Income Tax Revenue Set to Raise

The HM Revenue & Customs (HMRC) have said that it is likely to see a huge rebound in tax revenue this year and expects to raise an extra £10 billion in income tax over the next fiscal year.  They have suggested that nearly all of this will be from 40% & 50% rate taxpayers.

This will be almost the direct opposite to the previous two year which dropped due to the recession.

Ronnie Ludwig of accountants Saffery Champness said the government was likely to generate even more income tax in the coming years.

“If personal allowances and tax bands remain frozen, more people will be dragged into the higher rate bands,”

The next chancellor, whomever that might be would be happy as it predicts that this financial year, the total number of income tax payers will rise by 400,000 to 30.6 million. But the big jump with be with the number of people in the 40% higher rate band and new 50% additional rate bracket will jump by 192,000 to 3.412 million.

The 40% higher tax rate is levied on taxable incomes above £37,400 and the 50% rate is now levied on taxable incomes above £150,000 a year.

With both the personal allowance and the 40% tax threshold being frozen, this means its likely that more people will have ‘drifted’ up into the basic rate and higher rate tax brackets.

Last year the higher-rate payers paid over £84 billion in income tax (approx 56% of the total), the combined higher & additional rate payers are predicted to pay nearly £100 billion this year.

With nearly £10 billion more than the previous year this counts to 66% of the government’s total income tax stream this coming year.

The ‘tax the rich’ policy is highlighted by the fact that anyone earning more than £150,000 will pay over 30% of their incomes as income tax this year, while those earning more than £1 million will pay over 40%.  And those beyond that (tens of millions) will also see their payments take an upward hike.

Last year, the 14,000 people who earned more than £1 million paid an average £828,000 each in income tax. [BBC]

This year, the 13,000 in that bracket are likely to pay an average of £1.02 million each – 23% more in the space of just one year.[BBC]

“For all that they individually give a lot, there really aren’t enough of them to make a huge difference to our fiscal deficit – to close it, we have to raise money from everyone, not just the rich,” Mr Whiting said.

HMRC now believes that in the year 2009-10 there were over 30 million income tax payers, which is almost a million more expected.

The overall effect was that the government’s total take from income tax fell from a record £163bn in 2007-08 to an estimated £151bn in 2009-10.

“Tax policy has always been skewed to taxing people more, the more they earn,” said Mr Roy-Chowdhury.

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