Income tax climbs during downturn, but wages grow faster

THE AVERAGE AMOUNT of income tax collected from UK taxpayers has risen 7% since the start of the financial crisis, but it has been outstripped by the growth in wages, research from UHY Hacker Young shows.

Between 2007 and 2010, the average amount of income tax taken from taxpayers rose from £4,700 to £5,030, while the average wage also grew from £25,500 per year to £28,400, reports the Telegraph.

The statistics – based on HM Revenue & Customs’ own figures – also show the proportion of a person’s income taken up by tax has dropped since the financial crisis began, although the figures do not take account of indirect taxes, which are rising.

Rob Durant-Walker, tax manager at UHY Hacker Young, said: “For the vast majority of taxpayers, the effective tax rate fell during the financial crisis.

“The tax bill for someone on a static income of £20,000 will have decreased by around 11% over the last three years.”

Another contributory reason behind the slow rise in income tax levels is the increase in the personal allowance.

Between 2007 and 2010, the basic personal allowance rose from £5,035 to £6,475, according to UHY Hacker Young. It rose from £7,280 to £9,490 for pensioners aged between 65 and 74, while the basic rate of tax dropped to 20% from 22% over the same period.

According to Durrant-Walker, the figures show a “survivor bias” towards people who stayed in employment throughout the downturn.

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