Andy Burnham is on course to become the UK's next prime minister. He is the only declared candidate in the Labour leadership contest to replace Keir Starmer, and if unchallenged, he could enter Downing Street by 20 July.
Among the policy signals emerging from his previous statements and current positioning, one has attracted particular attention from higher earners. Burnham has historically supported a 50% top rate of income tax. The Telegraph reported in 2025 that he would "look again" at the higher rates, and while he has committed to Labour's 2024 manifesto pledge not to raise the basic rates of income tax, National Insurance, or VAT during this Parliament, the manifesto commitment does not preclude changes to the additional rate band above GBP125,140.
This article is not about whether a 50% rate is good or bad policy. It is about what it means for the structure of how you earn, and why the conversation is different depending on whether you are an employee or a business owner.
What a 50% rate actually looks like
The current additional rate is 45% on income above GBP125,140. A return to 50%, which was the rate between 2010 and 2013 under the Coalition government, would apply to the same band.
For someone earning GBP200,000 in salary: at 45%, approximately GBP67,500 in tax on the portion above GBP125,140; at 50%, approximately GBP75,000 on the same portion. That is a difference of GBP7,500 per year. For someone earning GBP500,000: at 45%, approximately GBP202,500 in tax above the threshold; at 50%, approximately GBP225,000. That is a difference of GBP22,500 per year.
These are not catastrophic figures in isolation. But they do not include the full effective tax burden. With the removal of the personal allowance above GBP100,000 (the taper that creates an effective 60% marginal rate between GBP100,000 and GBP125,140), National Insurance contributions, and the recently increased CGT rates, the combined marginal tax rate on high earners in the UK is already among the highest in the OECD.
A 50% additional rate would push the combined marginal rate on top-band income above 53% when National Insurance is included. Add in student loan repayments for those still carrying them, and the effective marginal rate for some high earners would approach 60%.
The manifesto wrinkle
Burnham has said he would keep to Labour's 2024 manifesto commitment not to raise income tax, National Insurance, or VAT during this Parliament. However, in a recent interview he stated there is "some room for movement on tax," which has been widely interpreted as leaving the door open to changes that do not technically break the letter of the promise.
The 50% rate could potentially be framed as a restoration rather than a new increase, since it existed previously. It could also be structured as a new band above a higher threshold, such as GBP150,000 or GBP200,000, which would allow the government to argue that the existing additional rate was unchanged.
Whether any of this happens is genuinely uncertain. Burnham's speech in Manchester on 29 June was notably silent on specific tax policy. Grant Thornton's analysis notes that without a contested leadership race forcing detailed policy commitments, Burnham is likely to "preserve as much flexibility on tax as possible" and reserve firm decisions for a Budget later in 2026.
The point is not to predict what will happen. The point is to think about the structural difference between being an employee and being a business owner when tax rates on earned income are moving upward.
PAYE vs business owner: the real comparison
This is where the conversation gets interesting. Most people compare tax rates in isolation. The more useful comparison is total tax paid on the same amount of economic value created, depending on the structure through which it is earned.
Take someone generating GBP200,000 of economic value. Here is how it breaks down under each structure.
The PAYE employee
An employee earning GBP200,000 in salary pays tax as follows (2026/27 rates). Personal allowance: GBP0 (tapered to zero above GBP100,000). Basic rate 20% on GBP12,571 to GBP50,270: GBP7,540. Higher rate 40% on GBP50,271 to GBP125,140: GBP29,948. Additional rate 45% on GBP125,141 to GBP200,000: GBP33,687. Total income tax: approximately GBP71,175. Employee NI at 2% above GBP12,570: approximately GBP3,749. Total deductions: approximately GBP74,924. Net take-home: approximately GBP125,076. Effective rate: 37.5%.
If the additional rate moves to 50%, the additional rate portion increases from GBP33,687 to GBP37,430, and total deductions rise to approximately GBP78,667. Net take-home drops to approximately GBP121,333.
Every pound is taxed before it reaches the employee's bank account. If they want to invest GBP100,000 of their earnings into anything, they need to earn approximately GBP160,000 pre-tax to have GBP100,000 left after tax. They are investing from leftovers.
The business owner - efficient extraction
A business owner whose company generates GBP200,000 in pre-tax profit has a different set of choices. Here is the most tax-efficient common structure for 2026/27.
Step 1: Take a salary up to the personal allowance. Salary GBP12,570, income tax GBP0 (within personal allowance), employee NI GBP0. Salary is a deductible expense, so it reduces pre-tax profit by GBP12,570, saving GBP12,570 x 25% = GBP3,143 in corporation tax.
Step 2: Pay corporation tax on remaining profit. Remaining profit GBP200,000 - GBP12,570 = GBP187,430. Corporation tax at 25%: GBP46,858. Post-tax profit available for dividends: GBP140,572.
Step 3: Extract dividends up to the basic rate band. Dividend allowance GBP500 (tax-free). Dividends in basic rate band GBP49,770 at 8.75% = GBP4,355. Total dividends extracted so far: GBP50,270.
Step 4: Extract dividends into the higher rate band. Dividends from GBP50,271 to GBP125,140: GBP74,870 at 33.75% = GBP25,269.
Total personal tax paid by the business owner: income tax GBP0, employee NI GBP0, dividend tax GBP4,355 + GBP25,269 = GBP29,624. Total tax across company and personal: corporation tax GBP46,858 plus personal tax GBP29,624 = GBP76,482. Net extracted: GBP123,518. Effective rate: 38.2%.
At first glance, this looks similar to the employee. If the business owner extracts everything, the total tax burden is comparable. But that is not where the advantage lies.
The real advantage: reinvesting pre-personal-tax
Here is the scenario that shows the structural difference. Suppose the business owner only needs GBP50,000 for personal living costs and wants to reinvest the remaining GBP150,000.
The PAYE employee cannot reinvest GBP150,000 from a GBP200,000 salary. After tax, they only have GBP125,076. To reinvest GBP150,000, they would need to earn approximately GBP240,000 pre-tax. Every pound they invest has been taxed at their full marginal rate before it reaches their investment account.
The business owner can extract GBP50,000 efficiently (salary GBP12,570 plus dividends GBP37,430, with approximately GBP3,300 in personal tax) and leave the remaining GBP100,000 or more inside the company. That retained profit has been taxed only at 25% corporation tax. It can be reinvested in equipment, marketing, acquisitions, or additional staff, all from pre-personal-tax funds.
The business owner reinvests at a 25% tax rate. The employee invests at a 37.5% tax rate (or higher). On GBP100,000 of reinvestment, that is a GBP12,500 difference every year, compounding.
The exit advantage
There is one more structural difference that compounds over time. An employee's career has no saleable asset at the end. When they stop working, the income stops. A business owner has a saleable asset.
When a business owner sells their company, the gain is taxed at capital gains tax rates. Currently, CGT on gains above the basic rate band is 24%. Business Asset Disposal Relief (BADR) applies to the first GBP1 million of lifetime qualifying gains at 18% from April 2026.
An employee who saved GBP1 million from post-tax salary over a career has already paid 40% to 45% on every pound before it was invested. A business owner who sells a company for GBP1 million pays 18% (BADR) or 24% (main rate) on the gain. The difference between paying 45% upfront and 18% to 24% on exit, across a career of compounding, is substantial.
The succession angle
The tax conversation intersects with the acquisition opportunity in a way that is specific to this moment.
If Burnham's government increases the top rate of income tax, the gap between the tax treatment of earned income and the tax treatment of capital gains widens. Earned income above GBP125,140 could be taxed at 50% (plus NI). Capital gains on the sale of a business are currently taxed at 24%. That is a 26 percentage point difference.
For a business owner approaching retirement, this gap makes selling the business increasingly attractive relative to continuing to draw a salary from it. If you are 62, running a profitable company, and facing the prospect of keeping 50p of every pound you pay yourself, the maths of selling to a buyer who will pay you a lump sum taxed at 24% becomes significantly more compelling.
This means that a higher income tax rate could accelerate the succession wave that is already underway. Owners who were planning to wind down gradually over five years might decide that a clean sale now makes more financial sense. More businesses come to market, more owners are receptive to approaches, and buyers who have built the infrastructure to find and contact them have the advantage.
What this means for you
If you are a high-earning employee, the practical takeaway is not that you should panic about a potential tax change that may or may not happen. It is that the structure of how you earn matters at least as much as how much you earn.
Employment is the most tax-inefficient way to generate high income in the UK. You pay the highest rates, have the fewest options for managing your tax position, cannot reinvest pre-personal-tax, and hold no saleable asset at the end of it. Business ownership is structurally different. You control extraction, timing, reinvestment, and eventual sale.
None of this is tax advice. The specific rules will depend on what Burnham's government actually proposes, and you should talk to an accountant about your individual situation. But the structural point holds regardless of the exact rate that lands. The gap between owning and earning is widening, and the direction of travel is clear.
The UK has 808,000 businesses with sole directors aged 60 or above, many profitable, most without a succession plan. If you are earning well but keeping less of it each year, the question worth asking is whether buying one of those businesses is a better long-term structure than continuing to earn for someone else.