The Institute for Fiscal Studies’ Tax Law Review Committee has published a new discussion paper, authored by former Office of Tax Simplification personnel Bill Dodwell, Patricia Mock and Sally Campbell. The paper Thresholds in the tax system: Policy and administrative considerations recommends ways to review and reform various tax thresholds to ensure they meet their policy objectives, at the same time as avoiding unintended consequences or distortions.
The paper considers, for example, the tapering of the income tax personal allowance for incomes over £100,000 with the resulting higher marginal rate for the relevant band of income. One perhaps telling recommendation is for the government to undertake a ‘broad review’ of the current pensions tax system ‘to end up with a system that is easier to understand and to administer, whilst no doubt capping benefits to manage the exchequer cost’ – something an incoming government might want to consider. Chapter 4 of the report covers the pensions annual allowance and the outgoing lifetime allowance in some detail.
In its summary of recommendations, the report highlights the need for policy makers to ‘take particular care to minimise (and ideally avoid completely) occasions when exceeding a threshold makes a taxpayer noticeably worse off – ie the tax liability is greater than the additional income’ paying close attention to ensure any tapering avoids creating barriers to taxpayers increasing their income.
The paper naturally touches on the freezing of the income tax bands and personal allowance by the UK government and the fiscal drag of bringing an increasing proportion of taxpayers into the higher bands (para 2.11). Withdrawal of the personal allowance (para 2.15 onwards) looks at the effective 60% marginal rate of tax for income falling between £100,000 and £125,140.
High income child benefit charge claims have occupied the tribunals in recent years, and the paper notes the frozen child benefit withdrawal threshold which has been set at £50,000 since the HICBC was introduced in 2013, but welcoming the announcement in 2023 that the charge would be simplified and collected through the tax code (for employees).
On VAT, the paper highlights the cliff-edge presented by the registration threshold and sets out a number of options including sliding scales or a smoothing mechanism to avoid the immediate hit for business when their turnover crosses £85,000.
The Institute for Fiscal Studies’ Tax Law Review Committee has published a new discussion paper, authored by former Office of Tax Simplification personnel Bill Dodwell, Patricia Mock and Sally Campbell. The paper Thresholds in the tax system: Policy and administrative considerations recommends ways to review and reform various tax thresholds to ensure they meet their policy objectives, at the same time as avoiding unintended consequences or distortions.
The paper considers, for example, the tapering of the income tax personal allowance for incomes over £100,000 with the resulting higher marginal rate for the relevant band of income. One perhaps telling recommendation is for the government to undertake a ‘broad review’ of the current pensions tax system ‘to end up with a system that is easier to understand and to administer, whilst no doubt capping benefits to manage the exchequer cost’ – something an incoming government might want to consider. Chapter 4 of the report covers the pensions annual allowance and the outgoing lifetime allowance in some detail.
In its summary of recommendations, the report highlights the need for policy makers to ‘take particular care to minimise (and ideally avoid completely) occasions when exceeding a threshold makes a taxpayer noticeably worse off – ie the tax liability is greater than the additional income’ paying close attention to ensure any tapering avoids creating barriers to taxpayers increasing their income.
The paper naturally touches on the freezing of the income tax bands and personal allowance by the UK government and the fiscal drag of bringing an increasing proportion of taxpayers into the higher bands (para 2.11). Withdrawal of the personal allowance (para 2.15 onwards) looks at the effective 60% marginal rate of tax for income falling between £100,000 and £125,140.
High income child benefit charge claims have occupied the tribunals in recent years, and the paper notes the frozen child benefit withdrawal threshold which has been set at £50,000 since the HICBC was introduced in 2013, but welcoming the announcement in 2023 that the charge would be simplified and collected through the tax code (for employees).
On VAT, the paper highlights the cliff-edge presented by the registration threshold and sets out a number of options including sliding scales or a smoothing mechanism to avoid the immediate hit for business when their turnover crosses £85,000.
