Thresholds in the tax system: Policy and administrative considerations

A tax charge could be even more complicated to administer than the High 1 We do not consider the thresholds inherent in the basic design of the progressive tax system, for example the Personal Allowance and rate band thresholds but rather the additional thresholds layered onto the basic system, such as the tapering of the Personal Allowance for incomes of over £100,000 etc. [...] The limits were reduced since introduction, including the introduction of a tapered annual allowance of £4,000 for high earners, until the March 2023 Budget, when the annual limit was increased to £60,000; the income levels for the high earner taper increased and the minimum contribution amount lifted to £10,000; and the lifetime allowance charge abolished. [...] The level of the various thresholds and indeed the design of the relevant taxes are policy matters and must be considered as part of wider policy issues, such as the approach to the state pension and other benefits. [...] In general, the existence of the threshold means a higher than expected marginal rate on income over the threshold, but the withdrawal of Tax-Free Childcare gives a cliff edge where the taxpayer is overall worse off by exceeding the threshold. [...] Due to the complexities of the system many of those who need to pay HICBC are not aware of their responsibilities, in particular what income is relevant for the purposes of calculating the charge41, how to calculate the relevant Child Benefit and the need to file a Self Assessment tax return to pay the charge.