Press Room

23 Jun 2020

Do the wealthy pay less UK tax than official headline rates?


There is a saying that there are lies, damned lies and government statistics. A recent article by the Financial Times of London, based upon research carried out by the “International Inequalities Institute of the London School of Economics (LSE)” (who have certainly lived up to their name), is proof that the saying referred to above is not limited to just governments. And no, the study wasn’t anything to do with COVID statistics and modelling, that was Imperial…

According to the FT (and we paraphrase), the study used anonymised data from 40m self-assessment returns, which found a big mismatch between the statutory headline tax rates and the reality of what wealthier people paid. The study shows that those receiving £10m a year paid an effective average tax of just 21%, while one in ten people taking home more than £1m paid a lower rate than a worker on £15,000

In other words, the rich are not paying their fair share and the richer you are, the less you pay, thereby increasing the inequality the crusaders are, well, crusading, against. They make this point by pointing to the average effective tax rates paid by each “income” group and if your effective headline rate is lower than the headline rate you are not paying your “fair share”. We have, of course, been down this rabbit hole before with Google, Amazon, Starbucks and the like – there is no such thing as “fair share”. That’s just an arbitrary, subjective concept wielded by social justice campaigners and politicians who somehow think their moral compass is the defining guide when it comes to tax matters.

However, in order to make their case, the researchers argue that everyone receives income, even if they receive amounts that are taxed as capital gains, because the majority of capital gains are just “income repacked as gains”. This is a remarkable leap of logic, but a very handy one if you want to argue that a tax rate is too low.

The researchers also have it in for those in receipt of investment income as the dividend rates are less than employment income. They do, however, cheerfully admit that they do not include the corporation tax paid by the companies that pay the dividends, which more than levels the playing field. And speaking of the playing field, they include the 2% National Insurance “top-up” as a tax, but not the main payments of National Insurance when looking at tax. Whilst we agree there is an argument for including National Insurance as a tax, the way they have done so is a little illogical, to say the least.

There is definitely a discussion to be had as to how income and gains should be taxed and whether there is a case for taxing them at the same rate (flat rate tax anyone?).  That said, making your argument using what appear to be self-serving assumptions does suggest you have little faith in your, err, arguments.

 


Andrew Parkes

Andrew Parkes

Andrew is a highly experienced international tax specialist who worked at a senior level in HMRC’s international teams for over 10 years. He has a wealth of experience and technical knowledge.

Email: Andrew Parkes