Today\’s Treasury figures on tax avoidance: mind gargling nonsense

Have a look here.

It\’s entirely possible that I\’ve missed something….in which case let me know…..but what they\’ve actually said about these figures makes no damn sense at all.

This is worse than the guff we get from the retired accountant from Wandsworth. Worse even that nef.

No, really, it\’s garbage.

10 thoughts on “Today\’s Treasury figures on tax avoidance: mind gargling nonsense”

  1. Can you show what HMRC actually sent you because the excerpt in Forbes seems to talk about income and average tax rates while you condemn them for comparing average *income tax* rates with total income including capital gains? Obviously if most of the income is capital gains the tax rate should be close to 28% instead of 40/50%, but that is a separate point.

  2. This data is meaningless really (or rather you can extract whatever meaning you require).

    There are a myriad of reasons why someone would have an average tax rate substantially below their marginal rate, namely the host of provisions in statute and the array of double tax treaties.

    For example, a seven figure earner could pay no income tax in the UK. They may remain resident in the UK but work full time abroad in another country (for example they spend weekends in the UK with family but live and work in Europe). In such a case, where the tax payable in the host country exceeds the UK tax then the UK liability is reduced to zero. This is not tax avoidance.

    Given the income ranges referred to here we should expect double tax treaties and residence issues to feature extensively.

    There is great danger in setting tax policy for a few thousand people based on dividing a couple of numbers.

  3. “There is great danger in setting tax policy for a few thousand people based on dividing a couple of numbers.”

    Or in other words “Hard cases make bad laws”.

  4. I suspect John77 is right, and that capital gains tax won’t be relevant (because capital gains aren’t income).

    But we don’t know unless we know what definition of ‘income’ the Treasury are using. Or indeed what ‘income tax’ figure they are using – does it include withholding taxes or just the cheque the taxpayer sends with their tax return?

    Without knowing that, their figures are indeed meaningless.

  5. Richard has got it spot on, I think. The two things missing are merely the basis of calculating the only two numbers that matter. Marvellous.

    It’s a completely useless thing to release, and there will be enough smart people in HMT to know this, which makes it all rather bizarre… I expect a totally different type of unhelpful guff from a Tory chancellor.

    Hopefully, somewhere, there are people with actual brains doing some actual analysis. Give me the underlying data, Gideon, and I’ll do you some ‘averaged’ tax returns so we can actually see how (if) the average rates are lowered, and we can give the public/media something useful to be all enraged about. Or not.

  6. Most of it will be dividends.

    The effective rate on dividends is:
    – 25% for 40% taxpayers;
    – 36.1% for 50% taxpayers
    (because the company has already paid corporation tax on its profits, which I think everyone here understands).

    So for someone with pure dividend income, the average effective income tax rates at different income levels would be:
    £100,000: 16%
    £150,000: 19%
    £250,000: 26%
    £500,000: 31%
    £1million: 34%
    £5million: 36%

    Since the top rate for dividends is 36.1%, no-one with pure dividend income will pay more than that.

    So if your income is from dividends, you don’t start paying more than 30% average until your income is over £500,000. Looking at the Treasury table, what’s surprising is how many people are paying more than that.

    It’s only a very small proportion who are paying less than we’d expect if they had dividend income. Probably a small enough percentage to mostly be accounted for by foreign tax relief, as Neil suggests.

  7. Frances, Paul Lewis has probably done his calculations correctly (they more or less agree with mine, above) but he gets his analysis wrong.

    He says “The top row are paying about their full whack and row four may or may not be depending on dividend/earnings ratio”

    But if some have a high proportion of dividend income (quite likely at these income levels), all of row 4 (counting from the bottom) could be paying the full statutory rate of tax, so could the first 3 columns in row 3, and the first column in row 2.

    So instead of the 138,900 he thinks “cannot be” or are “are unlikely to be paying tax on all their income”, it’s actually only 17,332 who are paying less than their statutory rates on dividends.

    And, as we have said above, until we know what those “income” and “tax” figures are, we don’t know what else is in there. Double tax relief, loss relief, interest paid, etc. etc.

  8. I think HMRC have got it about right. Ignoring capital gains and assuming there is just a world of income taxes, then your income tax is not simply a tax on “income”, but a tax on all forms of income within the charge less any allowances of reliefs, and the amount of tax you actually pay is that assessed tax on that net amount less the value of any tax credits.

    So it is quite reasonable for HMRC to show a ratio of tax paid to income (howver that is defined, probably doesn’t include gambling profits or tax free social security benefits).

  9. “but a tax on all forms of income within the charge less any allowances of reliefs … So it is quite reasonable for HMRC to show a ratio of tax paid to income (howver that is defined”

    They’ve shown the results accordingly, I suppose, but to decide whether the political interpretation of those results is justified, you need to know the nature of the reliefs and allowances. Were they donations to charity (where the donor doesn’t keep the money, which I’d regard as a practical view of “net income”)? Were they business expenses? Were they business losses (perhaps resulting from a previous year, the loser!)? Was tax paid in another country? And probably more.

    It’s all rather complicated, and it’s obviously going to get worse with this Finance Act.

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