One of the major income tax announcements last month was the proposed increase in income tax and National Insurance rates for high income earners. A quick summary follows.
- 2009/10 – No change for this tax year!
- 2010/11 – If your earnings are between £100,000 and £140,000 you will lose one-half of your personal allowance. If your earnings exceed £140,000 you will gradually lose the remainder of your personal allowance.
- 2011/12 – As well as losing your personal allowance, in this year if your earnings exceed £150,000 any excess will be taxed at 45%.
Additionally NIC rates are going up from 6 April 2011. The main NIC rates are to increase by half a percent for both employed and self employed individuals, to 11.5% and 8.5% respectively. At the same time, Employer’s NIC will also increase by 0.5% to 13.3%. NIC on benefits will also go up by the same amount. The higher rates of National Insurance for both employees and self employed individuals will also increase to 1.5%.
The increases, particularly in 2011/12 produce startling marginal rates of tax and NIC. If your income falls into the two bands that reduce your personal allowance, your effective, NIC inclusive marginal rates are: – 2010/11 61%, 2011/12 61.5%!