Tax neutrality is a required key mechanism for simplification of the tax system. Every individual is liable to pay income tax but not many of us know exactly how much we should pay and when we should pay it. To compound on this complexity, income is now taxed at different stages and at different rates which all depends on almost irrelevant factors that are concerned with how a beneficiary received the income. However, many argue that how a beneficiary receives his income should not affect his tax liability. Income received from an interest payment, salary or dividends should not be subject to different tax rates. It is argued that income tax should be as neutral as possible. There is a proposal to abolish some of the rules that complicate the UK income tax system and only add confusion as to who is liable.
A notable statistic is that people who earn more than £150,000 contribute to almost a third of income tax collected and this figure is steadily on the rise. In essence a thirds of UK’s income tax is contributed by less than 1% of its population. Higher income earners also pay more tax. It used to be as high as 50% of their total earnings but this was reduced to about 45%. This is still however a larg figure and many people find it unfair that the harder you work, the more you are taxed. There is also a proposed law to reduce tax liability for income earners below the £10,000 threshold. In the midst of all this complexity about income tax, we have provided the following very simplified infographic that shows the major sources of income tax, expected tax liability depending on your income bracket and the number of tax reliefs that are available. It is a great place to start to get a good overview of the income tax system.