UK Inland Revenue Denies 50% Tax Scare

by Robert Lee, Tax-News.com, London

26 February 2004

The Inland Revenue has dismissed as “nonsense” reports in the UK media this week suggesting that higher rate taxpayers with additional forms of income will be forced to pay income tax rates of up to 50% under new rule changes.

A report published in The Times this week had claimed that under new rules, taxpayers with income from sources such as lettings and share investments will be forced to pay tax on these earnings through the PAYE (Pay As You Earn) system, dramatically increasing the amount of tax they pay.

However, speaking to the Daily Telegraph, Revenue spokesman, Paul Franklin explained that: “Nobody will be forced to change the way they pay tax; if they don't want to change, they can stay as they are.” He added: "The 50% figure is all smoke and mirrors. Nobody will pay more tax as a result of our proposals."

Tax experts have since pointed out that regulations currently in place allow taxpayers with additional income to choose whether or not to pay tax through PAYE, to even out the cost of their tax bills. The IR is due to write to taxpayers who earn up to £10,000 in investment income this April, offering them the choice to switch to PAYE. However, it is unclear whether individuals must opt out in order to stay within the self assessment system.

Meanwhile, another Revenue spokesperson dismissed the suggestion that the move had been made as a result of the department being under pressure to collect more tax, explaining that critics have confused the redrafting of old tax law with reform of the self-assessment system.

"The tax law rewrite has been going on for the last three years or so and is about updating the language used, making it clearer. It has not changed the rules at all," she told the Guardian on Wednesday, adding that that the Revenue has had powers under the K Code to include additional income in the PAYE tax code since the 1940s.

Nevertheless, she did concede that there is a problem with non-payers in the self-assessment system, and revealed that 700,000 of those liable for tax had failed to pay between 1997 and 2002.

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