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Has 50p tax rate led to lower income tax receipts?

Has 50p tax rate led to lower income tax receipts?

The government had hoped to raise additional revenue when it introduced the higher rate 50p tax rate, but it now transpires that the move is having the opposite effect.

In January this year, income tax receipts only increased by 2.4% year-on-year, compared to a 9.3% increase in the take from corporation tax. Recent data from HMRC indicates that the wealthy are turning to contractor accountants to help them with tax planning. Revenue from people submitting self-assessment tax returns totalled about £10 billion in January, down £500 from the corresponding month last year.

Francesca Lagerberg, Grant Thornton’s head of tax policy, explained that history shows that higher tax rates frequently fail to rake in as much as expected because they trigger a change in behaviour. Business owners, for example, may have speeded up their dividend payments before the tax rate changed and it may be some time before they pay another large dividend.

The Treasury now says it will publish figures showing the 50% tax take within three months, but this is later than originally expected.

Richard Mannion from Smith and Williamson said HMRC should already know how many people paid tax at the 50% rate simply by looking at the tax returns and it should be easy to produce the requisite figures.

The 50p tax rate is only meant to be a temporary measure and it will probably be removed before the end of the current parliamentary term in 2015. According to Stephen Herring from BDO, the top rate is deterring foreign companies from setting up in the UK. The UK is making good progress reducing the rate of corporation tax but that good work is being counteracted by an uncompetitive high rate of income tax.

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Image: 50p I got lots by noii’s

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