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Wednesday, 22 April 2009

The top rate of tax is now 66%.

The devil is always in the detail in the Budget.

Personal allowances will withdrawn for anyone earning people who earn over £100,000, with a cut of £1 of allowance, for every £2 earned over £100,000. This year (2009/10) the personal allowance is £6,475, so for every £2 of income between £100,000 and £112,950, the tax payer will lose £1 of personal allowance, and thus be liable for an additional 40p tax because of the lost allowances.

So that is 120p tax, and lest we forget 2p rising to 3p National Insurance on each £2 of marginal income, or 61.5%.

It doesn't stop there. To pay the employee the 38.5% net, the employer, assuming the employee is not contracted out of SERPS would have to pay 12.8% employer's NIC's on the gross, and the 12.8% is due to go up by 0.5%. This means that the employee actually receives 34% of the gross pay and the government receives 66%.

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