Annex C

Distribution of Tax Units in the Income Tax System

Estimated Distribution of Total Tax Units on File

Distribution of Taxpayers across Tax Bands in percentage terms

Distribution of Total Tax Units on file in percentage terms

1. There are four categories of tax units on the full Revenue tax files. These are as follows:

  • those Exempt from paying tax because their income is below the personal allowances or the income tax exemption limits.
  • those on low incomes just above the income tax exemption limits who pay tax at the special Marginal Relief Rate of Income Tax
  • those paying tax at the Standard Rate of Income Tax, and
  • those paying tax at the Higher Rate of Income Tax.

2. The term "taxpayers" is usually taken to refer to the last three categories actually paying tax.

3. In terms of the numbers in each category the position is estimated as follows for the 1999/2000 tax year, the projected numbers for the 2000/2001 tax year if no changes were made in the Budget (2000/2001 pre-Budget) and the numbers estimated in each category as a result of the Budget package (2000/2001 post-Budget).

Table 1

Estimated Distribution of Total Tax Units on File

 

(1)

(2)

(3)

(4)

(5)

(6)

 

Exempt

Marginal Relief

Standard Rate

Higher Rate

Total Tax Units (1) to (4)

Total Tax Payers (2) to (4)

1999/2000

426,399

22,650

619,982

501,470

1,570,501

1,144,102

2000/2001 (Pre Budget)

414,401

21,832

621,227

552,373

1,609,833

1,195,432

2000/2001 (post Budget)

463,161

17,642

701,953

427,077

1,609,833

1,146,672

4. Looking at the total number of taxpayers (column (6) in Table 1), the estimated distribution of taxpayers between the three tax paying categories in 1999/2000, 2000/2001 pre-Budget, and 2000/2001 post-Budget is as follows:

Table 2

Distribution of Taxpayers across Tax Bands in percentage terms

 

Marginal Relief Rate Taxpayers

Standard Rate Taxpayers

Higher Rate Taxpayers

1999/2000

2%

54.2%

43.8%

2000/2001 (Pre-Budget)

1.8%

52.0%

46.2%

2000/2001 (Post Budget)

1.5%

61.2%

37.2%

Thus if no action were taken in the Budget, the percentage of taxpayers on the higher rate of income tax would increase from 43.8% to 46.2%. As a result of the Budget, the percentage will fall to 37.2%.

5. Looked at in terms of total tax units on file, i.e. column (5) in Table 1, the estimated distribution between the different categories in 1999/2000, 2000/2001 pre-Budget and 2000/2001 post-Budget is as follows:

Table 3

Distribution of Total Tax Units on file in percentage terms

 

Exempt

Marginal Relief

Standard Rate

Higher Rate

1999/2000

27.1%

1.4%

39.5%

31.9%

2000/2001 (Pre-Budget)

25.7%

1.4%

38.6%

34.3%

2000/2001 (Post Budget)

28.8%

1.1%

43.6%

26.5%

6. Thus if no action were taken in the Budget, the percentage of taxpayers on the higher rate as a percentage of total tax units would increase from 31.9% to 34.3%. As a result of the Budget, the percentage will fall to 26.5%.

Position at end of Proposed Three Year Transition Period

7. If, instead of the Budget day tax band package the move to full individualisation had been introduced now (i.e. the single standard band had gone from £14,000 to £28,000 per annum) the estimated number of taxpayers on the higher rate would have fallen to 196,500. In percentage terms, this would represent 17% of taxpayers or 12% of total tax units.