A third more tax as 5million pay 40pc rate

INCOME tax receipts are to soar by a third thanks to an army of workers dragged into the higher rate tax bracket.

The amount raised through income tax will rise from £150.5billion this year to £198.9billion in 2017/18.

Part of the increase is down to higher wages, according to the Office for Budget Responsibility.

But the vast increase in the number of workers forced to pay the higher rate of tax will also have an effect.

More than five million are expected to be in the 40p tax bracket by the next election in 2015 – two million more than at the 2010 election.

‘The higher rate is no longer something faced only by the highly paid few,’ said Paul Johnson, director of the Institute for Fiscal Studies.

Mike Warburton, an accountant at Grant Thornton, said: ‘We’re getting to a point where well over 60 per cent of all the income tax receipts we receive are going to be from higher rate taxpayers.

‘Some of that is going to be from those at the very top, but some will also be from the huge numbers of people who are being dragged in to paying higher rate tax.’

The point at which workers start paying the 40p rate of tax has been kept artificially low by the Government as part of its policy of increasing the amount anyone can earn before paying tax to £10,000.

The increase in the so-called personal allowance from £6,475 in 2010 to £10,000 in 2014 means 2.7million people will have been lifted out of paying income tax altogether.

Workers will pay 20p in tax for every pound they earn above £10,000.

But the IFS said the point at which the 40p band kicks in will be nearly £5,000 lower than it would have been in April 2014 if the Government had let the threshold rise with inflation.

IFS analyst Stuart Adam said raising the threshold to where it would have been without government intervention would cost the Treasury £4.5billion in 2014/15 alone.

Stephen Herring, senior tax partner at BDO, said the Chancellor deserved ‘full marks’ for raising the personal allowance to £10,000.

He added: ‘ A raspberry however for continued erosion of the basic rate tax band.’