HMRC sees largest increase in tax intake this millennium

HMRC sees largest increase in tax intake this millennium

Under Boris Johnson’s government, last year saw the biggest increase in UK tax receipts since the millennium, up by nearly a quarter (23 per cent) on the previous year.

According to figures, UK tax receipts increased by £134bn from £584bn in 2020/21 to £718bn in 2021/22. 

The increase has been driven by frozen income tax thresholds, increases in national insurance contributions and a steep rise in VAT receipts, according to an analysis by national accountancy group UHY Hacker Young.

Inflation also played a role as has an improvement in the economy post Covid when tax receipts fell by 8 per cent from 2019/20 to 2020/21. 

UHY Hacker Young partner Sean Glancy said keeping income tax thresholds frozen has “dragged millions more people into higher tax bands” as “stealth tax rises swelled the coffers of HMRC.”

UHY Hacker Young pointed out that the record receipts may provide the chancellor of the exchequer with wriggle room to cut taxes and propose that much-needed investment could be attracted by cancelling the planned rise in corporation tax from 19 per cent to 25 per cent from April 2023.

UHY Hacker Young corporate tax director, Nikhil Oza said businesses would argue that maintaining the corporate tax rate would help maintain and encourage inward investment during a period on high volatility following Brexit, Covid and Russia’s invasion of Ukraine.

“Given the bumper year for revenues we have just seen, the next government may wish to use some of that leeway to keep the UK an attractive place to invest and give businesses – especially SMEs – more scope to invest in boosting UK productivity,” he said. 

Earlier this year, IFS senior economist Tom Waters warned of the dangers of setting tax thresholds for long periods of time as unexpected changes in inflation can make the size of a planned tax rise much bigger or smaller than expected.