Published on 19 Mar 2012

Will HMRC have smoking gun against the 50p? Impossible

I can’t wait to see one number at this budget. The number which the Chancellor uses to justify the fact that the 50p tax is not raising any money. That is, if he does have that number, because I can’t possibly see how he can make that case. Clearly he can assert that it has been turning off various entrepreneurs, but what about cold hard tax data?

The Chancellor made a rather big play of how he would wait until January’s self assessment income before an HMRC report into the tax yield from the 50p rate. HMRC has done this report, and it will be published on Wednesday alongside the Budget. At best, HMRC has had six weeks to compare the tax take from 50p tax payers self assessment returns. Actually there’s been a strike there, so it’s a bit less than that.

The first thing to say here is that this is only one year’s data. The extra 2011/12 tax take from 50p, forecast at around £1bn will only be revealed, next January. Following that the Parliamentary answer from Lord Sassoon suggests about £3bn a year in extra tax revenue.
Today on Channel 4 News, I reported on another major wrinkle if HMRC or the Treasury’s analysis tries simply to compare this January’s tax returns (for 2010-11 with the 50p) and last January’s returns (for 09-10 without the 50p). On the face of it the return from the 50p will be quite poor. 09/10 led to buoyant tax revenues that were sharply reduced in 10/11.

Why? Because of massive, perfectly legal, discretionary payments made by the super-rich to themselves. A series of larger -than-usual dividends were paid in the days and weeks just before the introduction of the 50p rate (March and early April 2010) by pop stars, celebrities, and entrepreneurs. If you take a look at some published accounts, the likes of Hargreaves Landsdowne are clear that they did this for tax reasons. Pennon, which owns South West Water said the same about the timing of a dividend. A4e, the Government welfare-to-work supplier paid a huge dividend to its shareholders on 1 April 2010, earmarked for financial year 2010/11, but paid in tax year 09/10. Again all perfectly legal. But the first dividend in the four previous years 05-09 had been paid in the same tax year, i.e. after 6 April. Independent accountants have calculated that had that continued in 2010/11, then A4e’s shareholders would have faced hundreds of thousands of extra tax.
Essentially this applies to people who own their own business and can more or less decide when the dividend is paid. That grossly distorted,

In fact hugely inflated the self assessment data in the final year without the 50p. The same thing happened with bonuses, and that was picked up in April 2010’s PAYE data. In total, Grant Thornton’s Mike Warbuton told us the scale of “forestalling” as the Treasury calls it was huge. £20bn, and that could have lost the taxman £2bn in revenue or half a penny on the basic rate. Private calculations circulating the Treasury put it at £18bn of extra payments. The self assessment data from this January were confirmed to be rather depressed.

“What has actually happened is that January self assessment income tax receipts jumped £ 2,884 up from £ 7,976 m in 2010, to £ 10,860 in 2011, but then fell back by £ 509m in 2012 to £ 10,351,” Warburton told me.
Given one year’s data, and this gross distortion caused by legal tax planning, can the Coalition really make a statistical case for its dismantling based on tax data? More importantly, can they make a case that convinces Robert Chote at the OBR who will have to cost the tax impact of any move from the 50p to the 45p?

It looks like the 50p rate is for the chop, this week after one year’s heavily distorted data. Because of the legal taking of bonuses and dividends in March and April 2010, we may never know how much it actually might have raised from the very wealthy to contribute to paying Britain’s debts.

Follow @faisalislam on Twitter.

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5 reader comments

  1. Philip says:

    It will be interesting to see if the HMRC report is published (or I’ll ask for it under FOI)whether it takes accounts of these factors. It will tell us quite a lot about the honesty of (a) the Chancellor (b) the Treasury and (c) HMRC.

  2. lemog says:

    this government was always going to get rid of this and if they didn`t justify it on these grounds, they would have found other excuses for getting rid of it. Only the wealthy are going to benefit from anything this government does and they are becoming more blatant about it as time passes. Given I wouldn`t trust any politician from any of the established political partys it is time to give them all the shock of their lives by voting only independent at the next election. A British spring, bring it on

    1. Aase says:

      It’s a healthy attitude to be sceptic and not take what politicians say, or anyone else for that matter, as the best solution on anything. When it comes to benefitting from anything however, it’s up to each and every one. Maybe that’s one of the things differing the rich from those considering themselves not so rich?

  3. Philip Edwards says:

    Faisal,

    One day you will learn to nail Tory jelly to the ceiling.

    It’s something they don’t teach on uni economics courses :-)

    But hang on in there.

  4. Saltaire Sam says:

    But, Faisal, the super rich don’t pay the extra money to themselves, they plough it into creating jobs. I know this is true because David Cameron told me so. And he wouldn’t lie about anything as important as the economy or the NHS would he?

    Strange how we are expected to accept tax dodging by the rich because it is ‘legal’ ie successive governments have been too thick to close the loopholes, but condemn those at the other end of the scale who manipulate the system to receive excessive benefits.

    Both take money from the public purse.

    But what the hell, we have a government who think the only thing public money should be spent on are nuclear and other weapons and, of course, their own salaries, expenses, perks and grace and favour mansions.

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