TREASURY EXPECTS TO LOSE OUT FROM 50P RATE

It has been reported that Mike Williams, the director of personal tax at the Treasury, has explained to the Treasury Select Committee that the Government expected to receive only 31% (£1.1 billion) of the possible total income from the tax increase announced in the Budget.

In his Budget statement the Chancellor estimated that the 50p income tax rate would raise around £3.4 billion, but figures revealed on Tuesday suggests that he could, in fact, lose £2.3 billion of this via the “behavioural effects” of introducing the rate. Many of the estimated 350,000 caught by the new rate will find legal means to avoid the rate by taking themselves out of tax completely and as such not only losing the Treasury revenue from the 50% band, but also from the 40% band they had previously paid.

COMMENT

It has emerged that this year HMRC was preparing to spend a quarter of its £4 billion budget to crack down on tax evasion, and we have to assume part of this will be used to stop taxpayers avoiding the 50 pence rate. However, it seems that those who will be hit by the rate are not looking to tax planning measures to avoid the rate, but to take more drastic measures such as taking early retirement, working less hours, or moving abroad. Though it may have grabbed the public´s interest on its announcement, in reality the introduction of the 50 pence rate may be somewhat of a “white elephant”.