NCPA - National Center for Policy Analysis

Fifty Percent Tax Rate Failing to Boost Revenues

February 27, 2012

Britain's Treasury received £10.35 billion (about $16.4 billion) in income tax payments from those paying by self-assessment last month, a drop of £509 million (about $807 million) compared with January 2011.  Most other taxes produced higher revenues over the same period.  The figures will add to pressure on the Coalition government to drop a new 50 percent rate amid fears it is forcing entrepreneurs to relocate abroad, says the Telegraph (U.K.).

  • The self-assessment returns from January, when most income tax is paid by the better-off, have been eagerly awaited by the Treasury and government ministers as they provide the first evidence of the success, or failure, of the new 50 percent rate.
  • It is the first year following the introduction of the 50 percent rate, which had been expected to boost tax revenues from self-assessment by more than £1 billion (about $1.6 billion).
  • Although the official statistics do not disclose how much money was paid at the 50 percent tax rate, the figures indicate that it is falling short of the money the levy was expected to raise.

A Treasury source said the relatively poor revenues from self-assessment returns were partly down to highly-paid individuals arranging their affairs to avoid paying the new rate.

Francesca Lagerberg, head of tax at Grant Thornton, an accountancy firm, said: "My guess is that because the 50 percent rate was flagged up in advance many taxpayers, particularly those with their own businesses, decided to extract dividends ahead of the change.  It highlights the fact that high tax rates don't always deliver high tax revenues."

Source: Robert Winnett, and James Kirkup, "50 Percent Tax Rate 'Failing to Boost Revenues,'" Telegraph (U.K.), February 21, 2012.

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