Commenting on the decision to freeze the higher rate threshold for a further two years, BDO tax partner Paul Falvey said: “The decision not to increase income tax thresholds was well signposted and well understood. As inflation drives up salaries, many more people will be drawn into the higher rate tax bracket. This will result in more tax being paid and more people needing to file a tax return. This can impact a lot of taxpayers and result in greater complexity. For example, the High Income Child Benefit Charge is designed to claw back the amount of child benefit higher income families can have. It applies where one parent or their partner has an income over £50,000, a threshold that has been in place since 2013.”
Falvey further added: “Inflation means that more families with children will need to submit a tax return and complete some quite complex calculations in addition to losing their child benefit through paying more tax. It can be easy to get this wrong and HMRC are not always lenient when considering whether penalties are due. Those affected should be aware.”
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