Monday, 16 April 2012


These are the figures the UK Treasury gave to the press 15/16 April 2012.

Table 1
Proportion of individuals reporting various average tax rates by total income category (2010-11)
£100k to £150k £150k to £250k £250k to £500k £500k to £1m £1m to £5m £5m to £10m Over £10m
Average tax rates
Above 40% 0% 6% 73% 81% 80% 81% 72%
30% to 40% 67% 77% 18% 11% 10% 8% 12%
20% to 30% 24% 13% 5% 4% 5% 4% 8%
10% to 20% 8% 3% 2% 2% 2% 3% 3%
Under 10% 1% 2% 2% 2% 3% 4% 6%

Source: Treasury/HMRC

HM Treasury spokesman: “There are currently millionaires paying a lower tax rate than ordinary taxpayers.  This is the system we have at the moment, but the Government is committed to making it fairer.  We’re capping benefits and these figures clearly show why it’s fair to cap tax reliefs for the wealthy as well.”

The table shows the percentage of people paying the rate of tax in the left hand column for income across the top.
The Treasury table above includes only Income Tax not Capital Gains Tax nor National Insurance
The Treasury table shows average tax rate across all income, not marginal rate.

The 50% tax rate on incomes over £150,000 began in 2010/11.

I have worked out the percentage in Income Tax and NI due on these levels of taxable income if no avoidance was undertaken. So these are the rates that 'should' be paid.

Table 2
Full tax on taxable income of

Source:      £100k      £150k         £250k      £500k      £1m     £5m        £10m
Earnings 29.9% 35.0% 41.0% 45.5% 47.8% 49.6% 49.8%
Dividends 16.6% 20.5% 26.7% 31.4% 33.8% 35.6% 35.9%
Source: Paul Lewis using UK Tax Tool 2012 app and

You will see that the percentage of income paid in tax is very different if it is solely from dividends. The rows in the Treasury table where people could be said to be avoiding tax are the bottom three. The top row are paying about their full whack and row four may or may not be depending on dividend/earnings ratio.

The numbers of individual taxpayers in the various bands - calculated by me from the Treasury figures - are shown in Table 3 below

Table 3

Number of individuals (2) reporting various average tax rates by total income category 
 Income 2010/11   
£100k to £150k£150k to £250k£250k to £500k£500k to £1m£1m to £5m£5m to £10mOver £10mTotal (3)
Average tax rates
 Above 40%              -      10,200    51,100    20,250     8,000        324            144     90,000
 30% to 40%   201,000  130,900    12,600      2,750     1,000          32              24   348,300
 20% to 30%     72,000    22,100      3,500      1,000        500          16              16     99,100
 10% to 20%     24,000      5,100      1,400          500        200          12                6     31,200
 Under 10%       3,000      3,400      1,400          500        300          16              12       8,600
Total (1)  300,000  170,000    70,000    25,000  10,000        400            200 
(1) Treasury says these figures are approximate as all selfassessment returns are not in yet
and it stresses that the numbers at top incomes are very low and subject to error
(2) My calculations in the table are particularly liable to inaccuracy at the top end
(3) Rounded to nearest hundred
(4) totals do not cross match because of approximations in percentages and totals

These figures show there are 8,600 people with incomes of £100,000 or more paying less than 10% tax and 31,200 paying 10% to 20%. They cannot be paying the full rate of tax on all their income.

Another 99,100 paying 20% to 30% are unlikely to be paying tax on all their income.

The 348,300 paying 30% to 40% and the 90,000 paying above 40% are likely to be paying tax on almost all or all their income depending on the proportion of dividends and earnings in their income.

The Budget papers showed capping several tax reliefs at 25% of income or £50,000 whichever the higher would save the Treasury £490m in 2014/15, £240m in 2015/16 and £300m in 2016/17. Treasury Secretary David Gauke said on 16 April on Today on Radio 4 that the charity tax relief would account for "£50m-£100m" of the 2016/17 saving.

The Treasury wouldn't be drawn on what change the cap would make on the percentages of taxpayers paying various rates, but told me "The cap should mean people move up the rows."

1 comment:

  1. There seem to me to be several points all mixed up.

    Firstly the limit on Charity donations in the Budget. A high rate taxpayer under the old system could give £1000 to Charity and the Charity would get £1250 by claiming basic tax paid by the giver back from the Government. The giver can claim £375 back from the Government. On all this money the government gets nothing, hence the statement that the giver pays no tax on this money. However, it is not the case that the giver gets more money as a result of their generosity. The giver ends up with less, the Charity gets what the Government would have taken plus money from the giver.

    Is this tax avoidance? Yes. Does the giver end up better off? No.

    A second point is that some Charities may be bogus. Quite possible, but introducing a cap doesn't address this issue. It just makes them less profitable. HMRC should be after such vehicles anyway, under existing legislation.

    Does this show that the Osborne Budget was poorly thought through? Yes. I suspect a late dash to raise money to give politically attractive hand outs. George Osborne gets more and more like Gordon Brown every day.