There have been statements recently from financial folk at both the major political parties about how to tax Britain’s highest earners – statements that suggest a general election is about to happen, although that’s another story.

Unsurprisingly the two parties disagree totally on how to approach the subject, but they do appear strangely to agree on one thing – the definition of who they think should be treated as highest paid. Those people running their own business or in the higher end of middle management might be surprised to find that the battle ground is being struck at an annual income of just £80,000.

The Tories want that to be the point at which you start paying 40% tax (currently under £50,000). Labour want to increase the tax rate to 45% for anyone earning above that figure. But is it all worth it either way?

50% of all income tax is paid by the top 5% of earners

Surprisingly it is. The old 80:20 principle applies in a pronounced way to income tax collected by the Treasury. HMRC has published information that says 50% of all income tax is paid by the top 5% of earners, with the top 1% contributing 30% of the income tax collected by the Treasury. These are quite staggering statistics. When I did a brief survey in the office, we were all well wide of this mark.

In comparison, the lowest 50% of income earners pay less than 10% of the total annual income tax collected, with many contributing nothing at all. It’s no wonder therefore that the political battle lines are drawn at higher income levels. Taxing the highest earners, which many folk think is simply an issue of social equality, is actually fundamental to determining how much income tax the government collects every year.

Reading the HMRC publication about the top 1% contributing 30% of the tax take made me wonder what income level you needed every year to join this apparent elite band of Britain’s highest earners. The answer? £160,000 a year – now there’s something for local entrepreneurs to strive for. Become one of the country’s highest earners and make a big difference to the nation’s tax take!