In Britain Treasury loses as top earners dodge 50p tax

Suzy Jagger and Roland Watson
The Times [UK]
2 February 2010

High earners will cost the public purse hundreds of millions of pounds through tax dodges as they avoid the new 50p rate of income tax, a minister indicated yesterday.

Lord Myners, the City Minister, said that the Treasury had “significantly reduced” its estimate of the revenue to be earned from the historic change.

He said that he believed that the new top rate, due to come into force this April, would still generate extra income from the wealthiest 2 per cent of the national workforce. But he cast doubt on whether the Treasury would pocket the £1.13 billion it has earmarked for 2010, and the £2.5 billion it hopes to raise in 2011. “We still believe it will be beneficial,” he said.

Lord Myners told peers that “behavioural consequences of the new higher rate of taxation” — shorthand for tax avoidance — had forced the Treasury to lower its expectations…

…Mike Warburton, senior tax adviser at Grant Thornton, one of Britain’s biggest accounting firms, said that clients were pursuing four main ways to avoid paying half their salary in tax: bumping up this year’s pay; storing up pay in their firm to be drawn down at a later date; leaving the country; or choosing to pay it to charity rather than the taxman.

“People are taking obvious avoidance measures because they are not prepared to pay 50 per cent tax,” Mr Warburton said…

…From April this year, the change means that any workers earning more than £150,000 [$240,000 US] a year will be subject to a 50 per cent top level of income tax. They will also lose their personal allowance once pay hits £100,000. This means that workers earning from about £100,000 [$160,000 US] to £125,000 [$200,000 US] will pay an effective tax rate of 60 per cent…

The complete article is at The Times.

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