If you tax the productive, the productive produce less, pay less in tax, pay people off and it ripples through the economy; or as my teenage daughter might say “duh!”. Those stuck in such a bracket rearrange their affairs to avoid the tax. They invest in China, expatriate, buy gold or other hard assets or just stop moving their money; they stop taking as much risk.
The Treasury received £10.35 billion in income tax payments from those paying by self-assessment last month, a drop of £509 million [that is$807.53 American] compared with January 2011. Most other taxes produced higher revenues over the same period.
Senior sources said that the first official figures indicated that there had been “manoeuvring” by well-off Britons to avoid the new higher rate. The figures will add to pressure on the Coalition to drop the levy amid fears it is forcing entrepreneurs to relocate abroad.
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 50p rate. It is the first year following the introduction of the 50p rate which had been expected to boost tax revenues from self-assessment by more than £1billion.
A Treasury source said the relatively poor revenues from self-assessment returns was partly down to highly-paid individuals arranging their affairs to avoid paying the 50p rate.
“It’s true that SA revenues are a bit disappointing — it’s still early, but it looks like there’s been quite a lot of forestalling and other manoeuvring to avoid the top rate,” said the source.
However, another Treasury source added that the tax deadline had been extended by two days because of industrial action at HM Revenue and Customs. Therefore, it was too early to begin assessing the revenues raised from the 50p rate of tax because about 20 per cent of self-assessment tax is paid in the hours before the deadline.
Francesca Lagerberg, head of tax at Grant Thornton, an accountancy firm, said: “My guess is that because the 50 per cent 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.”
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