Fascinating Facts #1 Redux: Income tax and NICS 2014/15
Following on from last year’s ground-breaking publication by HMRC about some of the taxes paid and benefits claimed by people from the EU and EEA/EFTA countries in the UK in 2013/14, they have produced a revamped and updated version covering the tax year 2014/15. This blog essentially reproduces the one I did last year but with the new data for 2014/15.
Firstly, who’s in these figures? HMRC say that the data cover “all individuals who have a live ‘employment’ record in the PAYE system for the tax year or have to submit a Self-Assessment return for the tax year” The total is not the number of people from the EU who are living in the UK because on the one hand it doesn’t include people who weren’t working in the year but on the other hand it does include people who worked while only here for a short time as long as they were properly reported to HMRC by their employers.
From these records HMRC have estimated the number of taxpayers from each country and how much income tax they pay in total. Broadly, with a personal allowance of £10,000 in the year, people whose income was less than this will not be included in the number of taxpayers. They also estimated the number of people paying National Insurance (NICS) on the basis of those making Class 1 employee and Class 4 self-employed contributions. Broadly, with a Primary Threshold of £7,956, people whose income was less than this will not be included in the numbers paying National Insurance. On the other hand the amount of National Insurance paid includes the matching contributions made by employers. The individuals who do pay NICS I’ll call NICSpayers. As HMRC correctly point out, people pay other taxes too, but income tax and NICS together are the vast majority of direct taxes paid by individuals.
They have also split out people whose ‘effective date of arrival’ in the UK was between 5 April 2011 and 6 April 2015 who they call recent arrivals. I’ll refer to those who arrived before then as earlier arrivals.
While the figures for taxpayers and NICSpayers are broken down by country of nationality at time of allocation of National Insurance number — which broadly is a proxy for country of origin — they do not include totals for the UK-born for comparison.
So after the preamble, how much income tax were taxpayers from the EU paying in 2014/15? Here’s the picture for total amount paid. The top 10 are largely Western European with the exception of Poland and Romania (which has moved up from 11th place the previous year). French people are the largest contributors by some margin. Looking at recent arrivals the French contribute even more, accounting for nearly a quarter of income tax paid by recent arrivals.

The total amount paid is of course determined by the number of individuals as well as how much they earn. Looking at the average amount paid by each taxpayer the picture is unsurprisingly a bit different. Northern European countries are well out in front, and Poland slumps from third to third last. Notably, recent arrivals from Southern Europe pay very much less tax on average than earlier arrivals.

The average payment by earlier arrivals from every Western European country (except Portugal) is more than double the average payment by earlier arrivals from every Eastern European country, and similarly when comparing recent Western European arrivals to recent Eastern European arrivals. Overall, the average Western European payment at £10,788 is nearly five times the average Eastern European payment of £2,288. Compared to the average income tax payment made by taxpayer population as a whole, Western Europeans pay about twice as much, and Eastern Europeans about half as much.
Turning to National Insurance contributions, these data are slightly harder to interpret as they include employer contributions as well as the amounts paid directly by individuals and although for income tax the more you earn the higher the rate you pay, it is the opposite for National Insurance as once you start paying higher rate income tax of 40% your NICS rate goes down from 12% to 2% if an employee, and 9% to 2% if self-employed. So lower earners pay proportionately more in National Insurance than high earners. The result when looking at the total amount paid is that Poland shoots to the top of the list and considerably outstrips anyone else.

However, when looking at the contributions paid per head, as with income tax the picture changes to shuffle the Eastern European countries down to the bottom again in a clear tale of two halves. But the absolute difference between highest and lowest contributors in less than for income tax because of the reduction in NICS rates for higher earners, and the average Western European payment is ‘only’ two and a half times the average Eastern European payment rather than five times for income tax. HMRC don’t publish figures from which a whole-UK comparison can easily be made.

It’s also interesting to see how many people overall are on HMRC’s books as paying tax or National Insurance. The picture below shows the total from each country and as above, the numbers of taxpayers is essentially the number of people with income of more than £10,000 and the additional ‘NICS only’ are people earning between £7,956 and £10,000 as Class 1 and Class 4 National Insurance is not paid for people with income below the former amount. It might seem surprising that there are quite a few people from some countries earning these low ‘NICS only’ amounts in the year but this group will include for example permanent part-time workers who don’t work many hours a week, temporary workers who don’t work throughout the year (like seasonal agricultural workers and short-term residents doing bars or hotel work) and people arriving part-way through the year who will have received only a few months pay in the year. Notably, NICS-only payers form a significant proportion of recent arrivals from Poland, Romania, Italy, Spain and Bulgaria.

There will of course be people working in the UK (primarily from the same groups) whose income is lower than even the NICS threshold who are not recorded as contributing at all. The HMRC statistics give the total number of people contributing NICS from these countries as 2.16 million. This is the group in the picture above. There are another 50 thousand or so who are bundled up to avoid statistical disclosure, making a total of 2.21 million contributing. But elsewhere in the statistical release they say that 2.87 million individuals “have an income tax record for 2014/15”. The implication is that a further 600,000 or so people from the EU did some work in the UK but didn’t earn enough to pay any National Insurance. For income tax, the figures HMRC do give show that a large number of those with an income tax record are not paying either basic rate or higher rate income tax, so presumably are not paying any. Unfortunately HMRC don’t break this down by country which might have been illuminating.

Finally for this blog, new in this release is more detail on income distribution, though this is for income tax-payers only. These show that looking at before-tax income of taxpayers, there is even more skew among the EEA population than the population as a whole, with the top 1% of EEA taxpayers taking a noticeably larger chunk of income.

So that’s a brief initial look at the data on income tax and NICS payments. Lots of interesting stuff, subject to caveats. As last year a similar look at the data on HMRC benefits will appear in due course….
