Total income tax paid by high earners earning £150,000 or more has risen by 77% over the past decade, reaching £60.9billion in the 2019-20 tax year, up from £34.5billion in 2010-11, according to data that was shared with AM City this morning.
Over the same period, total tax levied on taxpayers at the basic rate fell by 5% from £68.6bn to £64.9bn, with HMRC becoming increasingly dependent on who pays the additional rate of income tax.
In fact, 32% of all income tax collected by HMRC is now paid by those earning £150,000 a year or more, compared to just 23% a decade ago, lawyers from accounting group UHY Hacker have said. Young to this newspaper.
Last year, tax thresholds were frozen, while wages and inflation rose. This process, known as the “tax drag,” has increased the number of people paying the highest tax rate.
It is essentially a stealth tax, as revenue is increased without an increase in rates, pushing more people into higher tax brackets due to inflation.
The government has previously hinted that it hopes to cut taxes across the board – having already put in place plans to lower the basic income tax rate to 19%.
“The highest incomes bear more and more a very large part of the tax burden. There has been a clear effort by HMRC to focus on higher income taxpayers,” explained London-based Neela Chauhan, Private Client Tax Partner at UHY Hacker Young.
Chauhan said AM City Today, “as more people are pushed into the top tax bracket, the government must act quickly to ensure that more taxpayers are not unfairly squeezed. Raising all income tax brackets in line with inflation would be a reasonable first step.
The best talents can leave
She added that there were concerns that some of the UK’s top talent, working in sectors such as technology and financial services, would consider moving overseas to reduce their tax burden if taxes on high revenues continue to rise.
Many high-income people are internationally mobile and have been drawn to other major financial centres. These include Dubai, where there is no personal income tax and Singapore, where the tax for foreign high earners is around 22%.
“There are fears that a slow flight of high earners leaving the UK could hamper the UK’s economic recovery in the long term,” Chauhan said.
“The UK used to be considered a low-tax regime in Europe, but with the increase in the NI and the tax brake, this position is gradually being eroded,” she concluded.