15.06.09 FEWER EXPECTED TO PAY HIGHER RATE

The number of higher rate tax payers is forecast to plummet by a record 24% by 2010 - a fall five times bigger than that seen during the 1990-91 recession.

The prediction comes from Scottish chartered accountant Campbell Dallas. The firm said that, according to figures it had obtained from, HM Revenue and Customs, the number of higher rate taxpayers would slump from 3.9million last year to 2.9million next year.

In the early 1990s recession, the number of higher rate taxplayers declined from 1.7million to 1.6million. Campbell Dallas said that the steep fall in the number of higher rate taxpayers was the result of a combination of redundancies, reduced bonuses and investment losses forcing large numbers of higher rate taxpayers down into the basic tax rate band. The number of basic rate taxpayers is also expected to increase this year, by 8.1%, from 23.4million to 25.3million.

Bruce Wilson, tax partner at Campbell Dallas, said: "For the government to be forecasting a 24% decline in higher rate taxpayers but an 8% increase in the number of basic rate taxpayers shows just how the recession is having a disproportionate impact on those on relatively higher incomes.

"There has been a huge increase in the number of taxpayers taxed at the higher rate over the last 10 years, so this is a sudden and dramatic reversal of that trend entirely without precedent. Many taxpayers pay tax at higher rate by virtue of bonuses they receive on top of their basic salaries, so when bonuses are severely cut that can push them down into the basic-rate band.

"Higher rate taxpayers make a very significant contribution to the Treasury, so this really blows a hole in the government's finances. These figures raise serious questions about how much the government will bring in from 50% tax rate in 2010-11".

Publication: Press & Journal

Date: 15th June 2009