Bulletin - Supporting Documentation

Question 1

1. Annex A: Context and background information

Accepted Answer

1.1 General Information

This is a National Statistics publication by His Majesty’s Revenue and Customs (HMRC). For more information about National Statistics, please see the United Kingdom Statistics Authority website.

The United Kingdom Statistics Authority has confirmed that the Income Tax Liabilities Statistics and projections are designated as National Statistics, following HMRC implementing the enhancements listed in Assessment Report 157 Statistics on Income Tax and Assessment Report 241 Income Tax Projections.

1.2 Publication, revision strategy and next release

These statistics are published annually, usually in May or June. The next scheduled release will be in 2024, comprising of 2021 to 2022 outturn data with revised projections for 2022 to 2023 and 2023 to 2024 and the first projection estimates for 2024 to 2025. This will follow the Office for Budget Responsibility’s (OBR) Spring 2024 economic forecast.

The exact date of publication will be announced no less than 4 weeks beforehand on the HMRC statistics page ‘Schedule of updates for HMRC’s statistics’, where any changes to the publication date will also be announced.

1.3 User engagement

The recent user consultation, published in 2022, included seeking views on reducing the coverage of this publication. As a result, Section B presenting data from Table 2.7 as a complement to the SPI-based statistics has been discontinued, but the legacy data is still available on the publication page.

HMRC has data suggesting that over two-thirds of tax credit claimants have already moved to Universal Credit. As the impact of tax credits was the main differentiating feature of the selection of example individual and couple scenarios and earnings levels in table 2.7, it was felt this represents a high enough proportion no longer claiming tax credits to support the discontinuation of its production. Details are set out in the consolation document, responses and summary of changes.

The previous user engagement exercise ran from November 2017 to July 2018, and as part of this the frequency of the publication was permanently changed to once a year. Only a very limited number of responses were received without any objection to the change in frequency (more details were set out in the June 2019 edition of this publication).

User comments are reviewed regularly, and results of most surveys and consultations are published, including a previous survey of users of HMRC Income Tax statistics. In 2020, an independent review of HMRC’s official statistics was undertaken and recommended a reduction in the ‘number or size’ of published statistics to ensure resources are being used effectively. For this publication, it was suggested to remove projection years from the published tables. In response to the review, HMRC conducted a consultation which concluded that for this publication the projection years would continue to be published alongside the new outturn data.

We are committed to providing impartial quality statistics that meet our users’ needs. While HMRC has regular contact with key users of the Income Tax Liabilities Statistics publication within Government, we would like to improve our knowledge of the use made of this publication, particularly by private sector organisations and individuals. We encourage users to provide feedback on their use of these statistics including their specific requirements, any improvements they would like to see or gaps they have identified, and any decisions they may inform.

1.4 Statistical contacts

Comments or queries on these statistics can be sent to the statistical contacts named below. We will review user comments and use this information to influence the development of our National Statistics. If you have any queries regarding this publication, please use the contact information below to get in touch.

Statistical contacts: M Brunning, S Delf, L Jenner personaltax.statistics@hmrc.gov.uk

Media contact: HMRC Press Office, news.desk@hmrc.gov.uk

1.5 What does this publication tell me?

The tables in this publication provide detailed statistics about individuals liable to UK Income Tax (Income Tax payers) and their incomes using sample-based estimates. The tables in this release exclude individuals who are not Income Tax payers, which may occur if the individual has no Income Tax liability due to their deductions, reliefs and Personal Allowances exceeding their total income, if their income is below their Personal Allowance, or if they do not current have any income.

Tables 2.1 to 2.6 provide detailed statistics on the tax year with the most recent outturn data, alongside projection estimates for the 3 subsequent tax years. These are estimated using the Survey of Personal Incomes (SPI), which includes data on the number of individual Income Tax payers, Income Tax liabilities, and average rates of Income Tax. The data is subset by Income Tax payer characteristics such as age, sex, income level, percentile group (for example the top 1%), and marginal rate of tax. Table 2.6 also shows Income Tax liabilities arising on different forms of income subject to Income Tax and in each Income Tax band.

The SPI is based on information held by HMRC on individuals who could be liable to UK Income Tax. It is carried out annually by HMRC and covers income assessable to Income Tax for each tax year. The tables are based on a sample of administrative data for the relevant tax year. Income Tax liabilities are modelled using the HMRC Personal Tax Model.

1.6 Use of the Income Tax Liabilities Statistics

The statistics in this publication are used by a variety of organisations mainly concerned with Government decision making about Income Tax policy, both in a policy making and policy monitoring context. The UKSA Monitoring Brief 6/2010 The Use Made of Official Statistics provides a generic framework for classes of use of Official Statistics.

The projection estimates form the basis for HMRC’s detailed assessments of the Exchequer costs and impacts on individuals of potential changes to the Income Tax system. This informs the Government’s Income Tax policy decisions, and they are used by other Government departments for similar purposes. They are also used by Parliament, Government departments such as HM Treasury, some private organisations including policy ‘think tanks’, and the media and other commentators to monitor Income Tax trends and distributions. They inform, for example, users’ assessments of the impacts of past Income Tax policy changes or the sustainability of the UK public finances. For some users, such as the OBR, the statistics are used explicitly for economic and Income Tax forecasting, informing assessments of recent trends or used as specific inputs to the forecasting process. The statistics are also used by HMRC and other organisations in assessments of the operation of the UK Income Tax system and its impact on individuals.

1.7 Liabilities versus receipts

Income Tax liabilities are amounts of Income Tax due on incomes arising in a given tax year, whereas receipts are amounts of Income Tax paid and collected in a given year. Statistics on Income Tax liabilities and receipts in any year can differ appreciably, due to lags in the payment and collection of Income Tax particularly under Self Assessment returns, or when over or underpayments occur which are repaid or recovered in a later year.

Data sources and methods underpinning the statistics also differ. Receipts statistics are based on aggregate administrative data sources whereas liabilities statistics are compiled using a sample of individuals’ Income Tax records (the SPI).

The detailed breakdowns of Income Tax liabilities provided in this publication are not available on a receipts basis, and are not generally available in other statistical publications. Liabilities statistics also reflect more closely and immediately the impact of changes in Income Tax policy regime and developments in the wider economy than Income Tax receipts do.

1.8 Income Tax summary

This section provides an introduction to the UK Income Tax system and a summary of recent Income Tax policy changes which impact on the statistics in this publication.

Income Tax system

Income Tax is an annual tax on individuals’ income arising in a given tax year (6th April to the 5th April the following year). It is the UK Government’s largest single source of tax revenue, with Income Tax receipts gross of tax credits contributing £220.6 billion to total current receipts of £917.7 billion in 2021 to 2022 based on the Office for Budget Responsibility’s (OBR) March 2023 Economic and Fiscal Outlook, Table 2.9.

See Income Tax and Scottish Income Tax for an overview of Income Tax systems for the UK and Scottish Governments.

Since April 1990, the UK has had a system of independent taxation. This means that the Income Tax liability for each Income Tax payer is based solely on their own income and circumstances, and the income of spouses or partners or other family members in general has no effect on the total Income Tax accrued. The exception to this is for married couples or civil partnerships that are living together where at least one spouse or partner was born before 6th April 1935, who can still claim Married Couples Allowance. See Income Tax allowances and reliefs for historical allowances and reliefs.

Most sources of income are liable for Income Tax including pay from employment, profits from self-employment, private and occupational pensions, retirement annuities, state retirement pensions, foreign income, income from property, taxable social security income, savings income, income from shares (dividends) and income from trusts. Employees who receive non-cash benefits from their employers such as company cars, fuel, medical insurance, living accommodation or loans also pay Income Tax on these benefits. Adding all these sources together will give an individual’s total income assessable for tax, an aggregate that appears in several tables in this publication. Some sources of income are not liable for Income Tax including certain social security benefits, Child Tax Credit and Working Tax Credit, and income from tax exempt savings accounts (such as Individual Savings Accounts (ISAs) and some National Savings & Investment products).

Income Tax allowances and reliefs

Most individual residents in the UK for tax purposes receive a tax-free Personal Allowance, which is an amount of income they can receive each year tax-free. In 2023 to 2024, the basic Personal Allowance is £12,570. All individuals with an income above £100,000 have their allowance reduced by £1 for every £2 of the excess until it is withdrawn completely. People who are registered as blind in England and Wales, or who in Scotland and Northern Ireland cannot do any work for which eyesight is essential, can claim Blind Person’s Allowance.

Income Tax is due only on taxable income above an individual’s Personal Allowance. Even then, there are other reliefs and allowances that can reduce an individual’s Income Tax bill. Tax reliefs are available on contributions to pension schemes and donations to charities. Employees and directors may also receive tax relief on business expenses they have paid for. There are other allowances and reliefs that can reduce Income Tax bills such as Married Couples Allowance described above. Unlike Personal Allowances, these are not sums of income that can be received tax-free; rather they are amounts that may be deducted from any Income Tax bill due.

A separate Marriage Allowance became available from 2015 to 2016. In 2023 to 2024 this allows the transfer of 10% (£1,260) of the tax free Personal Allowance between couples who are married or in civil partnerships, were both born after 6th April 1935 and where one partner has an annual income of £12,570 or less, plus up to £5,000 of tax-free savings interest and the other partner’s annual income is between £12,570 and £50,270 (or £43,662 if they are a Scottish Income Tax payer).

From 2016 to 2017 the Dividend Allowance was introduced which meant that the first £5,000 of an individual’s taxable dividend income is tax free (after any set against the Personal Allowance). This is irrespective of their total dividend and non-dividend income. In 2018 to 2019 the Dividend Allowance was reduced to £2,000. In 2023 to 2024 it has been further reduced to £1,000.

From 2016 to 2017 the Personal Savings Allowance was introduced. As a result, a basic rate Income Tax payer can receive up to £1,000 in savings Income Tax free. The corresponding allowance is £500 for higher rate and £0 for additional rate Income Tax payers.

Income Tax calculations

Once tax-free allowances have been taken into account, Income Tax due is calculated using different Income Tax rates for specific types of income across a series of Income Tax bands. There are 3 different sources of income for Income Tax purposes:

earnings, or income other than savings and dividends, also known as non-savings non-dividends (NSND) income (see definition in Glossary)
savings income (such as bank and building society interest)
dividends (such as income from shares in UK companies)

These sources are taxed at one of the main rates of Income Tax: the basic rate, the higher rate and the additional rate, with the exception of earnings for individuals in Scotland which are charged at 5 main rates: the starting rate, basic rate, intermediate rate, higher rate and additional rate. Income Tax typically works on a ‘stack’ basis. This means that earnings are generally taxed first, then savings income and finally dividend income. This means that if an individual has earnings after allowances sufficient to completely fill the basic rate Income Tax band, all savings or dividend income would be charged at the higher or additional rates of tax. The amount of income charged at each rate is shown in Table 1a for England, Wales and Northern Ireland and in Table 1b for Scotland.

Table 1a: Income Tax rates for 2023 to 2024 for England, Wales and Northern Ireland by type of income and Income Tax band

Income source	Starting rate for savings (note 1)	Basic rate	Higher rate	Additional rate
Taxable income after allowances	£0 to £5,000	£0 to £37,700	£37,700 to £125,140	More than £125,140
Earnings (note 2)	Not applicable	20%	40%	45%
Savings)	0%	20%	40%	45%
Dividends	Not applicable	8.75%	33.75%	39.35%

Footnotes for Table 1a:

The starting rate for savings is a special rate of Income Tax for savings income only. It is only available to the extent that the individual’s taxable income from earnings does not exceed the starting rate limit.
Includes all taxable income not defined as savings or dividend income.

Table 1b: Income Tax rates for 2023 to 2024 for Scottish NSND income by Income Tax band

Income source	Starter rate	Basic rate	Intermediate rate	Higher rate	Additional rate
Taxable income after allowances	£0 to £2,162	£2,162 to £13,118	£13,118 to £31,092	£31,092 to £125,140	More than £125,140
Earnings (note 1)	19%	20%	21%	42%	47%

Footnotes for Table 1b:

Includes all taxable income not defined as savings or dividend income of Scottish Income Tax payers.

The way Income Tax is collected depends both on the type of the income and circumstances of the Income Tax payer. For most Income Tax payers, Income Tax on employment income or occupational pensions is collected through PAYE where Income Tax is calculated and deducted from the Income Tax payer’s pay or pension before being paid over directly to HMRC by the employer or pension provider. Before 2016 to 2017, Income Tax on savings income was deducted at source by banks or building societies at the basic rate, with additional Income Tax due for higher and additional rate Income Tax payers being collected either through PAYE via a change in their tax code or through Self Assessment. Since 2016 to 2017, Income Tax on savings income is no longer deducted at source by banks or building societies, and therefore any Income Tax on savings income above the Personal Savings Allowance is collected either through PAYE via a change in their tax code or through Self Assessment.

Various categories of Income Tax payers including those with total income above £100,000, or income from savings, investments and property above a certain level, the self-employed, company directors and others with more complex tax affairs pay Income Tax due through Self Assessment.

There are lags between when Income Tax liabilities arise and when the corresponding taxes collected through Self Assessment are received. This is because the majority of Income Tax collected through Self Assessment is not usually paid until the year after the liability arises. A series of example Income Tax calculations using 2023 to 2024 rates and allowances are provided in Tables 2a to 2e.

Table 2a: Example Income Tax calculation using 2023 to 2024 rates and allowances for an individual in England, Wales or Northern Ireland with earnings of £60,000 and no savings or dividend income.

	Earnings	Savings	Dividends	Total
Income	£60,000	£0	£0	£60,000
Income after Personal Allowance	£47,430	£0	£0	£47,430
Income after Personal Allowance at starting rate	£0	£0	£0	£0
Income after Personal Allowance at basic rate	£37,700	£0	£0	£37,700
Income after Personal Allowance at higher rate	£9,730	£0	£0	£9,730
Income after savings and dividends allowance	£47,430	£0	£0	£47,430
Income after savings and dividends allowance at starting rate	£0	£0	£0	£0
Income after savings and dividends allowance at basic rate	£37,700	£0	£0	£37,700
Income after savings and dividends allowance at higher rate	£9,730	£0	£0	£9,730
Total Income Tax liabilities	£11,432	£0	£0	£11,432
Income Tax liabilities at starting rate	£0	£0	£0	£0
Income Tax liabilities at basic rate	£7,540	£0	£0	£7,540
Income Tax liabilities at higher rate	£3,892	£0	£0	£3,892

Table 2b: Example Income Tax calculation using 2023 to 2024 rates and allowances for an individual in Scotland with earnings of £60,000 and no savings or dividend income.

	Earnings	Savings	Dividends	Total
Income	£60,000	£0	£0	£60,000
Income after Personal Allowance	£47,430	£0	£0	£47,430
Income after Personal Allowance at starting rate	£2,162	£0	£0	£2,162
Income after Personal Allowance at basic rate	£10,956	£0	£0	£10,956
Income after Personal Allowance at intermediate rate	£17,974	£0	£0	£17,974
Income after Personal Allowance at higher rate	£16,338	£0	£0	£16,338
Income after savings and dividends allowance	£47,430	£0	£0	£47,430
Income after savings and dividends allowance at starting rate	£2,162	£0	£0	£2,162
Income after savings and dividends allowance at basic rate	£10,956	£0	£0	£10,956
Income after savings and dividends allowance at intermediate rate	£17,974	£0	£0	£17,974
Income after savings and dividends allowance at higher rate	£16,338	£0	£0	£16,338
Total Income Tax liabilities	£13,238	£0	£0	£13,238
Income Tax liabilities at starting rate	£411	£0	£0	£411
Income Tax liabilities at basic rate	£2,191	£0	£0	£2,191
Income Tax liabilities at intermediate rate	£3,775	£0	£0	£3,775
Income Tax liabilities at higher rate	£6,862	£0	£0	£6,862

Table 2c: Example Income Tax calculation using 2023 to 2024 rates and allowances for an individual with £52,000 of earnings, £3,000 of savings and £5,000 of dividends income.

	Earnings	Savings	Dividends	Total
Income	£52,000	£3,000	£5,000	£60,000
Income after Personal Allowance	£39,430	£3,000	£5,000	£47,430
Income after Personal Allowance at starting rate	£0	£0	£0	£0
Income after Personal Allowance at basic rate	£37,700	£0	£0	£37,700
Income after Personal Allowance at higher rate	£1,730	£3,000	£5,000	£9,730
Income after savings and dividends allowance	£39,430	£2,500	£4,000	£45,930
Income after savings and dividends allowance at starting rate	£0	£0	£0	£0
Income after savings and dividends allowance at basic rate	£37,700	£0	£0	£37,700
Income after savings and dividends allowance at higher rate	£1,730	£2,500	£4,000	£8,230
Total Income Tax liabilities	£8,232	£1,000	£1,350	£10,582
Income Tax liabilities at starting rate	£0	£0	£0	£0
Income Tax liabilities at basic rate	£7,540	£0	£0	£7,540
Income Tax liabilities at higher rate	£692	£1,000	£1,350	£3,042

Table 2d: Example Income Tax calculation using 2023 to 2024 rates and allowances for an individual with £10,000 of earnings and £10,000 of savings income.

	Earnings	Savings	Dividends	Total
Income	£10,000	£10,000	£0	£20,000
Income after Personal Allowance	£0	£7,430	£0	£7,430
Income after Personal Allowance at starting rate	£0	£5,000	£0	£5,000
Income after Personal Allowance at basic rate	£0	£2,430	£0	£2,430
Income after Personal Allowance at higher rate	£0	£0	£0	£0
Income after savings and dividends allowance	£0	£6,430	£0	£6,430
Income after savings and dividends allowance at starting rate	£0	£5,000	£0	£5,000
Income after savings and dividends allowance at basic rate	£0	£1,430	£0	£1,430
Income after savings and dividends allowance at higher rate	£0	£0	£0	£0
Total Income Tax liabilities	£0	£286	£0	£286
Income Tax liabilities at starting rate	£0	£0	£0	£0
Income Tax liabilities at basic rate	£0	£286	£0	£286
Income Tax liabilities at higher rate	£0	£0	£0	£0

Table 2e: Example Income Tax calculation using 2023 to 2024 rates and allowances for an individual with £16,500 of earnings and £3,000 of savings income.

	Earnings	Savings	Dividends	Total
Income	£16,500	£3,000	£0	£19,500
Income after Personal Allowance	£3,930	£3,000	£0	£6,930
Income after Personal Allowance at starting rate	£0	£1,070	£0	£1,070
Income after Personal Allowance at basic rate	£3,930	£1,930	£0	£5,860
Income after Personal Allowance at higher rate	£0	£0	£0	£0
Income after savings and dividends allowance	£3,930	£2,000	£0	£5,930
Income after savings and dividends allowance at starting rate	£0	£1,070	£0	£1,070
Income after savings and dividends allowance at basic rate	£3,930	£930	£0	£4,860
Income after savings and dividends allowance at higher rate	£0	£0	£0	£0
Total Income Tax liabilities	£786	£186	£0	£972
Income Tax liabilities at starting rate	£0	£0	£0	£0
Income Tax liabilities at basic rate	£786	£186	£0	£972
Income Tax liabilities at higher rate	£0	£0	£0	£0

Timeline of changes to Income Tax

The Government can legislate to introduce changes to Income Tax rates, allowances and limits, and many historical changes have been introduced as the structure of Income Tax has evolved over time. For example, since 2015 to 2016 the Personal Allowance and most Income Tax limits are statutorily increased each tax year with the annual increase in the Consumer Price Index (CPI) for September in the previous year (a process known as ‘indexation’). Prior to 2015 to 2016 the Retail Price Index (RPI) was used for the indexation of most thresholds. See details of current and historic Income Tax allowances and rates for more information.

The main Income Tax changes over recent years can be summarised as follows:

2008 to 2009

the basic rate of Income Tax was reduced from 22% to 20% and the 20% savings rate was abolished. The 10% starting rate was removed except for savings income
the Personal Allowance was increased by £600 above indexation to £6,035, and the age-related Personal Allowances (which no longer exist) for those aged 65 to 74 and 75 and over were increased by £1,180 above indexation to £9,030 and £9,180, respectively. The basic rate limit was reduced by £1,200 after indexation to £34,800

2009 to 2010

the Personal Allowance was increased by £130 above indexation to £6,475 and the basic rate limit was increased by £800 above indexation to £37,400

2010 to 2011

all existing allowances and limits remained at their 2009 to 2010 levels, reflecting the annual change in the RPI being negative in September 2009
in addition, 2 changes to the structure of Income Tax came into effect. The first was the introduction of a new additional rate of Income Tax for taxable income over £150,000, which was set at 50% for earnings and savings and 42.5% for dividends. The second change was a reduction in the Personal Allowance by £1 for every £2 of taxable income above £100,000 until reduced to £0, regardless of the individual’s age. This created a notional marginal Income Tax rate of 60% for those in that income band, as every extra £2 earned was taxed at the higher rate of 40% plus the additional 20% impact of having £1 of the Personal Allowance removed

2011 to 2012

the Personal Allowance for those aged under 65 was increased by £1,000 in cash terms to £7,475 (£690 above indexation) and the basic rate limit was reduced by £2,400 in cash terms to £35,000, leading to a £1,400 decrease in the higher rate threshold
the pension tax relief annual allowance was reduced from £255,000 to £50,000 in April 2011 (and the lifetime allowance was reduced from £1.8m to £1.5m from April 2012). These measures replaced a previously announced policy of restricting pension relief for those with incomes of £150,000 and over

2012 to 2013

the Personal Allowance for those aged under 65 was increased by £630 in cash terms to £8,105 (£210 above indexation) and the basic rate limit was reduced by the same amount, implying no change in the higher rate threshold

2013 to 2014

the additional rate of Income Tax for earnings and savings was reduced from 50% to 45% while the additional rate for dividend income was reduced from 42.5% to 37.5%
the Personal Allowance for those born after 6 April 1948 (previously those aged under 65) was increased by £1,335 in cash terms to £9,440 (£1,115 above indexation). The basic rate limit was reduced by £2,360 to £32,010
the age-related Personal Allowances were frozen at 2012 to 2013 levels so that the aged Personal Allowance for those born between 6 April 1948 and 5 April 1938 (previously those aged 65 to 74) remained at £10,500 while the aged Personal Allowance for those born before 6 April 1938 (previously those aged 75 and over) remained at £10,660

2014 to 2015

the Personal Allowance for those born after 6 April 1948 was increased by £560 in cash terms to £10,000 (£260 above indexation). The basic rate limit was reduced by £145 to £31,865 as the higher rate threshold was subject to a 1% growth cap in 2014 to 2015
the age-related Personal Allowances were frozen at 2013 to 2014 levels so that the aged Personal Allowance for those born between 6 April 1948 and 5 April 1938 remained at £10,500 while the aged Personal Allowance for those born before 6 April 1938 remained at £10,660

2015 to 2016

the Personal Allowance for those born after 6 April 1948 was increased by £500 in cash terms (£370 above indexation) then by a further £100 in cash terms to £10,600. The basic rate limit was reduced by £80 to £31,785 as the higher rate threshold was subject to a 1% growth cap in 2015 to 2016. The higher rate threshold was then increased by £100 above the 1% growth cap in line with the further £100 Personal Allowance increase passing full gains to higher rate Income Tax payers
the age-related Personal Allowances were frozen at 2013 to 2014 levels so that the aged Personal Allowance for those born before 6 April 1938 remained at £10,660. The allowance for those born between 6 April 1948 and 5 April 1938 remained at £10,500 and was surpassed by the Personal Allowance for those born after 6 April 1948, resulting in this allowance being abolished
a new Marriage Allowance was introduced allowing the transfer of 10% of the tax-free Personal Allowance between couples who are married or in civil partnerships. Eligibility was for those born after 6 April 1935 where one partner had an annual income of £10,600 or less and less than £5,000 of tax-free savings interest and the other partner’s annual income was between £10,600 and £42,385
the starting rate for savings was reduced from 10% to 0% and the threshold for which the rate applies for savings income above the Personal Allowance was increased from £2,880 to £5,000
reductions to the basic rate limit restricted the gains made by higher rate Income Tax payers from Personal Allowance increases

2016 to 2017

the Personal Allowance for those born after 6 April 1938 was increased by £400 in cash terms to £11,000, surpassing the Personal Allowance for those born before 6 April 1938 and resulting in this allowance being abolished (hereafter there is only one Personal Allowance for all ages). Due to negative CPI in 2016 to 2017, the effective indexation was zero and the increase above indexation was £400. The basic rate limit was increased by £215 to £32,000
the 10% dividend tax credit was abolished and the rates charged on dividend income were increased such that the basic rate was set at 7.5%, the higher rate at 32.5% and the additional rate at 38.1%. The Dividend Allowance was introduced, which gave a tax-free allowance on total dividend income below £5,000
the Personal Savings Allowance was introduced, giving a tax-free allowance on total savings income below the threshold of £1,000. The tax-free allowance is dependent on the top marginal Income Tax rate on an individual’s total income, with the threshold halved for higher rate Income Tax payers and set to £0 for additional rate Income Tax payers
all savings and dividend income are now included when calculating an Income Tax payer’s marginal rate. No Income Tax is liable on dividend or savings income within an individual’s Dividend or Personal Savings allowances, as this is charged at a nil rate
the combined effects of the Personal Allowance, starting rate and Personal Savings Allowance means that an individual with total taxable income of £17,000 accrued no Income Tax on their savings income

2017 to 2018

the Personal Allowance for all (following the abolishment of age-related Personal Allowances) was increased by £500 in cash terms to £11,500. The effective indexation due to CPI was £110. Therefore, the increase above indexation was £390
the Scotland Act 2016 now provides the Scottish Parliament with the power to set the Income Tax rates and bands that will apply to Scottish Income Tax payers’ NSND income. Responsibility for setting the tax-free Personal Allowance and reliefs and exemptions, and Income Tax on savings and dividend income, remains reserved to the UK Parliament
the basic rate limit was increased by £1,500 to £33,500 for the income of individuals in all areas of the United Kingdom, apart from the NSND income of Scottish Income Tax payers. This set the higher rate threshold (the sum of the Personal Allowance and basic rate limit) at £45,000, an increase of £2000 compared to 2016 to 2017
the Scottish Government froze the higher rate threshold for NSND income of Scottish Income Tax payers at 2016 to 2017 levels of £43,000, below the level set by the UK Government of £45,000
the starting rate band for savings was frozen at the 2016 to 2017 level of £5,000

2018 to 2019

the Personal Allowance was increased by £350 to £11,850 due to CPI indexation
the basic rate limit increased by £1,000 to £34,500 due to CPI indexation for the income of individuals in all areas of the United Kingdom apart from the NSND income of Scottish Income Tax payers. This set the higher rate threshold (the sum of the Personal Allowance and basic rate limit) at £46,350, an increase of £1,350 compared to 2017 to 2018
the Scottish Government introduced 2 new Income Tax bands for earnings: the starter and intermediate limits. The new starter rate band for NSND income of Scottish Income Tax payers was set with a limit of £13,850 at a rate of 19%. The basic rate was retained for Scottish Income Tax payers for income above the starter rate limit, with a reduced basic rate limit of £24,000 and a rate of 20%. The new intermediate rate band was applied to income above the new basic rate limit and was set at 21%, with the intermediate rate limit set to £31,850
the Scottish Government capped growth in their higher rate threshold (the sum of the Personal Allowance and their intermediate rate limit for NSND only) to 1% giving a threshold of £43,430 for Scottish Income Tax payers, below the level set by the UK Government of £46,350
the Scottish Government also increased the higher and additional rates of Income Tax on NSND income to 41% and 46% respectively for Scottish Income Tax payers
the Dividend Allowance was set at £2,000, a reduction of £3,000
the starting rate band for savings was frozen at the 2017 to 2018 level of £5,000

2019 to 2020

the Personal Allowance was increased by £650 in cash terms to £12,500. The effective indexation due to CPI was £290. Therefore, the increase above indexation was £360
the basic rate limit was increased by £3,000 to £37,500 for the income of individuals in all areas of the United Kingdom apart from the NSND income of Scottish Income Tax payers. This set the higher rate threshold (the sum of the Personal Allowance and basic rate limit) at £50,000, an increase of £3,650 compared to 2018 to 2019
the Scottish Government froze the higher rate threshold for NSND income of Scottish Income Tax payers at 2018 to 2019 levels. The starter and basic rate limits were increased by CPI indexation
the starting rate band for savings was frozen at the 2018 to 2019 level of £5,000
note that the High Income Child Benefit charge applicable from 7 January 2013 is not included in the projection estimates

2020 to 2021

the Personal Allowance was frozen at 2019 to 2020 levels. The effective indexation due to CPI would have been £210
the basic rate limit was frozen at £37,500 for the income of individuals in all areas of the United Kingdom, apart from the NSND income of Scottish Income Tax payers.
the Scottish Government maintained the frozen higher rate threshold for NSND income of Scottish Income Tax payers at 2018 to 2019 levels, or £43,430, while the higher rate threshold set by the UK Government remained at £50,000. The starter and basic rate limits were increased by CPI indexation
the starting rate band for savings remained frozen at £5,000

2021 to 2022

the Personal Allowance was increased by £70 to £12,570 due to CPI indexation
the basic rate limit was increased by £200 due to CPI indexation to £37,700 for the income of individuals in all areas of the United Kingdom apart from the NSND income of Scottish Income Tax payers. This set the higher rate threshold (the sum of the Personal Allowance and basic rate limit) at £50,270, an increase of £270 compared to 2020 to 2021
the Scottish Government increased their starter rate limit, basic rate limit, and higher rate threshold (all for NSND Income Tax payers) by CPI indexation. This gave a starter rate limit of £14,667, a basic rate limit of £25,296, and an intermediate rate limit (equivalent to higher rate threshold) of £43,662
the starting rate band for savings remained frozen at £5,000

2022 to 2023

the Personal Allowance was frozen at 2021 to 2022 levels. The effective indexation due to CPI would have been £390
the basic rate limit was frozen at £37,700 for the income of individuals in all areas of the United Kingdom, apart from the NSND income of Scottish Income Tax payers. This set the higher rate threshold (the sum of the Personal Allowance and basic rate limit) at £50,270.
the Scottish Government maintained the frozen higher rate threshold for NSND income of Scottish Income Tax payers at 2021 to 2022 levels, an intermediate rate limit (equivalent to higher rate threshold) of £43,662, and the higher rate threshold set by the UK Government also remained frozen at £50,270.
the starting rate band for savings remained frozen at £5,000
the rates charged on dividend income were increased such that the basic rate was set at 8.75%, the higher rate at 33.75% and the additional rate at 39.35%.

2023 to 2024

the Personal Allowance was frozen at 2022 to 2023 levels. The effective indexation due to CPI would have been £1,270.
the basic rate limit was frozen at £37,700 for the income of individuals in all areas of the United Kingdom, apart from the NSND income of Scottish Income Tax payers. This set the higher rate threshold (the sum of the Personal Allowance and basic rate limit) at £50,270.
the additional rate threshold was set to the end of the Personal Allowance taper. This decreased the additional rate threshold by £24,860 to £125,140 in England and Wales to align this value to the end of the Personal Allowance taper. The Scottish government also changed the additional rate threshold for NSND income of Scottish Income Tax payers to £125,140.
the dividend allowance was set at £1,000, a reduction of £1,000.
the Scottish Government maintained the frozen higher rate threshold for NSND income of Scottish Income Tax payers at 2022 to 2023 levels, an intermediate rate limit (equivalent to higher rate threshold) of £43,662, and the higher rate threshold set by the UK Government also remained frozen at £50,270.
the Scottish Government froze the starter rate limit and basic rate limit for NSND income of Scottish Income Tax payers at 2022 to 2023 levels.
the Scottish Government also increased the higher rate of Income Tax to 42%, and additional rates of Income Tax to 47% for Scottish Income Tax payers’ NSND income.

Question 2

2. Annex B: Data sources and methodology

Accepted Answer

2.1 Methodological changes to the SPI since last publication

2.2 Temporary change to the projection methodology

The new SPI outturn data for 2020 to 2021 is the first year of outturn significantly impacted by COVID-19 and the knock-on impacts through changes in incomes and employment/self employment levels as well as the government support schemes. The data was deemed to be significantly different to what a normal tax year would look like and therefore not suitable as the basis for projecting future tax years without accounting for the changes due to COVID-19. A decision was taken to continue projecting future tax years using the 2019 to 2020 SPI outturn (as used in the June 2022 publication) while incorporating the new 2020 to 2021 SPI outturn into the time series.

Basis for income tax liability calculations

Different tax regimes apply to Scottish and Welsh taxpayers, compared to taxpayers in the rest of the UK. Please see section 14 for further information. For tax years up to and including 2019 to 2020, the income tax liability for an individual in the SPI was calculated with reference to their residential postcode. For the tax year 2020 to 2021 and future years, this approach has been updated to reflect the tax regime that would be applicable to an individual to provide a more precise basis for tax forecasting and greater consistency with other publications.

In the SPI, an individual’s postcode is drawn at the end of the tax year under study. This is in contrast to the Scottish or Welsh taxpayer indicators which are set with reference to a number of conditions over the course of the tax year. Therefore, there are some individuals who may have a postcode outside of Scotland or Wales, but their income tax liabilities are aligned with the Scottish or Welsh tax regimes respectively, and vice versa. As there are only a small proportion of such cases, the impact is likely to be negligible.

Allowances for Coronavirus Support Schemes

As part of the government’s economic response to the Coronavirus pandemic, in early 2020, two support schemes were announced – the Self-Employment Income Support Scheme (SEISS) and the Coronavirus Job Retention Scheme (CJRS).

Self-Employment Income Support Scheme (SEISS)

The SEISS was announced by the Chancellor of the Exchequer on 26 March 2020 and the key objective was to support self-employed individuals (including members of partnerships) whose self-employment activities had been adversely affected by COVID-19 restrictions.

In order to ensure that economic activity continued where pandemic restrictions allowed, claimants were able to continue to work, start a new trade, or take up other employment, including voluntary work, provided they intended to continue trading as a self-employed individual and met all other eligibility criteria.

Coronavirus Job Retention Scheme

The scheme was launched in April 2020 and aimed to protect jobs affected by the coronavirus pandemic and prevent widespread unemployment and permanent employer closures. The scheme initially offered employers the opportunity to apply for a grant to fund the wages of their employees who were on furlough, equivalent to 80% of usual wages up to £2,500 per month.

It initially also covered associated employer NICs and mandatory pension costs. This design aimed to ensure that workers could retain their job and the majority of their usual salary, even if their employer could not afford to pay them.

To enable and encourage the return of employees into active work from summer 2020, despite some continuing restrictions, changes were made to allow employees to work for some of their working hours and claim the CJRS grant for hours not worked. In addition, an increasing portion of the cost began to be shared by employers.

Approach for this statistical release

Given that these schemes began in early 2020, the tax year 2020 to 2021 is the first year that SEISS and CJRS data will be submitted to HMRC and feed into the SPI. Such amounts are counted as a component of an individual’s income and taxed at the individual’s marginal rate of tax where applicable.

CJRS payments form part of an individual’s employment pay where applicable

SEISS grant form part of an individual’s total taxable trade profits where applicable

These amounts are combined with other components of income such as employment pay and pension for the purposes of the Personal Income Statistics. No additional tables are published as part of the Personal Income Statistics to assess the impact of pandemic. For further details of CJRS please refer to the Coronavirus Job Retention Scheme interim evaluation and for SEISS please refer to SEISS interim evaluation.

There are a small proportion of individuals who have informed HMRC that they have incorrectly claimed SEISS grants. These amounts have been excluded from this statistical release.

Changes to the PAYE data

There were no substantial changes to the PAYE data in 2020 to 2021.

Changes to the Self Assessment data

Loan charges

Historically, loan charges (or disguised remuneration income) declared via Self-Assessment was excluded from total income for tax years to 2019 to 2020. This is because these returns related to income from previous years and not income received in the tax year under study. The value of loan charges has been decreasing each year. For the tax year 2020 to 2021, this amount has not been excluded as income in the 2020 to 2021 Survey of Personal Incomes, however this amount is expected to be negligible.

Restricting finance cost relief for individual landlords

Landlords are no longer able to deduct any of their finance costs from their property income to arrive at their property profits. Instead, they receive a basic rate (20%) reduction from their Income Tax liability for their finance costs.

In tax year 2020 to 2021 deductions for finance costs reduced to nil, therefore the property income that was subject to tax in these tables is higher than in previous years. The remaining 100% of finance costs are given tax relief at basic rate which is accounted for in the total tax liability.

Further information on the policy changes can be found here:

Changes to tax relief for residential landlords

Changes to tax relief for residential landlords: how it has worked out

Revision in relation to non-resident taxpayers

In 2021, inconsistencies in the regional classification of a small number of SA taxpayers were discovered in HMRC’s NPS and SA systems.

These taxpayers had Welsh/Scottish residency flags in HMRC’s NPS records and would thus be identified as Welsh/Scottish taxpayers. However, it is not possible to be Welsh or Scottish taxpayer while being non-resident in these respective locations.

Data submitted via self-assessment returns indicated that some individuals were resident (for tax purpose) outside Scotland and Wales, which contradicted the flag in the NPS records. Therefore, the Income Tax revenue generated from these non-resident taxpayers should have been allocated to the rest of UK. As such, the process for classifying individuals has been updated accordingly for this statistical release.

For further information, please refer to Section 7.8 in the Scottish Income Tax Outturn.

Changes to the imputation process

There were no substantial changes to the imputation process in 2020 to 2021.

2.3 Tables 2.1 to 2.6

Data sources and sampling

The published estimates of the number of individuals subject to UK Income Tax with positive Income Tax liabilities (hereafter referred to as Income Tax payers) and the magnitude of those liabilities are based on HMRC’s Survey of Personal Incomes (SPI) statistics.

The SPI is based on information held by HMRC on persons who could be liable to UK Income Tax for the Income Tax year. It is carried out annually and covers the income assessable for tax in each tax year. The tables in this publication are based on the surveys for tax year 2020 to 2021 and earlier. Survey of Personal Incomes (SPI) statistics.

For each sample individual the SPI includes information on incomes assessable for Income Tax along with basic information on individual characteristics such as age and sex. The survey data is used to estimate Income Tax liabilities arising on incomes in a given tax year for each individual in the SPI sample; these amounts are summarised in Tables 2.1 to 2.6. The outturn data in this release is based on the SPI for the 2020 to 2021 tax year and earlier. The projections to the 2021 to 2022, 2022 to 2023 and 2023 to 2024 tax years are based on the SPI for the 2019 to 2020 tax year (as set out in the Methodological changes to the SPI since last publication section).

Samples were selected from two HMRC operational computer systems, which are as follows:

The National Insurance and PAYE Service (NPS) system covers all employees and occupational pension recipients with a Pay As You Earn (PAYE) record
The Computerised Environment for Self Assessment (CESA) system covers people with self-employment, rental or untaxed investment income. It also covers directors, those subject to higher rate tax and other people with complex tax affairs. Where people have both NPS and CESA records, their CESA record is selected because it provides a more complete picture of their taxable income

Some individuals with a PAYE record are also in the SA system. These individuals are excluded from the PAYE population prior to sampling, as their SA record provides a more complete picture of their taxable income. Separate samples were drawn from each of these systems and different sampling strategies were used for each. The samples were structured as follows:

the PAYE population from NPS was stratified by gender and by the sum of pay plus occupational pension income for the previous tax year. Where the previous year’s income was not available, cases were stratified by sex and by whether they were a higher rate or additional rate taxpayer for the current tax year based on information available at the time the sample was drawn. The sampling fractions varied from 1 in 9 for individuals with high incomes and rare allowances to about 1 in 140 for people with low combined pay and pensions. In all, about 400,000 individuals were selected from NPS for inclusion in the SPI for tax year 2020 to 2021
for the Self Assessment population from CESA, the main source of income (self-employment or employment/ occupational pension) and ranges of income and tax were used to stratify the sample, with the sampling fraction varying from 1 in 1 for cases with very high income or tax up to around 1 in 70 for employees and occupational pensioners with smaller income or tax. In all, about 450,000 individuals were selected from SA for inclusion in the SPI for tax year 2020 to 2021.

The sampling strategies described above intentionally yield large sub-samples of SPI cases with very high incomes and subsequently account for a large proportion of total Income Tax liabilities. This increases the precision of estimates of liabilities and taxable incomes drawn from the SPI.

Once data was collected for the two constituent parts of the sample, the data sets were joined together. After allowing for non-response and for records that failed data validation tests, there were around 850,000 valid cases in the final SPI dataset for tax year 2020 to 2021.

Grossing factors

Each SPI sample case has a grossing factor associated with it and these are used to create estimates of overall numbers of Income Tax payers, total income and total Income Tax liabilities for the entire UK population. Grossing factors vary depending on different factors, for example where the sample case data was sourced from (PAYE or Self Assessment), income type, and where in the income distribution the sample individual sits.

Coverage of the SPI and imputation of missing data

Not all of the individuals in the SPI sample are taxpayers. About 26 per cent of sample cases (35 per cent grossed) have no Income Tax liability because deductions and reliefs and personal allowances exceed their total income assessable for Income Tax. For individuals with a tax liability, the SPI provides the most comprehensive and accurate official source of data on personal incomes assessable for Income Tax. However, as HMRC does not hold information for all people with personal incomes below the Income Tax threshold, the SPI is not a representative data source for this part of the population and no attempt has been made to estimate the number of cases below the Income Tax threshold or the amount of their incomes. The National Statistics in this publication only cover individuals liable to UK Income Tax (taxpayers) and their incomes.

An individual with income below the personal allowance can still be a taxpayer in some circumstances. This can arise where individuals who have income liable to UK tax do not qualify for a personal allowance under the residence and/ or domicile rules. Some people who do qualify for the personal allowance choose to give up their personal allowance as part of the qualifying conditions for having their income taxed under the “remittance basis”. These taxpayers may only have a small amount of income liable to UK tax (i.e. below where the personal allowance is set), but this income is still liable to tax and is charged at the starting, and/ or basic rates.

Most sources of income are liable for Income Tax and adding all these sources together will give an individual’s total income assessable for tax for the tax year. There are some sources of income that are not liable for tax. As they do not contribute towards an individual’s taxable income; they are excluded from the SPI. These sources include some social security benefits and income from some tax efficient savings vehicles (e.g. Individual Savings Accounts and some National Savings & Investment products).

Capital Gains arising from the disposal of assets are subject to Capital Gains Tax (CGT) and are not treated as income for Income Tax purposes, so gains from the disposal of assets are not included in the SPI.

Imputation of savings and dividend income

The coverage of savings and dividend income for the sample drawn from NPS is incomplete. This is because most Income Tax payers with savings income do not report it to HMRC as it is covered by a combination of the Personal Savings Allowance, the Personal Allowance, and the starting rate for savings and therefore is not liable to Income Tax. Those that do need to pay Income Tax on their savings income do so by contacting HMRC to report their savings income, where this information has not already been provided through Self Assessment. HMRC also collects data on savings income directly from banks and building societies, which from the 2019 to 2020 SPI onwards feeds into the NPS system and has replaced the previous method which estimated savings interest by imputation.

In order to create a full picture of total income for this survey, it is necessary to impute values of dividends to some sample cases. For the dividends imputation, the amount for each SPI case:

is known for cases in Self Assessment from the amount declared on the Self Assessment Return
can be inferred or estimated reasonably for NPS cases where there is an adjustment to the tax code for taxpayers
is unknown for NPS cases where there is no coding adjustment

Where no information at case level is available from HMRC administrative systems, estimated values are imputed to cases so that the population as a whole has amounts consistent with evidence from other sources.

Starting from control totals at UK level for the number of cases and total amount of dividends, the Self Assessment and NPS cases with coding adjustments are deducted to leave targets for the remainder of the taxpayer population. These targets are at UK level – no attempt is made to control the targets to sub-UK geographical units. The cases to which amounts are attached by the imputation process and the amounts attached are determined by probabilistic methods with just the UK targets and distributions in mind. For dividend income, the number of non SA cases with dividend income and distribution of imputed amounts were inferred from Family Resources Survey data for tax year ending 2021.

Imputation of pension income

HMRC does not have complete information about pension contributions. Pension contributions can be made under three types of arrangement:

net pay schemes
relief at source schemes
salary sacrifice schemes

HMRC holds information on the value of employee pension contributions paid under “net pay arrangements” in Real Time Information (RTI) submissions by their employer. This data has been used to match SPI cases to “net pay” pension contributions. Pension schemes operating a net pay scheme are occupational pension schemes. However, as some employers operate relief at source or salary sacrifice schemes, contributions to those schemes are not included in the “net pay” figures and thus the ”net pay” figures do not include all “occupational” individual contributions.

HMRC receives information from relief at source (RAS) schemes on individual contributions via the APSS106 and RPSCOM100(Z). These contributions are made post-tax, relevant rate relief (equivalent to the rUK basic rate of income tax) is claimed on all individual contributions by scheme providers from HMRC. Individuals with higher marginal tax rates than the relevant rate can claim the additional relief from HMRC via self-assessment.

The APSS106 and RPSCOM100(Z) have been used to match PAYE cases in the SPI to “RAS” pension contributions – net of any relief claimed. For SA cases, this has been taken from the information submitted via Self Assessment returns, which is gross of basic rate tax. Additionally, the SPI includes contributions made to retirement annuity contracts and contributions made to employer’s schemes not deducted at source.

Employers, individuals and schemes providers are not required to report individual contributions made using salary sacrifice to HMRC. These contributions are deducted from an individual’s gross earnings and added to the contributions made by their employer. Individual contributions made using salary sacrifice arrangements are not included in this publication.

The estimated value for “RAS” and for “net pay” contributions has been combined with other pension reliefs and included in these statistics. For more info on these pensions data sources please refer to the latest methodology document for the Private pension statistics release

Imputation of Marriage Allowance

HMRC collects data regarding claimants (receivers and transferers) of Marriage Allowance through coding adjustments for those in NPS or via Self Assessment returns. The latest available administrative data is matched to the SPI sample data allowing for the calculation of tax liabilities adjusting for Marriage Allowance.

The SPI sample is not stratified around any subsets of populations including Marriage Allowance claimants, and therefore when grossed up and subset for just Marriage Allowance claimants it does not exactly match the population of claimants separately estimated and published using the collected administrative data. To calibrate to published Marriage allowance claimants, estimated values are imputed to cases so that the population as a whole has amounts consistent with the evidence from these other sources.

Starting from published estimates at UK level for the number of cases, the Self Assessment and NPS cases with coding adjustments are deducted to leave targets for the remainder of the claimant population. These targets are at UK level – no attempt is made to control the targets to sub-UK geographical units. For Marriage Allowance, the number of eligible claimant cases were inferred from Family Resources Survey data for tax year ending 2021. The cases to which claims are received or transferred are attached by the imputation process to align to the published estimates of take up.

2.4 Modelling Income Tax liabilities with the Personal Tax Model

Data on the number of Income Tax payers, total Income Tax liabilities, and the distribution of Income Tax liabilities presented in Tables 2.1 to 2.6 are estimated using HMRC’s Personal Tax Model (PTM).

The PTM is a micro simulation model of the UK Income Tax system. ‘Micro simulation’ refers to modelling with individual level data, in this case using the SPI dataset. For each SPI sample case, the PTM models Income Tax liabilities in a given tax year based on incomes assessable for Income Tax and the main features and parameters of the Income Tax system for that year.

A brief summary of how Income Tax liabilities are calculated is provided in Annex A: Income Tax calculations.

An overview of the PTM modelling process applied to each SPI sample case is given below.

Total income is summed across the various components of income assessable for Income Tax in the SPI dataset, with separate subtotals for earnings, savings and dividends.
Income after deductions is calculated as total income minus contributions to occupational and private pensions and charities. This approach implies 100% tax relief on such contributions, consistent with the overall exchequer effects. The PTM deducts pension contributions and contributions to charities from earnings income first, then savings income and finally dividend income.
The PTM calculates a Personal Allowance for each sample case and allocates Blind Person’s Allowance where applicable. The Personal Allowance is tapered away by accounting for any income after deductions over £100,000 at a rate of £1 for every £2 over the limit.
The Personal Allowance is allocated (after deductions) first to earnings, then savings and then dividend incomes in order to derive subtotals for taxable income. Allowance for specific incomes are then applied to these taxable income, the Dividends Allowances and the Personal Savings Allowance (where the level is determined by the individual’s highest Income Tax band).
Taxable incomes are allocated to the starting rate (for savings), basic, higher and additional rate Income Tax bands, and the starter and intermediate rates for Scotland, beginning with taxable earnings, then savings, and then dividends. The corresponding gross Income Tax liabilities for each income type are calculated by applying the corresponding rate of Income Tax.
Total Income Tax liabilities are adjusted to take account of other allowances, including those given as Income Tax reductions (sometimes called ‘tax credits’). The PTM takes the following such allowances into account: Married Couples Allowance, Maintenance Payments Relief, Community Investment Tax relief, Venture Capital Trust Relief, Enterprise Investment Scheme Relief, Seed Enterprise Investment Scheme Relief, Social Investment relief, Foreign Tax Credit Relief on Income and Landlord Loan Interest Relief.

As with similar models of personal taxes and benefits, it is neither possible nor practical to incorporate all the features of the UK Income Tax system into the PTM modelling process. The list of deductions and allowances built into the PTM at steps 2 to 6 is not exhaustive but does cover the most significant Income Tax reliefs by value.

Finally, the PTM Income Tax calculation process has been revised to better reflect the treatment of a small number of cases subject to a pension charge or who, under the residence and/or domicile rules, do not qualify for or choose to give up their Personal Allowance. A pension tax charge occurs when an Income Tax payer makes contributions to their pension above the annual or lifetime threshold for tax relief. The charge is the equivalent of taxing these contributions at the Income Tax payers’ marginal tax rate. While this charge uses the Income Tax rates, and it is part of an Income Tax payer’s Income Tax liability, it is strictly the recovery of an excess of tax relief given. The methodology used in the PTM keeps this charge separate from an Income Tax payer’s liability, which maintains the link between their taxable income and the Income Tax liability.

Calculating Income Tax liabilities on dividends

Prior to 2016 to 2017, total income calculations include the amount of dividend income plus dividend tax credit (at one ninth of the dividend), giving the ‘grossed dividend’. Income Tax is charged on the grossed dividend and can be satisfied in part by the notional tax credit (10% of the grossed dividend). Tables 2.1 to 2.6 reflect the grossed dividend in total income and provides the Income Tax liability before the tax credit is offset. In 2016 to 2017 the dividend tax credit was abolished; effective dividend tax rates were increased by 7.5%, increasing further to 8.75% in 2022 to 2023 onwards, and from 2016 to 2017 onwards a £5,000 Dividend Allowance was introduced. This affects the calculation of total income for the SPI dataset in 2016 to 2017 and all years after and creates a discontinuity in the Income Tax liabilities between the tax years up to 2015 to 2016 and then 2016 to 2017 onwards. This means the shares of total income and the Income Tax liabilities presented in Table 2.4 are not directly comparable between these time points.

2.5 Income Tax payers and marginal tax rates

SPI sample cases with positive modelled Income Tax liabilities are classified as Income Tax payers, and the PTM further classifies these by their highest marginal rate of Income Tax. The marginal Income Tax rate is used to subset individuals in Tables 2.1, 2.2, 2.5 and 2.6. In practice, the marginal rate of Income Tax an individual will pay on an additional pound of income will depend on what type of income it is, the composition of their other taxable incomes and their total income. For example, in 2020 to 2021 an individual with earnings within the basic rate Income Tax band would face a marginal rate of 20% on an additional pound of earnings, and the same rate would apply to an extra pound of savings income if it is above the starting rate limit for savings, whereas a 7.5% (8.75% from 2022 to 2023 onwards) rate would apply for dividend income.

The PTM adopts a simplified and strictly ordered method in allocating marginal rates to SPI sample cases, which is as follows:

From 2010 to 2011, sample cases with total taxable income above the additional rate threshold are typically classified as additional rate Income Tax payers. For tax years up to and including 2022 to 2023 the additional rate threshold was £150,000, however for 2023 to 2024 this was set to £125,140 to align this to the end of the Personal Allowance taper.
Cases with total taxable income above the basic rate limit but below the additional rate threshold are typically classified as higher rate Income Tax payers.
From 2017 to 2018, individuals who are Scottish Income Tax payers and have total taxable income above the Scottish basic rate limit but below the UK government’s basic rate limit have their marginal rate classified based on their income within this notional band. For these Income Tax payers, NSND income within this band is taxed at the higher rate, whereas savings and dividend income is taxed at the basic rate. A Scottish Income Tax payer with any taxable NSND income within this band (but no total taxable income above the UK basic rate limit) is classified as a higher rate Income Tax payer, as this is the top rate they are paying. A Scottish Income Tax payer with only savings and/or dividend income within this band (and no total taxable income above the UK basic rate limit) is classified as a basic rate Income Tax payer.

From 2018 to 2019, individuals who are Scottish Income Tax payers and have total taxable NSND income in the starter, basic or intermediate rate bands are classified as a basic rate Income Tax payer within this publication, or as Income Tax payers below the higher rate. Individuals who are Scottish Income Tax payers and have total taxable NSND income in the higher or additional rates (which have different rates to the rest of the UK) are grouped with the equivalent higher and additional rate Income Tax payers in all other regions.
Any remaining cases with positive total taxable income lying at or below the UK government’s basic rate limit (or Scottish basic rate limit for Scottish Income Tax payers) are classified as either savers rate or basic rate Income Tax payers according to the composition of their total taxable income. Individuals with any taxable earnings (NSND income) are classified as basic rate Income Tax payers, while those with solely taxable dividends or taxable savings income exceeding the starting rate limit are classified as ‘savers’ rate Income Tax payers. From the 2015 to 2016 tax year the savings rate below the starting rate limit for savings income was changed to zero and therefore individuals with savings income below the starting rate limit for savings are no longer Income Tax payers.

The marginal rate classifications have changed over time to reflect the changing structure of the Income Tax system. The allocation described above applies from the 2008 to 2009 tax year, when the starting rate of Income Tax was removed for earnings income.

For the 2007 to 2008 tax year and earlier, all SPI cases with taxable earnings/savings income below the starting rate limit were classified as starting rate Income Tax payers. Those with taxable earnings/savings between the starting and basic rate limits were classified either at savers rate (those without earnings charged at the then basic rate of 22%) or basic rate otherwise. Individuals with taxable dividends only below the basic rate limit were classified at savers rate.

Tables 2.1, 2.2, 2.5 and 2.6 show different types of Income Tax payer below the higher rate (savers, lower/starting and basic rates), however these can be grouped to form one basic rate group for a time-series comparison across years.

2.6 Projected estimates for tax years beyond the SPI

The SPI dataset is usually available around 21 months after the end of the tax year. The raw data is drawn from HMRC’s systems approximately a year after the tax year ends and it takes about 9 months to process, analyse and produce the commentary for publication. The latest available SPI data is for tax year 2020 to 2021 and was published in March 2023.

Due to the time delay between the end of a tax year and the production of an SPI dataset, this publication includes projection estimates up to the current tax year, 2023 to 2024, to provide a more up-to-date assessment of the distributions for Income Tax payers and Income Tax liabilities. While the projection methods aim to capture the most important influences on Income Tax payer numbers and Income Tax liabilities, the projection of the base SPI data to later years means that data for these years is subject to greater uncertainties and larger error margins than the outturn data provided for 2020 to 2021. Projections beyond the current tax year are not provided because Income Tax rates, allowances and thresholds impacting on the statistics are not known until announced by the Government.

The projection methods described below have been developed to fulfil the aim of this publication, that is to provide informative breakdowns of Income Tax payers and theoretical Income Tax liabilities. It is not possible to provide a forecast of total Income Tax receipts from this dataset and projection method; this would require the use of other data sources and alternative projection methods to create statistics suitable for that purpose. The projected estimates provided in this publication should not be seen or used as alternative or competitor forecasts of Income Tax produced by other organisations, such as the OBR’s forecast.

Estimated Income Tax payer numbers in the projection years are calculated by rescaling the base year grossing factors for individual SPI sample cases, according to a high-level partition of the SPI sample by each case’s main income source, using the following steps:

for cases where the main income source is from employment or self-employment, grossing factors are rescaled according to published ONS population projections by single year of age (implying initially constant employment and self-employment rates by age band). Grossing factors are then further rescaled uniformly across all age bands so that grossed totals for sample cases with this main income source change in percentage terms from 2019 to 2020 to the projection years in line with the OBR’s most recently published forecast for total employment and self-employment (Labour Force Survey definitions)
after the grossing factors are rescaled according to employed and self-employed target populations, the remaining SPI cases (the residual main source ‘other’ category) are then rescaled to meet the overall population target. The percentage change required is calculated using the difference between the published ONS population total and the projected SPI employed and self-employed totals
this process is applied separately for males and females as ONS population forecasts by age are also split by sex

Nominal income amounts recorded for each SPI sample case are projected at the UK level using OBR’s most recently published forecasts for the macroeconomic data series relevant to the income sources recorded in the SPI. For each income source, this uprating is generally uniform across all sample cases. However, in the case of pay, the projection factors vary across the pay distribution according to the recent trends revealed in RTI data, therefore the following steps are applied:

SPI cases are assigned to one of 6 quantile groups, partitioned according to percentiles P40, P70, P90, P95 and P99 of the RTI pay distribution
for each quantile group, pay growth is adjusted according to the percentage point difference between historic earnings growth for the corresponding percentile point in the RTI data and the growth in the mean. For example, earnings growth for those in the bottom group (below P40) is adjusted according to average growth at RTI P40 group, relative to the RTI (whole population) mean
the average historical differential across the full RTI period is then used for projecting future years beyond the latest available full year of RTI. The average differential for each quantile group is then applied to the OBR’s forecast on average earnings growth in order to project for future years.
for projecting to the 2021 to 2022 tax year, the percentage point differences referred to above are based on the 2021 to 2022 RTI data already available
for projecting to 2022 to 2023 and 2023 to 2024 tax years, the percentage point differences are based on a backdated average of all available years in the RTI up to the latest full year of data

No distinction is made for sex or any factor other than income. Since the RTI and SPI samples are different, the resulting mean earnings growth across all SPI cases would differ from the OBR forecast. Therefore, a further rescaling is applied to all sample cases to ensure that mean earnings growth does align with the OBR forecast.

Tables 4a and 4b summarise the assumptions and series used in the projection processes for re-scaling of grossing factors and nominal incomes.

Table 4a: Summary of population data sources used in projection estimates.

SPI population totals	Series used in projections
Main source employed	Population by single year age and total employees (Labour Force Survey)
Main source self-employed	Population by single year age and total self-employment (Labour Force Survey)
Main source other	Population by single year age

Table 4b: Summary of economic assumptions used in projection estimates.

Main income components	Total assumed income for 2020 to 2021	Economic data series used in projections
Pay	£820 billion	Implied whole economy average earnings (wages and salaries divided by Labour Force Survey employees), with allowance for differential growth across distribution (see main text)
Profits	£103 billion	Total self-employed (mixed) income
Personal pension income	£105 billion	Weighted average Retail Prices Index and whole economy average earnings
Dividends	£61 billion	Non-oil, non-financial profits
State pension income	£58 billion	Announced rates
Bank and building society interest	£4 billion	Household bank & building society deposits multiplied by weighted average of building society deposit and 5-year rates
Property income	£25 billion	The growth in the private rented dwelling stock (assumed to be 3% per year) and the growth in private rents
Taxable employer benefits	£8 billion	Implied whole economy average earnings (wages and salaries divided by Labour Force Survey employees)

The economic series used in the projection processes are consistent with the OBR’s forecast for the UK economy. Outturns and OBR forecasts for key series including employment, earnings, prices and interest rates are found in Table TA.3 ‘Determinants of the fiscal forecast’. As the projection estimates are only provided to the current tax year, the economic data series in Table 4b mainly consist of economic outturns published by other organisations, usually ONS. The OBR forecasts for these series are typically relevant only for the projections for 2022 to 2023, where economic outturns for most series are not yet available. Population projections used in this release are published by the ONS.

Income Tax structures, rates, allowances and thresholds have been announced up to and including the current tax year 2023 to 2024. No projection methods or assumptions are therefore required for this aspect of the modelling process for projections years. For all projection years, Income Tax liabilities are modelled as described with respect to the rescaled dataset for each projection year and announced Income Tax rates, allowances and thresholds.

Forestalling of income

Forestalling is the act of manipulating income so that it is received in the most tax efficient year.

This is most commonly done by bringing some income forward to a tax year before a higher rate of taxation comes into effect. If income is brought forward a year, this sum is then usually unwound over a number of subsequent years. Therefore, when modelling projection years adjustments are made for any expected forestalling.

Additional rate adjustments

The adjustments for the impacts of introducing the additional rate are now historical and no specific changes were made to the SPI Outturn data as a result of the introduction of the additional rate. An overview of the impact on previous SPI dataset is provided below.

The introduction of the additional rate of Income Tax in 2010 to 2011 generated a large behavioural response from high income individuals. The outturn income data for high earners in the 2009 to 2010 SPI indicated a large amount of forestalling (bringing income forward) prior to the introduction of the 50% rate. Subsequently in 2010 to 2011 and 2011 to 2012 the SPI data included an unwinding of this forestalling (some incomes were below normal level), then in 2012 to 2013 high earners were anticipating the pre-announced reduction of the additional rate to 45% the following year and delayed income where possible (reverse forestalling). This was within the SPI data for 2013 to 2014 which included some temporarily elevated incomes, and the effect was estimated to be around £5.25 billion deferred from 2012 to 2013.

In March 2012 HMRC published a comprehensive assessment of the impact of the 50% additional rate of Income Tax using a range of evidence. The degree of forestalling and unwinding was assumed to have increased with income, with higher earners undertaking more forestalling action, consistent with evidence from Self Assessment returns. This report includes an assessment of the yield arising from the introduction of the additional rate in the 2010 to 2011 tax year. It is not possible to infer the additional yield arising from the 50p rate using Table 2.6, as this does not include the behavioural responses resulting in reductions in income and yield.

The 2014 to 2015 SPI included estimates of income for higher earners and is expected to be the first year relatively unaffected by timing effects due to the changes in the additional rate of Income Tax in the recent series.

In tax year 2023 to 2024 the additional rate threshold was reduced from £150,000 to £125,140. It was expected this would create some minor forestalling where the pay and dividend income of higher rate taxpayers would be brought forward to the 2022 to 2023 tax year from the 2023 to 2024 tax year only.

Dividend Income Tax adjustments

In tax year 2016 to 2017 the dividend tax credit was abolished; effective dividend tax rates were increased by 7.5% and a £5,000 dividend allowance was introduced. This created some forestalling behaviour in 2015 to 2016 where dividend income was brought forward; this was evidenced by Self Assessment returns for that year, further details can be found in the OBR’s November 2017 Economic and Fiscal Outlook.

In the years following the introduction of the new dividend Income Tax measures there has been unwinding of the forestalled dividend income, meaning there is a reduction below the normal income level as a result of it being brought forward into 2015 to 2016. Therefore, each SPI dataset since then has accounted for this unwinding including the new 2019 to 2020 SPI dataset presented in this release.

In addition, projection estimates of dividend income include adjustments to allow for the behavioural ‘unwinding’ response. These adjustments include a reduction in dividend income in each projection year in this release, and follows the OBR’s March 2018 Economic and Fiscal Outlookwhich sets out the pace at which the forestalled income is assumed to unwind. The adjustments made to the projection estimates for 2021 to 2022 are applied to most SPI cases with dividend income. This accounts for the temporary reduction in dividend income in 2021 to 2022 to represent those who brought forward more than double the normal dividend income to the 2015 to 2016 tax year. The final year impacted by this unwinding is 2021 to 2022.

From 2022 to 2023 onwards the dividends rates have all been raised by 1.25 percentage points to ordinary rate 8.75%, upper rate 33.75% and additional rate 39.35%.

This is forecast to drive some forestalling behaviour in 2021 to 2022 where dividend income was estimated to be brought forward; initial thoughts on the amount can be found in the OBR’s October 2021 Economic and Fiscal Outlook

In the years following the increase in dividend Income Tax rates, there is forecast to be an unwinding of the forestalled dividend income, meaning there is a reduction below the normal income level as a result of it being brought forward into 2021 to 2022.

Projection estimates of dividend income include adjustments to allow for the behavioural ‘unwinding’ response. These adjustments include a reduction in dividend income in each projection year in this release and follows the unwind profile used for the previous dividend policy changes.

The adjustments made to the projection estimates for 2022 to 2023 (and will be applied to future projection years to 2027 to 2028) are applied to most SPI cases with dividend income. This accounts for a temporary reduction in dividend income in 2022 to 2023 and 2023 to 2024 to represent those who brought forward dividend income to the 2021 to 2022 tax year.

2.7 Modelling Scottish and Welsh devolved Income Tax

The PTM, SPI and projections since 2017 to 2018 have been adjusted to account for the devolution of Income Tax rates and thresholds for NSND or ‘earnings’ income.

From 2017 to 2018, Scottish Income Tax has been payable by Scottish Income Tax payers. An individual’s Income Tax status is determined using HMRC address data by the location of their main place of residence for the majority of the tax year, not at a point in time but over the course of the year, and is only finalised after each tax year has ended. However, the SPI holds the postcode for the address as at the end of the tax year. From 2016 to 2017 onwards Scottish individuals have therefore been identified on the basis of this postcode rather than the Income Tax status. The income of individuals identified as Scottish in the 2018 to 2019 SPI is projected forward without any adjustments for changes in address in later years, and then the appropriate tax system is applied for each year.

Rates and thresholds for Scottish Income Tax payers from 2017 to 2018 onwards have been set by the Scottish Parliament each year and applied for each respective tax year. Details of the Scottish tax system are outlined in Annex A. In brief, in the 2017 to 2018 tax year, the Scottish Government changed the effective higher rate threshold for NSND income to a lower threshold than that of the UK Government (however the UK higher rate threshold still applies to Scottish dividend and savings income). In 2018 to 2019, the Scottish Government introduced a more substantial change, with new Income Tax bands, rates and thresholds, diverging from the structure of the UK Government Income Tax system. The Scottish Government made no further changes to the underlying structure of their system for tax years up to and including 2023 to 2024, making only changes to threshold values. The 2 different Income Tax systems are modelled together in the PTM and applied to an individual’s NSND income based on their address.

See Scottish Income Tax for further details of the tax system in that region. The OBR set out some further details in their devolved taxes forecast for March 2023 (Chapter 2).

From April 2019, the Welsh Government have had the power to adjust the rates of Income Tax for NSND income, currently set at 10% for each Income Tax band. In the same year the UK Government reduced the Income Tax rates on NSND income for Welsh Income Tax payers, at the basic, higher and additional rates to 10%, 30% and 35% respectively. The rates set by the Welsh Government are then added to the reduced UK rates. The National Assembly for Wales has agreed the proposed Welsh rates of Income Tax for 2023 to 2024, meaning Welsh Income Tax payers pay the same rates of NSND Income Tax as those in England and Northern Ireland (20% for basic rate, 40% for higher rate and 45% for additional rate), with 10% of each being set by and paid directly to the Welsh Government.

Welsh Income Tax payers are identified in the SPI using the same methodology as Scottish Income Tax payers detailed above, and their income is also projected forward without any adjustments for changes in address in projection years. As the Welsh rates of Income Tax do not currently diverge from the UK Income Tax system, Welsh Income Tax payers do not receive different tax treatment in the PTM. See Welsh Income Tax for further detail on the tax system in this region.

2.8 Restricting finance cost relief for individual landlords

From April 2017, relief for finance costs on residential properties was partially restricted to the basic rate of Income Tax. Finance costs include mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan.

Landlords are no longer able to deduct all their finance costs from their property income to calculate their property profits. Instead they receive a basic rate (20%) reduction from their Income Tax liability for their finance costs.

This change was introduced gradually until 2020 to 2021 when all finance costs will be restricted to the basic rate of Income Tax. This is proportioned and applied to SPI outturn data and subsequent projection years as follows:

for the 2017 to 2018 SPI there was a 75% finance costs deduction and 25% was given as a basic rate Income Tax reduction
for the 2018 to 2019 SPI there was a 50% finance costs deduction and 50% was given as a basic rate Income Tax reduction
for the 2019 to 2020 SPI there was a 25% finance costs deduction and 75% given as a basic rate Income Tax reduction
for the 2020 to 2021 SPI onwards all financing costs incurred by a landlord will be given as a basic rate Income Tax reduction

Unused Landlord Loan Interest relief from previous tax years can be carried forward and is projected based on the levels in the SPI outturn.

Further information on the policy changes can be found here:

Changes to tax relief for residential landlords

Changes to tax relief for residential landlords: how it is worked out

2.9 Methodology for Table 2.7

Following the Winter 2022 User Consultation Table 2.7 will no longer be included in the current or future publications. Table 2.7 provided data on the percentage of gross weekly earnings paid in Income Tax after tax credit deductions across the earnings distribution. The historic data on the tax years 1990 to 1991 up to 2022 to 2023 and corresponding methodology are outlined in the Personal Incomes Statistics 2020 to 2021 release.

Question 3

3. Annex C: Quality Indicators

Accepted Answer

Annex C provides an annual update on quality and a detailed summary of quality indicators, in particular the accuracy and reliability of the statistics and projections. This section also contains further information on the relevance and appropriate use of these statistics. There is also a separate quality report covering the Income Tax Liabilities Statistics and projections. This report is published alongside the current publication (in June 2023). It assesses the statistics against standard dimensions of quality such as relevance, accuracy and reliability, timeliness and punctuality, accessibility and clarity, and coherence and comparability.

3.1 Sampling error

The purpose of the SPI is to create a dataset that is representative of the UK Income Tax paying population, that can be used to infer the size of that population and the estimated liabilities of all Income Tax payers. As the SPI is a sample and does not include the whole population of Income Tax payers, estimates drawn from the SPI are subject to sampling variation and will differ from the actual figures purely by chance.

To quantify the sampling error associated with the statistics presented in this publication, 95% confidence intervals were calculated. A confidence interval is a range of values within which there is reasonable certainty that the true value lies. A 95% confidence interval means that if the population were sampled repeatedly you would expect to get estimates within the range 95% of the time, and that if the entire population were sampled then there is a 95% probability of the true value lying in that range. The 95% confidence intervals are based on standard error calculations; standard error is a type of standard deviation (a measure of variability) and is a measure of the precision of the sample mean.

There are published 95% confidence intervals for all estimates of the number of UK Income Tax payers and total liabilities for the 2020 to 2021 SPI. The relevant confidence intervals for the statistics presented in this publication are repeated in Tables 5a and 5b.

For the UK, the width of the 95% confidence intervals (when rounded) for numbers of Income Tax payers and total Income Tax liabilities are £100,000 and £1 billion (0.3% and 0.5% of the central estimates respectively). As shown in Tables 5a and 5b, precision declines for smaller estimated totals (denoted by an increase in the confidence interval width). Broadly speaking, as sample size changes by a factor x, the confidence interval will change by a factor of 1 / square root of x, so a fourfold decrease in sample size will double the width of the confidence interval.

Table 5a: Confidence intervals for estimates of Income Tax payer numbers, 2020 to 2021 Survey of Personal Incomes

Region	95% CI – lower limit	95% CI – central estimate	95% CI – upper limit	CI width as proportion of estimate
United Kingdom	31,600,000	31,700,000	31,700,000	0.3%
North East	1,150,000	1,170,000	1,190,000	3.4%
North West	3,310,000	3,340,000	3,370,000	1.8%
Yorkshire and the Humber	2,430,000	2,460,000	2,480,000	2.0%
East Midlands	2,280,000	2,310,000	2,340,000	2.6%
West Midlands	2,590,000	2,610,000	2,640,000	1.9%
East of England	3,090,000	3,110,000	3,140,000	1.6%
London	4,150,000	4,180,000	4,220,000	1.7%
South East	4,630,000	4,670,000	4,700,000	1.5%
South West	2,760,000	2,790,000	2,820,000	2.2%
Wales	1,400,000	1,420,000	1,440,000	2.8%
Scotland	2,550,000	2,580,000	2,610,000	2.3%
Northern Ireland	767,000	783,000	798,000	4.0%

Table 5b: Confidence intervals for estimates of total Income Tax liabilities, 2020 to 2021 Survey of Personal Incomes.

Region	95% CI – lower limit	95% CI – central estimate	95% CI – upper limit	CI width as proportion of estimate
United Kingdom	£195 bn	£196 bn	£196 bn	0.5%
North East	£4.44 bn	£4.53 bn	£4.62 bn	4.0%
North West	£15.0 bn	£15.2 bn	£15.4 bn	2.6%
Yorkshire and the Humber	£10.2 bn	£10.3 bn	£10.4 bn	1.9%
East Midlands	£9.99 bn	£10.1 bn	£10.3 bn	3.1%
West Midlands	£11.4 bn	£11.6 bn	£11.7 bn	2.6%
East of England	£20.2 bn	£20.4 bn	£20.6 bn	2.0%
London	£51.2 bn	£51.6 bn	£51.9 bn	1.4%
South East	£35.7 bn	£36.0 bn	£36.3 bn	1.7%
South West	£13.3 bn	£13.4 bn	£13.6 bn	2.2%
Wales	£5.27 bn	£5.37 bn	£5.46 bn	3.5%
Scotland	£12.7 bn	£12.9 bn	£13.1 bn	3.1%
Northern Ireland	£3.00 bn	£3.07 bn	£3.15 bn	4.9%

3.2 Coverage error

The SPI is representative of UK Income Tax payers only and not the entire UK population, and as a result Tables 2.1 to 2.6 include data for UK Income Tax payers only.

In addition, for the sub-sample of individuals drawn from PAYE a number of data items are not recorded in the administrative tax records. These data items are not collected because they are not needed for the operation of the Income Tax system. These missing data items (such as age, sex, and dividend income) are imputed for most SPI sample cases collected from PAYE, as described in the Annex B.

Missing data for sex, age, and dividend income continues to be imputed as in previous years. Details on the number of imputed data points for the 2020 to 2021 SPI can be found in Table 6, shown for the number of actual sample cases (ungrossed) and the number and amount when scaled by grossing factors (grossed). Users interested in estimates and projections of Income Tax liabilities subset by age, sex, or dividend income should note the degree of imputation, and that where the imputation makes up a large contribution to the estimates it is likely to lead to a loss of accuracy. Overall, imputation of dividend income contributes around £1.13 billion to grossed total income across all Income Tax payers of £1,180 billion in 2020 to 2021, equivalent to 0.1%.

Table 6: Number of imputed data points compared to SPI total and imputed amount for dividend income, 2020 to 2021 Survey of Personal Incomes.

	Sex	Age	Dividend income
Number imputed – ungrossed	286	149	13,300
Total cases – ungrossed	850,000	850,000	168,000
Number imputed – grossed	8,990	6,340	1,300,000
Total cases – grossed	49,000,000	49,000,000	4,720,000
Amount imputed – ungrossed	Not applicable	Not applicable	£11,200,000
Total amount – ungrossed	Not applicable	Not applicable	£11.9 billion
Amount – grossed	Not applicable	Not applicable	£1.13 billion
Total amount – grossed	Not applicable	Not applicable	£62.8 billion

3.3 Model errors

Income Tax liabilities in this publication are estimated at case level with the base SPI data using the PTM. The Income Tax modelling process of the PTM attempts to capture all significant features of the UK Income Tax system, but inevitably this involves certain simplifications and omissions.

The PTM outputs are regularly benchmarked at case level against the Income Tax liabilities that are recorded as due in HMRC’s Self Assessment system. Differences between the PTM outputs and SPI sub-population Self Assessment data arise for known and specific reasons and only in a small minority of sample cases. The impact of these simplifications is judged to be small for key aggregates at UK level, and for most UK Income Tax payer sub-populations.

3.4 Projection errors

There are simplifications and potential errors in both the projection process and the economic assumptions applied to the projection processes, which are likely to induce larger errors in the projection estimates presented in this publication compared with outturn statistics for 2020 to 2021 and earlier tax years.

As set out in the Commentary section ‘Impacts of the coronavirus pandemic (COVID-19)’, as the outturn data for the 2020 to 2021 was significantly impacted by COVID-19, it was deemed to be not suitable as the basis for projecting future tax years without accounting for the changes due to COVID-19. A decision was taken to continue projecting future tax years using the 2019 to 2020 SPI outturn (as used in the 2022 publication) while incorporating the new 2020 to 2021 SPI outturn into the time series. Therefore, the statistics presented in this publication for projection years 2021 to 2022, 2022 to 2023 and 2023 to 2024 are uncertain and are likely to change by a greater degree than would normally be expected during future revisions.

The projection methods are described in Annex B: Projected estimates for tax years beyond the SPI. It should be noted that the projection methods are suited to analysis of Income Tax liabilities at UK level. Projections of potential Income Tax payer numbers and incomes by income source are based on UK economic assumptions, which are applied in a broadly uniform manner to all individuals in the SPI sample. They take no account of local divergences in economic trends since 2019 to 2020 within the UK or across other dimensions such as industrial sector. Published breakdowns of projected Income Tax payer numbers by country and region (Table 2.2) are therefore indicative, and there is some evidence that they may be subject to potentially large error margins. HMRC is reviewing the evidence and will consider whether regional projections are suitable for continued publication.

In addition, the projections will not capture potentially important shifts in the distribution of incomes occurring after 2020 to 2021. The projected shares of total income and Income Tax across Income Tax payer income groupings (Table 2.4) are therefore indicative, but do allow for differential growth in earnings across the pay distribution consistent with past trends and possible responses of individuals with high income to changes in the Income Tax policy regime.

Summary statistics describing actual, rather than forecast, errors across key aggregates for projections released following Spring Budgets/Statements since 2001 are shown in Table 7. In previous publications, the projection horizon is defined with respect to the latest SPI outturn data available, for example one-year ahead projections are projections for tax year T+1 based on SPI data for year T. Budget projections for year T+1 are generally published at the beginning of year T+3, and so economic assumptions used in the projection process are typically outturns to around year T+2. However, this release still uses 2019 to 2020 SPI data for projections, which gives a ‘two-year ahead’ projection for 2021 to 2022. The table below still shows the evolution of the projections of tax year 2020 to 2021 and the finalised outturn.

Table 7. Summary statistics for absolute errors in projections of key publication outputs for projections released following Spring Budgets/Statements since 2001. N represents the number of x-year ahead projections used in calculating each statistic. ‘bn’ = billion.

One-year ahead projection (N=19)	Income Tax payers	Higher and additional rate Income Tax payers	Total income	Total Income Tax liabilities
Absolute error – Mean	440,000	99,600	£16.6 bn	£3.81 bn
Absolute error – Max	1,400,000	290,000	£54.0 bn	£9.00 bn
Absolute error – Standard deviation	428,000	91,900	£14.1 bn	£2.66 bn
Percentage error – Mean	1.5%	2.8%	2.1%	2.7%
Percentage error – Max	4.8%	9.8%	6.6%	8.2%
Percentage error – Standard deviation	1.5%	3.0%	1.9%	2.1%

2-year ahead projection (N=18)	Income Tax payers	Higher and additional rate Income Tax payers	Total income	Total Income Tax liabilities
Absolute error – Mean	679,000	123,000	£25.5 bn	£5.93 bn
Absolute error – Max	1,900,000	400,000	£74.0 bn	£14.0 bn
Absolute error – Standard deviation	457,000	118,000	£20.7 bn	£4.18 bn
Percentage error – Mean	2.2%	3.4%	3.1%	4.1%
Percentage error – Max	6.1%	11.3%	8.3%	9.4%
Percentage error – Standard deviation	1.5%	3.7%	2.6%	3.1%

3-year ahead projection (N=17)	Income Tax payers	Higher and additional rate Income Tax payers	Total income	Total Income Tax liabilities
Absolute error – Mean	960,000	206,000	£36.9 bn	£8.20 bn
Absolute error – Max	2,300,000	480,000	£84.0 bn	£19.0 bn
Absolute error – Standard deviation	563,000	127,000	£23.6 bn	£5.41 bn
Percentage error – Mean	3.2%	5.2%	4.2%	5.3%
Percentage error – Max	7.7%	12.7%	10.5%	12.7%
Percentage error – Standard deviation	1.8%	3.7%	3.0%	3.8%

Evolution of projections for 2020 to 2021	Income Tax payers	Higher and additional rate Income Tax payers	Total income	Total Income Tax liabilities
3-year ahead projection, using 2017 to 2018 SPI	32,300,000	4,680,000	£1,230 bn	£206 bn
2-year ahead projection, using 2018 to 2019 SPI	31,700,000	4,420,000	£1,170 bn	£193 bn
One-year ahead projection, using 2019 to 2020 SPI	32,200,000	4,600,000	£1,200 bn	£201 bn
Outturn, 2020 to 2021 SPI	31,700,000	4,410,000	£1,180 bn	£196 bn

Table 7 indicates that mean absolute projection errors are between 1.5-2.8% for key outputs of this publication with respect to one-year ahead projections, which increases to 3.2-5.3% error for 3-year ahead projections. One standard deviation (plus or minus) in past errors provides a guide to the possible limits of approximate 68% confidence intervals around central projections. However, past errors may not accurately reflect the degree of uncertainty in projections based on forecasts made at any specific point in time. Table 7 also shows the evolution of projected estimates made for 2020 to 2021, the latest year with outturn SPI data.

Uncertainty in the projections can be illustrated by changing key economic assumptions in a set way and calculating the impact. Table 8 provides data on the observed changes from the central projections used in this publication when increasing key economic variables used in the projection process, where comparable reductions in the same variables would have reversed impacts of broadly the same magnitude. Each variable is increased by 1% or one percentage point (whichever applies), and are as follows:

working-age employees, which includes SPI cases with some amount of pay (wage) aged between 16 and the state pension age
pay, which includes SPI cases with some amount of pay (wage)
profits for self-employed people, which includes SPI cases with some amount of profits
interest rates on savings income, which is increased by one percentage point and applies to all SPI cases with savings income

Table 8: Change into central projections from a 1% (or one percentage point) increase in key economic variables.

Central projections	2021 to 2022	2022 to 2023	2023 to 2024
Total Income Tax payers	33,300,000	34,600,000	35,900,000
of which savers/basic rate	28,300,000	28,800,000	29,400,000
of which higher/additional rate	5,030,000	5,830,000	6,460,000
Total Income Tax liabilities	£217 billion	£243 billion	£265 billion
of which savers/basic rate	£70.7 billion	£75.0 billion	£78.8 billion
of which higher/additional rate	£146 billion	£168 billion	£187 billion

Working age employees +1%	2021 to 2022	2022 to 2023	2023 to 2024
Total Income Tax payers	122,000	122,000	123,000
of which savers/basic rate	95,000	92,000	90,000
of which higher/additional rate	26,800	30,500	33,200
Total Income Tax liabilities	£791 million	£890 million	£962 million
of which savers/basic rate	£319 million	£330 million	£338 million
of which higher/additional rate	£472 million	£560 million	£624 million

Pay +1%	2021 to 2022	2022 to 2023	2023 to 2024
Total Income Tax payers	89,000	87,000	79,000
of which savers/basic rate	-3,000	-12,600	-25,900
of which higher/additional rate	91,700	99,800	105,200
Total Income Tax liabilities	£2,630 million	£2,880 million	£3,070 million
of which savers/basic rate	£1,030 million	£1,060 million	£1,080 million
of which higher/additional rate	£1,600 million	£1,820 million	£1,990 million

Self-employed profits +1%	2021 to 2022	2022 to 2023	2023 to 2024
Total Income Tax payers	17,200	15,900	16,800
of which savers/basic rate	9,800	7,700	9,200
of which higher/additional rate	7,380	8,180	7,580
Total Income Tax liabilities	£348 million	£358 million	£366 million
of which savers/basic rate	£97.1 million	£98.7 million	£99.4 million
of which higher/additional rate	£251 million	£260 million	£267 million

Interest rates +1ppt	2021 to 2022	2022 to 2023	2023 to 2024
Total Income Tax payers	72,000	39,000	32,000
of which savers/basic rate	-50,500	-29,600	-40,900
of which higher/additional rate	122,500	68,000	73,000
Total Income Tax liabilities	£5,830 million	£3,610 million	£4,150 million
of which savers/basic rate	£1,630 million	£656 million	£665 million
of which higher/additional rate	£4,190 million	£2,950 million	£3,490 million

Key results from Table 8

a 1% increase in working-age employment results in projected Income Tax payer numbers increasing by 0.37%, and Income Tax liabilities by 0.36%, in 2021 to 2022, with increases in Income Tax payer numbers and Income Tax liabilities for both savers/basic and higher/additional rate groups reflecting their centrally projected distributions
a 1% increase in pay has a larger impact on Income Tax liabilities in 2021 to 2022 as they increase by 1.21%; this is because marginal rates of Income Tax exceed average rates and an increase in pay would be taxed at the marginal rate, whereas an increase in employment is more likely to be taxed at the average rate. Income Tax payer numbers rise by 0.27% overall, but there is a percentage point increase for higher/additional rate Income Tax payers (0.28%) compared with a decrease in basic/savers rate Income Tax payers (-0.01%). This is because as pay increases, there is an increase in the number moving from the basic to higher rate of Income Tax, whilst there is a net decrease in basic rate Tax payers as more Income Tax payers move into paying the higher rate of Income Tax
a 1% increase in profits for the self-employed raises Income Tax liabilities by 0.16% in 2021 to 2022, reflecting the much lower level of profits in total Income Tax payer income relative to earnings. Income Tax payer numbers also rise by 0.05%
a one percentage point increase in interest rates on savings income increases Income Tax liabilities by 2.69% in 2021 to 2022, while Income Tax payer numbers rise by 0.22%. Note that the resulting percentage change in savings income result varies with the central projection for interest rates, but will generally be much larger than the one percentage point estimates provided for pay and profits

Question 4

4. Annex D: Glossary of terms

Accepted Answer

This section outlines acronyms, abbreviations and terms associated with personal incomes and Income Tax liabilities.

Allowances

The amount of income which an individual can receive before being liable for Income Tax. The Personal Allowance is an example of an allowance.

Average rate of tax

The ratio of Income Tax liability to total income, where income is measured before deductions, reliefs and allowances.

Basic rate limit

The highest income point for taxable income (after allowances) at which basic rate Income Tax is charged.

CESA (Computerised Environment for Self Assessment)

The computer system used to administer Self Assessment from which SA data for the SPI has been extracted since 1996 to 1997. See Self Assessment (SA).

Consumer Price Index (CPI)

The Consumer Price Index (CPI) is a measure of inflation that tracks the change in the average price of a basket of consumer goods and services over time and is used to assess the cost of living. CPI is the most widely used measure of inflation, and is the index used to calculate the statutory annual increase in Income Tax limits, such as the Personal Allowance, by a process known as ‘indexation’ (note that the Government can legislate to not follow indexation for a given allowance or limit in any given year).

COP (Computerisation of PAYE)

The computer system which used to administer PAYE until it was replaced by NPS and from which PAYE data for the SPI was extracted for tax years 1997 to 1998 to 2007 to 2008 inclusive.

Deductions and Reliefs

Amounts deducted from total income, along with personal allowances to arrive at the amount of taxable income subject to an Income Tax charge. This includes amounts for contributions to occupational and personal pensions, and a variety of other Deductions and Reliefs including charitable giving and loss relief etc.

Dividend Allowance

The amount of dividend income you can receive for the tax year without having to pay Income Tax on it, this is currently set to £1,000 in 2023 to 2024 irrespective of the total amount of dividend and non-dividend income received.

Dividend Income

Income derived from shares.

Earnings

Earnings is income such as pay from employments, profits from self-employment, private and occupational pensions, retirement annuities, state retirement pensions, foreign income, taxable benefits, income from property and taxable social security income.

Geographical Areas

Some tables present information for sub-UK areas described as Government Office Region, County, District and Parliamentary Constituency. Administrative and Political geographical areas are not held on taxpayers’ records. For the SPI, the areas are attached by matching the individual’s postcode to the Office for National Statistics Postcode Directory.

Higher rate threshold

The higher rate threshold is the point at which individuals become liable to pay Income Tax at the 40% higher rate and is the sum of the Personal Allowance and the basic rate limit. The Scottish higher rate threshold applies to NSND income for Scottish taxpayers and is charged at 42%. It may vary from the rest of the UK as the Scottish Government can set a different basic rate limit. In tax year 2023 to 2024 the Scottish higher rate threshold is £43,662, while for Scottish savings and dividend income and all income earned in the rest of the UK it is £50,270.

Income Tax liabilities

The amount of Income Tax due on taxable income after applying Income Tax rates to the Income Tax base. The Income Tax liability for each sample case in the SPI is calculated by reference to the amounts of income by type, deductions and reliefs and the Income Tax regime parameters that apply for the year. The calculated liability for a tax year will differ from the amount of Income Tax receipts collected in a financial year.

Income Tax payer

An individual calculated to have a positive Income Tax liability for the tax year, based on the income, allowances, reliefs and deductions for the year.

Income Tax receipts

The amount of Income Tax collected by HMRC. The SPI measures the amount of Income Tax liability for a tax year, but not the amount of receipts in the financial year.

Industry

Industry categories are based on UK Standard Industrial Classification of Economic Activities 2007 (SIC2007). Income from self-employment (sole trade and partner) is assigned an industry using the business text descriptions supplied on Self Assessment returns.

Intermediate rate limit (for Scottish Income Tax payers with NSND income)

The highest income point for taxable income (after allowances) at which intermediate rate Income Tax is charged for Scottish Income Tax payers with NSND income.

Marginal rate of Income Tax

An individual’s marginal Income Tax rate is the proportion of an extra pound sterling of income that would be paid in Income Tax, which depends on their total taxable income and its composition.

National Insurance and PAYE Service (NPS)

NPS is the computer system HMRC uses to administer PAYE. It replaced COP and is the source of PAYE data for SPI for tax year 2008 to 2009 onwards.

National Insurance Recording System 2 (NIRS2)

The computer system used to monitor payment of National Insurance (NI) contributions and to calculate and prove entitlement to contributory benefits. These include Job Seekers Allowance (JSA) and the National Insurance Pension. It provides contribution information to a number of government departments.

Non-Savings Non-Dividend (NSND) Income

See ‘Earnings’.

Office for Budget Responsibility (OBR)

The OBR was created in 2010 to provide independent and authoritative analysis of the UK’s public finances, and twice yearly publishes 5-year forecasts for the economy and public finances, including Income Tax receipts.

P14s

Form P14 is an End of Year summary for an employment that is submitted by the employer to HMRC, showing pay, tax and NI contributions for the year. The employer provides similar information to the employee on an end of year certificate, form P60.

Pay As You Earn (PAYE)

PAYE is the system used by HMRC to collect and account for Income Tax on earnings from employment and pensions. Income Tax and National Insurance Contributions are deducted by the employer and paid over to HMRC on behalf of the individual for each pay period.

Personal Allowance

The amount of income you can receive for the tax year without having to pay tax on it.

Personal Savings Allowance

The amount of savings income you can receive for the tax year without having to pay Income Tax on it. The upper bound for the tax-free allowance depends on the top marginal Income Tax rate on an individual’s total income; the threshold for higher rate Income Tax payers is half that for basic rate Income Tax payers and is set to £0 for additional rate Income Tax payers.

Retail Price Index (RPI)

The Retail Price Index (RPI) is an older measurement of inflation that tracks changes in the cost of a fixed basket of goods over time. It was once the principal official measure of inflation; it is no longer used by the Government but is still used by some to calculate cost of living. It has been largely replaced as an inflation measure by the Consumer Prices Index (CPI).

Real Time Information (RTI)

The RTI data used in this release come from HMRC’s PAYE RTI system. It covers the whole population rather than a sample of people or companies.

Savers rate

Individuals without taxable earnings but with taxable savings above the starting rate limit and/or taxable dividends, where rates of 20% and 8.75% are applied to savings and dividends respectively.

Savings Income

A type of income that includes interest on bank and building society accounts.

Self Assessment (SA)

SA is a system where an individual declares their income and can calculate their own Income Tax due after the end of the tax year. Taxpayers included in SA can be higher earners, self-employed and taxpayers with complex tax affairs.

Starter rate limit (for Scottish Income Tax payers with NSND income)

The highest income point for taxable income (after allowances) at which starter rate Income Tax is charged for Scottish Income Tax payers with NSND income.

Starting rate limit/starting rate for savings limit

The highest income point for taxable income (after allowances) at which starting rate Income Tax is charged. From tax year 2008 to 2009 the starting rate was abolished for non-savings income and applied only to non dividend savings income. From tax year 2015 to 2016 the starting rate of tax for savings income was reduced from 10% to 0%, and the amount of savings income that the new 0% rate applies to was increased from £2,880 to £5,000. For more information please see the following briefing: Starting tax rate for savings interest

Superannuation contributions

The regular amounts paid by an employee into an employer occupational pension fund; these are deducted from the employee’s salary. Superannuation contributions to an authorised fund or scheme are not liable to Income Tax and the employer would deduct the amount of superannuation contributions from the gross pay before assessing the Income Tax liability through PAYE.

Survey of Personal Incomes (SPI)

An annual survey of individuals who could be liable for Income Tax derived from HMRC administrative systems holding data on persons within PAYE, SA and Income Tax claims.

Taxable income

Income assessable to Income Tax after allowances.

Total Income

The sum of an individual’s components of income taken into account in calculating Income Tax. This includes earnings from employment, profits from self-employment, pension income, some social security benefits, savings income, income from shares (dividends), rental income, and income paid from trusts. It excludes:

gains from the disposal of assets that are classified as capital gains
interest, dividends or bonuses from tax exempt investments (for example, ISAs and National Savings & Investments Savings Certificates)
interest and terminal bonuses from Save As You Earn Schemes
Premium Bond, National Lottery and gambling prize winnings

Total income is calculated before relief for contributions to occupational and personal pensions, other deductions and reliefs or personal allowances.

In the tax system, income is streamed into three main categories: dividends; savings income (not dividends); and non-savings income as different rules apply.

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