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Low Earners to be taxed as ‘Higher Paid’

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New Labour has backed itself into an absurd corner over low pay and ‘benefits in kind’ rules, according to a top regional accountant.

If they take home the company car or van that they use for their work, many of those relying on the recently announced rate of National Minimum Wage will cross the ‘benefits in kind’ threshold of £8,500 a year and be taxed as ‘higher paid’.

“This is a total contradiction,” says Paul Harris, a partner at the Wrexham office of national accountancy group Hacker Young. “From October this year, the National Minimum Wage goes up to £4.10p per hour and up again to £4.20p in October 2002. As a result, almost all full-time workers will cross the ‘benefits in kind’ threshold in the near future.

“If they are provided with a company vehicle – a van, for example – or have any other ‘perks’, they will be taxed as ‘higher rate’ earners if they make any personal use of them,” Harris explains.

“Simply driving between home and work or dropping the kids off at school will mean that they fall within the taxation trap. It could also mean that they become taxable for the firm’s summer outing or annual party. How could Whitehall overlook such an obvious anomaly?

“The left hand doesn’t seem to know what the right hand’s doing. One department will be enforcing low-pay standards to help the worst-off, while another will be snatching back tax and imposing penalties on the very people they are supposedly trying to help. It’s a complete nonsense.”

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