Income tax rates 2013 2014

1. Income Tax Rates 2013-14
Who is likely to be affected?
Income tax payers, employers and pension providers.
General description of the measure
The measure sets the main rates of income tax, for 2013-14, at 20 per cent for basic rate, 40
per cent for the higher rate and 45 per cent for additional rate.
The dividend additional rate will be set at 37.5 per cent, the trust rate will be set at 45 per
cent and the dividend trust rate will be set at 37.5 per cent.
The charge on benefits paid to non-individuals under and employer-financed retirement
benefits scheme will reduce from 50 per cent to 45 per cent. Where capital sums are
deemed to be income of a settlor, the rate of tax taken as paid by the trustees will also
reduce from 50 per cent to 45 per cent.
Policy objective
Maintaining the basic and higher rate of income tax at 20 per cent and 40 per cent
respectively creates a stable environment in which the majority of taxpayers can plan for the
future.
The additional rate will be reduced from 50 per cent to 45 per cent to improve the
competitiveness of the UK, encourage entrepreneurship and support growth.
Background to the measure
The 50 per cent additional rate of tax was applied from 2010-11.
The Chancellor has been clear that the additional rate of tax would be temporary and that
such a high top rate of tax risks damaging the UK's economy in the longer-term.
The Chancellor asked HM Revenue and Customs (HMRC) to assess the revenue from the
50 per cent additional rate of income tax, the results of which were published alongside the
2012 Budget.
Other tax rates increased in line with the highest rate of income tax, so for consistency
purposes, these rates will be reduced in line with the highest rate of income tax.
Detailed proposal
Operative date
This measure will have effect on and after 6 April 2013.
Current law
Section 4 of Income Tax Act 2007 (ITA) provides that income tax is an annual tax,
re-imposed each year. Section 6 of ITA provides that there are three main rates of income
tax: the basic rate, the higher rate and the additional rate. Section 6 also provides that these
main rates are set by Parliament for a tax year.

2. The annual Finance Act (FA) provides the charge and the main income tax rates (the basic
rate, the higher rate and the additional rate). Section 1 of FA 2011 provides that for 2011-12,
the basic rate is 20 per cent, the higher rate is 40 per cent and the additional rate is 50 per
cent.
Proposed revisions
Legislation will be introduced in Finance Bill 2012 to provide for income tax and the main tax
rates for 2012-13. The basic rate of income tax will be set at 20 per cent; the higher rate will
be set at 40 per cent; the additional rate of income tax will be set at 50 per cent.
Legislation will be introduced in Finance Bill 2012 to also provide the main tax rates for
2013-14. The basic rate of income tax will be set at 20 per cent; the higher rate will be set at
40 per cent; the additional rate will be set at 45 per cent.
Legislation will be introduced in Finance Bill 2013 to provide for the income tax charge for
2013-14.
Summary of impacts
Exchequer
impact (£m)
2012-13
2013-14
2014-15
2015-16
2016-17
Yield
nil
-50
-100
-100
-110
Forestalling -2,400
900
1,710
-370
nil
impact
The yield figures are set out in Table 2.1 of Budget 2012 and along with the
forestalling impacts have been certified by the Office for Budget
Responsibility. More detail on the yield and forestalling impact can be found
in HMRC’s Exchequer effect of the 50 per cent additional rate of income
document published on 21 March 2012.
Economic
impact
A decrease in the additional rate of income tax from 50 per cent to 45 per
cent will improve the competitiveness of the UK, encourage
entrepreneurship and support growth.
Impact on
individuals
and
households
This measure will impact upon the 330,000 individuals with incomes above
£150,000 who will see a reduction in their tax liability. The impact on an
individual and their household will depend upon their personal
circumstances.
Equalities
impacts
In 2013-14, women are projected to account for 43 per cent of all taxpayers.
Impact on
business
including civil
society
organisations
Operational
impact (£m)
(HMRC or
other)
Impacts on administrative and compliance cost for businesses, employers,
pension providers or civil society organisations will be negligible. Any
changes to individuals' tax codes are a routine annual event for employers
and pension providers. Non-routine changes are handled by HMRC.
From this measure, HMRC project that of the 330,000 people who have
incomes above £150,000:
15 per cent will be women;
37 per cent are estimated to be aged between 40 and 49; and
a further 26 per cent estimated to be aged between 50 and 59.
Operational impact will be minimal as the changes can be implemented as
part of the normal annual cycle of systems changes with minimal marginal
costs.

3. Other impacts
Small firms impacts test: This change will have a minimal impact on small
firms. To minimise the impact of the requirements on firms employing up to
and including nine employees, there is an HMRC P11 calculator on the
business link website.
This is provided free of charge and will contain the new amounts which will
minimise the burden on employers if they choose to take advantage of it.
Small businesses will need to acquaint themselves with the rates. For those
businesses which do not have access to computers or payroll software,
HMRC will provide manual tables.
Monitoring and evaluation
HMRC and HM Treasury will seek to assess the impact of this measure in line with other
relevant tax and benefit changes.
Further advice
If you have any questions about this change, please contact Paul Thomas on 020 7147
2479 (email: paul.thomas@hmrc.gsi.gov.uk).