Middle income earners to feel tax squeeze

The Chartered Institute of Taxation warned that families on between £40,000 and £50,000 were set to face a “considerable increase” in their tax burden as a result of changes to tax credits and child benefit.

The group said a considerable number of households where the sole earner was a higher-rate taxpayer were in the fourth income decile, meaning they already had a below-average income.

It said: “The effective freezing of the higher-rate threshold, the proposed withdrawal of child benefit from households containing a higher-rate taxpayer, and the reductions in working tax credit – particularly the childcare element – will result in those households falling further down the income distribution.”

It warned that these changes would lead to middle-income households being “squeezed” proportionately more than those on higher incomes who did not receive tax credits.

The group added taking low-income households out of the income tax net by raising the personal allowance would not necessarily make their households better off, once their loss of housing benefit and council tax benefit were taken into account.

Meanwhile, the additional 1 per cent reduction to the rate of corporation tax was praised by the Institute of Chartered Accountants in England and Wales (ICAEW) as helping to support growth.