No, we don\’t know about the 50 p rate yet

While the Institute of Fiscal Studies has argued that the 50pc top rate of income tax does not raise much revenue after increased avoidance is taken into account, the new HMRC figures indicate otherwise.

They may also suggest one reason why the Government has recently put plans to scrap the top rate on hold.

Err, no, we don\’t actually know yet.

About 5m people have yet to file self-assessment tax returns.

And that\’s why.

We know absolutely that some people brought forward income from the first year of the 50 p rate to the last year of the 40 p one. Sting, for example, took a £10 million dividend from his management company in that last 40 p year.

What we don\’t know is how many people took how much money in that manner. Something we won\’t in fact know until those 5 million tax forms are filed and evaluated. For those 5 million forms are for the first year of the 50p.

It is possible (but of course not certain) that we will see a fall in income from the previous year and thus a fall in tax revenues from the previous year. As the effects of that bringing forward of income fall out of the calculations.

Now, whether or not the 50 p rate raises money or not depends upon those forms. Which is going to be interesting to find out.

But what is truly stupid, entirely insane, is to be making the decision about the 50 p rate before those forms are filed and evaluated so that we find out whether the rate raises tax revenues or not.

My bet is that it doesn\’t, but I\’m just as eager as everyone else to find out whether I\’m right or not.

11 comments on “No, we don\’t know about the 50 p rate yet

  1. You might be right, but I get the impression you think Self-Assessors don’t pay any tax until they file the return, which is not normally the case.

    Tim adds: No, I know that you pay the first assessment earlier in the year. And that first assessment is based upon your previous year’s declared earnings. Which means that this year’s first assessments are based on the last year of the 40 p rate.

  2. If this year’s tax returns show a fall in revenue, that still won’t tell us what to do next. Because some people may have brought forward income by one year but not more.

  3. You pay 2 tax payments on account, both based on the previous tax years income. One on 31st Jan and one on 31st July. So the people who brought forward income into the 09/10 year to avoid the 50p rate will have had to pay 2 large payments on account for the following tax year as well (2010/11). Their tax return for 2010/11 will just be being finalised/submitted, and they will probably (depending on how much their income has dropped) either be due a refund, or only have to pay very little on account for next year.

  4. I think this is wrong. Surely vast majority of self assessors have already paid their tax through PAYE?

  5. I should say ‘most of’. When I’ve done one (and others I’ve asked about it) it’s been tying up the loose ends of interest income/pensions etc.

    Tim adds: Yes, but we are talking here only of those with an income greater than 150k aren’t we? Almost all of whom would have substantial non-PAYE income.

  6. @Tim

    “Almost all of whom would have substantial non-PAYE income.”

    Hmmm…. Do we actually know that? I’m thinking bankers bonuses etc which are definitely PAYE.

    The more important issue here is: even if there is a fall, is it a bigger fall that the previous year’s rise?

    Tim adds: Well, yes, that is the important question,. Which is why I’d like to see the results of course.

    DFo recall though that my major gripe is that they’re taking this decision without having waited for all the relevant facts to take the decision.

  7. I think I read bankers were about half of those on 50p rate, and presumably there’s a fair amount of salaried lawyers, executives etc.

    But the Stings must pay quite a lot, although I don’t know if he would fill in a self assessment.

    I wonder who the single largest income tax payer is – maybe the Prince of Wales, even if he does (or has this changed?) still only pays the basic rate.

  8. I’m wrong, he paid 40% and now pays 50% (perhaps it was the Queen I was thinking about?) and in 2009/2010 paid (at 40% I guess) £4m.

  9. It’s usual for a substantial proportion of bankers’ bonuses to be paid in the shares of their employers, vesting after one, two, or three years. One can choose whether to pay income tax on the shares at the time they are awarded or at the time they vest. Ordinarily there would be no reason not to pay on vesting, but the option to pay on award became quite attractive when the 50% tax rate was imminent…

  10. “Surely vast majority of self assessors have already paid their tax through PAYE?”

    There are 4.1 million self employed people in the UK, most of whom would have no PAYE type employment at all. Then there are large numbers of retired people (both above and below the official retirement age) who fill in self assessment tax forms for their investment incomes. In total there are about 9m self assessment tax payers in the UK.

    Sting would undoubtedly be on a self assessment tax form – he paid himself a huge dividend which means he’s living off investment income, not paid employment income.

  11. “But what is truly stupid, entirely insane, is to be making the decision about the 50 p rate before those forms are filed and evaluated so that we find out whether the rate raises tax revenues or not.”

    That would be true if you believe that tax rates should be set at whatever level gathers the most revenue irrespective of how much money the government actually needs for it to carry out the services we requires of it. That sounds like a Ritchie argument to me.

    I could take the decision right now because in my world it is morally wrong for the taxman to take half of what someone earns. You work hard, take a lunch break and then spend the rest of the day working hard for the taxman, not right, not right at all.

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