In Focus: Tax  

Gov't tax take drops nearly £50bn

Gov't tax take drops nearly £50bn
 Source: Dreamstime via Fotoware

The UK's tax take for the past 12 months is down by £49bn - an 8 per cent overall drop in revenue heading to HM Revenue & Customs.

The biggest contributor to the drop in revenue over the past 12 months was corporation tax receipts, as well as a poor quarter of VAT receipts during April, May and June 2020 - when the UK was in total lockdown.

Heather Self, partner at Blick Rothenberg, said: “ Corporation tax receipts have seen a significant fall, down by almost 18 per cent, compared to 2019/20 with total receipts coming in at just over £50bn, compared to £62bn last year.”

She added: “We have now seen a full year of the impact of the pandemic and the fall in corporation tax receipts is dramatic, at almost £12bn.

"Business profits have been hit hard by the disruption caused by lockdowns, and sadly there is likely to be more pain to come – full trading is still not available to many companies."

She said this drop in corporation tax revenue called into question chancellor Rishi Sunak's decision in the March 3 Budget to announce a hike in the corporation tax rate to 25 per cent in 2023, as businesses seek to get back onto an even keel.

While the UK government is attempting to fill the economic black hole caused by Covid-19 and the packages of financial support given to businesses and individuals since April 2020, the drop in total tax take is a blow, but not entirely unexpected, given the circumstances.

Indeed, income tax receipts were up, at 1 per cent year-on-year, to the tune of a £2.5bn rise, while stronger-than-anticipated PAYE receipts might suggest that the furlough scheme has been a contributory factor in keeping more people technically employed.

And with VAT revenue rising, with £12bn heading into HMRC's pockets in April 2021 alone, specialists such as Alan Pearce, VAT partner at Blick Rothenberg, said the problems might not be as bad as one might have expected. 

He explained: "VAT revenue in April, May and June 2020 was down but in July 2020 the VAT tax take bounced back and since then it has been keeping pace with expectations.

"This month (April 2021) has seen a jump  as those who had deferred their VAT in 2020 start to pay it back. People can choose to pay it back in one go but have the next 11 months to do so and this will see a further levelling of the situation.”

Similarly, schemes to boost the housing market seem to have paid off for HMRC; despite the stamp duty holiday on homes up to £500,000 there was enough activity in the market for the Revenue to make money back.

Sean Randall, also a partner at Blick Rothenberg, said: “The latest official tax revenue statistics show that more than twice as many homes were sold last month than in March last year, and significantly more stamp duty was collected last month with the holiday than in March last year without it.