The 50p tax rate is not having the effect that was desired, according to Grant Thornton’s Francesca Lagerberg, despite the government ending up with its highest monthly surplus in four years.
The ONS released its public finance figures for January showing that although overall receipts are up 6.2%, in part due to large corporate tax payments this month, Self Assessment (SA) receipts are down.
Lagerberg, head of tax at Grant Thornton, said this could be because people under SA knew the 50p rate was coming in so took action in advance of 6 April.
“While PAYE receipts are up 2.3%, the SA receipts actually fell by £509m (4.7%) despite the new 50% tax rate coming in for 2010/11,” she said. “The 50% rate should have boosted SA receipts in January 2012. My guess, is that because the 50% rate was flagged up in advance, many taxpayers, particularly those with their own businesses, decided to extract dividends ahead of the change.
Lagerberg added: “They would have boosted the January 2011 receipts but it also means that they then held back and will probably do so again until the rate comes down again. It highlights the historical fact that high tax rates don’t always deliver high tax revenues.”
The public sector finances for January reveal the following: •VAT – up £1.5bn (17.5% increase) •Capital Gains Tax – up 26% •NIC – up 3% •Corporation tax receipts – up £1.2bn (15%)
“These figures show CGT is working, as is VAT, but there is a question mark over how effective the 50p rate is when looking at revenue raising alone.” Lagerberg said.
The ONS said the public sector made a net repayment in January – excluding financial interventions – of £7.75bn, up from £5.2bn a year ago.
It said the surplus followed a fall in local government borrowing and a rise in tax receipts, and that the government is on track to meet or even beat its borrowing target of no more than £127bn this year.