That 50 p tax rate

Interesting stuff, for we\’re normally told to listen when the IFS speaks:

The 50p rate of income tax is costing the Treasury up to £500 million a year as high earners shelter their money abroad, a leading think tank has warned.

The argument is that this rate is increasing the use of (entirely legal) tax mitigation strategies plus some people are buggering off.

Yes, I know, there are those who insist that we should just make it illegal for people to bugger off out of the tax system but we\’ve signed a number of international treaties that say we cannot do that.

But here we have it, at least some independent and non-politically partisan experts state that 50 p on income tax is over the peak of the Laffer Curve: even in this short term.

Not much point in having it then really, is there?

8 comments on “That 50 p tax rate

  1. We have not buggered off as we like rural England. But we have cut back our business to ensure we keep below 50% rates (plus NI). So another example of the Laffer curve. Of course that also means less spending or saving (investment). Lousy economics.

  2. Wait til January 2012.

    The 50p tax rate kicked in in April 2010. If you are self employed it will have made sense to maximise your income prior to April 2010 and minimise it afterwards. The last tax year that the self employed have finalised with HMRC is 2009/10. So all the payments on account made Jan 2011 and July 2011 will have been based on artificially high incomes in 2009/10 (it has been reported that revenues were ‘unexpectedly strong’ in both those months). When the actual figures are agreed for 2010/11 the payments on account will prove to be too much and large repayments will be in order. Thus the tax revenue in Jan 2012 will show a big drop, and again in July 2012.

    I doubt they’ll get the message though.

  3. Tim, our accountant told us recently that because of the 50% hike it was worth my wife paying me formally for the couple of hours work per week I do for her. We’ve never bothered before. The upshot? The Revenue will get about £2-3k less from us than they did when the rate was 40%.

  4. Me and some of the UK accounting folks have been having a big argument about this over at AccountingWeb.

    http://www.accountingweb.co.uk/anyanswers/question/fate-50p-income-tax-rate

    The only thing we seemed to have learned is:
    1. Accountants share a measure of the ‘tax the rich’ attitude as the general population.

    2. Despite presenting a whole heap of arguments about the ‘Laffer Curve’ and the fact that high tax rates at high levels of income can reduce the level of overall tax taken by HM Treasury, the accountants fail to understand.

    I sometimes despair at the UK.

    Glad I bloody left.

  5. I was gonig to make the same point as Jim. The self-employed, sole traders etc are in a better position than PAYErs to not draw income on which a 50% tax rate will apply, so you can bet they won’t. The “unexpectedly strong” self-employment returns before the 50% rate kicked in were not really a suprise to anyone who’s had to fill out their own forms…

  6. The Telegraph piece is complete and utter bullshit laundering, which in no sense proves anything.

    Here’s some digging into the source of the data – the new IFS report says nothing about effects of the 50p rate at all. Rather, the Telegraph has dug up the IFS’s *projections* about the effects of the 50p rate *from before it was introduced*, and presented them as if they were an assessment of what’s actually happened.

    Which is shoddy journalism. It’ll be an interesting test of the IFS’s integrity to see whether it complains to the Telegraph about being misrepresented in this way…

    @jheath: why on earth would you do that? The 50% rate is marginal, not absolute, so you’re still getting the same take-home as before on everything below GBP150k, plus GBP40 take-home for every additional hour you work above it.

  7. The main problem with iniquitously high taxation is not so much that you cannot collect it, so much as taxes this high make it worth a lot of peoples’ whiles to study the tax system intensively with a view to locating loopholes and tax avoidance methods in it. Once someone has spent the time doing this and working out methods to automate this avoidance using computers, then even if the tax rates are subsequently removed, these people still have the methods that they developed in place, and still have the expertise in place.

    So, the habit of obfuscating one’s financial transactions to confuse and deny the tax-man his take will remain, and the tax take will remain low. Conspicuous Government waste such as the wind turbine fiasco and similar boondoggle projects merely serves to reinforce the notion that by denying the Government tax one is not stealing bread from the mouths of the poor, but simply giving the Government a few less pounds to piss up the wall on useless idiocies.

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