
Awareness of how tax rates work seemed not to vary significantly according to gender, age or income and education (although further work is being undertaken to assess these latter demographics).
TPA flags up several key concerns that could be borne out by the research, including:
individuals may be turning down extra work based on their belief that, should their income cross a threshold, all of their taxable income will be subject to tax at the higher rate (rather than applying only to the income that falls within the higher band). TPA notes that this would not only be a problem for the individuals in question, but also for the country as a whole; and
if income tax bands are misinterpreted, other basic tax concepts could equally be misunderstood.
