Understanding the UK Income Distribution: ONS & HMRC Taxpayer Percentiles

Understanding the distribution of income is one of the most important aspects of economic planning and personal financial benchmarking in the UK. When you look at your own annual salary, you might wonder where you sit relative to the rest of the working population. To answer this, economists use **percentiles** to divide the UK working population into 100 equal groups. Analyzing the UK income distribution curve reveals a highly skewed distribution. A small number of very high earners control a large portion of the wealth, while the vast majority of taxpayers are concentrated within a narrow band of lower-to-middle wages.

How ONS and HMRC Collect the Data

To analyze the UK income distribution, economists rely on two primary government datasets, which capture different aspects of the population:

• ONS Annual Survey of Hours and Earnings (ASHE): ASHE is the most comprehensive survey of employee earnings in the UK. The ONS collects data directly from employer payroll records (under PAYE). It excludes self-employed earners and investment incomes, but is highly accurate for full-time and part-time employee salary tracking.
• HMRC Survey of Personal Incomes (SPI): The SPI is based on actual tax records (PAYE and Self Assessment returns). It captures all individuals who pay tax in the UK. This includes sole traders, dividend-drawing company directors, and landlords, making it highly valuable for analyzing the extreme “right tail” of ultra-high earners.

The UK Income Curve: Highly Skewed

The UK income distribution curve is not a bell curve. Instead, it is **positively skewed**, meaning there is a massive concentration of taxpayers at the lower end of the income scale, and a long, thin tail extending to the right representing high earners. The national median salary is **£35,000**, meaning 50% of full-time workers earn less than this. However, the national **mean** (average) salary is roughly **£42,000**. The mean is pulled upward because high-earners and multi-millionaires skew the mathematical average, making the median a much more accurate benchmark for the “typical” worker.

Step-by-Step Mathematical Example: Median vs. Mean

To understand how high earners skew average statistics, let’s look at a simple model of a company with 10 employees. We will calculate the median and mean salaries:

• Employee 1: £18,000
• Employee 2: £22,000
• Employee 3: £25,000
• Employee 4: £28,000
• Employee 5: £32,000 (Median boundary)
• Employee 6: £35,000 (Median boundary)
• Employee 7: £40,000
• Employee 8: £45,000
• Employee 9: £55,000
• Employee 10 (Director): £250,000

Let’s calculate the two averages for this company:

• Calculate the Mean (Sum of all divided by 10): Total payroll = £550,000. Mean salary = £550,000 / 10 = **£55,000**.
• Calculate the Median (Middle point of the ordered list): The middle lies between Employee 5 and Employee 6. Median salary = (£32,000 + £35,000) / 2 = **£33,500**.

As this model proves, the **mean salary of £55,000** suggests a high-paying company, but in reality, 8 out of 10 employees (80% of the workforce) earn less than the mean. The **median salary of £33,500** provides a much more accurate representation of what the typical employee actually earns.

Frequently Asked Questions

What is the Gini Coefficient?

The Gini coefficient is a mathematical measure of inequality. A coefficient of 0 represents perfect equality (everyone has the same income), while 1 represents perfect inequality (one person has all the income). The UK’s Gini coefficient is roughly 0.35, representing moderate income inequality.

How many taxpayers are there in the UK?

There are approximately **35 million** income taxpayers in the UK. Millions of low-income individuals do not pay income tax because their earnings are below the £12,570 Personal Allowance.

What is the difference between ASHE and SPI data?

ASHE is based on employer payroll records and tracks employee salaries. SPI is based on HMRC tax records and includes self-employed profits, rental income, and dividends, providing a complete picture of total taxable income.

Why is the income curve skewed?

The curve is skewed because there is a legal minimum wage that sets a floor for earnings, but there is no maximum cap on income. A tiny percentage of highly paid executives and business owners pull the right tail of the curve out indefinitely.

What percentile is the median salary?

The median salary is by definition the **50th percentile** of the earning population. Exactly 50% of the population earns less than the median, and 50% earns more.

Does HMRC share tax data?

Yes. HMRC publishes anonymized, aggregated statistical datasets based on the Survey of Personal Incomes (SPI) annually for research, policy-making, and public interest analysis.

What is the top 10% income threshold?

To enter the top 10% of UK taxpayers (the 90th percentile), an individual needs a gross taxable income of approximately £85,000 per year.

What is the top 1% income threshold?

To enter the top 1% of UK taxpayers (the 99th percentile), an individual needs a gross taxable income of approximately £250,000 per year.

Do percentiles include benefits?

No. Standard salary and tax percentile databases focus exclusively on taxable gross income. They do not include non-taxable state benefits, housing support, or tax-free child benefit payments.

How does Scotland’s distribution compare?

Scotland’s income distribution has a similar shape to England’s but has a slightly lower median salary and a smaller concentration of ultra-high earners in the top 1% bracket compared to the South East of England.

Tax Expert Pro-Tips: E-E-A-T Data Validation

David Vance, CTA FCA, recommends: “When writing business reports or comparing salaries, always specify whether you are citing ONS ASHE (employees only) or HMRC SPI (all taxpayers) data. Combining them incorrectly is a common economic error. SPI data is more representative of total wealth distribution as it includes investment dividends and self-employed profits.”

Legislative References

• Taxes Management Act 1970 – Framework for statutory reporting of all taxable income streams.
• Statistics and Registration Service Act 2007 – Establishes the ONS and governs official statistics production.
• HMRC SPI Table 3.1 – Primary dataset for UK taxpayer distributions.