The General Election is just a few weeks away and each party is in the process of releasing their manifesto. The issue that seems to provoke the most debate is income tax.
Generally, most parties will not look to raise the basic rate of income tax as this would be a tax rise for the many which will obviously lose votes. Since 1990/91 to the present day the basic rate of income tax has actually fallen from 25% to 20% as successive governments look to remain popular.
In times of a funding crisis the governments of the last 30 years steer clear of raising the basic rate of income tax. Instead they raise funds through other means which may not have been in any party manifesto. Some examples include:
In 1991, a 2.5% VAT rise to 17.5% which was a direct result of the scrapping of the controversial poll tax.
After a 2.5% VAT reduction in 2009 which was used to stimulate the economy, the government raised the VAT rate twice. It was raised back to 17.5% and then it was raised to 20%.
In 2003/04 the government increased Employee National Insurance from 10% to 11% as well as new 1% charge for anyone earning over the upper earnings limit. The government increased these rates further in 2011/12 to 12%/2%.
In 2010/11 the government created an additional rate of income tax for anyone earning over £150,000.
In 2010 the government started reducing the personal allowance of anyone earning over £100,000.
Most of the parties will not look to increase the basic rate of income tax but as history shows they could still go through other means to collect revenue. The historic and future changes ensure that the UK tax system is getting more and more complicated which in many cases requires expertise to understand. It is our job to keep on top of these changes so you can focus on what you want to do – running your business.