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Financial sector makes record tax contribution

Financial sector makes record tax contribution

The financial services sector made its highest ever tax contribution in the year to March 2016 – equivalent to 11.5 per cent of total UK government tax receipts.

The total tax contribution for the sector reached £71.4bn, an increase on the previous year of 7.4 per cent, according to the City of London Corporation, which commissioned PwC to produce the figures.

This marks the highest contribution in the nine years the report has been produced.

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Data from the report showed that the equivalent of almost a quarter - 23.3 per cent - of financial services’ turnover in the last financial year went straight to the public coffers.

The analysis showed financial firms paid £8.4bn in corporation tax, a 10 .5 per cent increase on the previous year’s £7.6bn.

Banks and insurance firms were the highest overall tax-paying sub-sectors, due to reforms in corporation tax and the bank levy.

Due to the bank levy, foreign and UK based banks contributed £3.4bn in the last financial year – an increase of more than 25 per cent.

Employment taxes made up over half of the contribution from banks but are less significant for insurers, where they make up less than a third of the contribution.

Overall, employment generated the largest amounts of tax paid into the public finances from the financial sector, accounting for 47.8 per cent of total receipts.

Financial services employs 1.1million people across the UK, or 3.4 per cent of the total workforce.

The study found average employment taxes per employee were over £32,000. 

Reforms on pension drawdowns, which came into force in April this year, are also represented in employees’ tax totals but is expected to level out in next year’s data.

Mark Boleat, policy chairman at the City of London Corporation, said as the last set of data on financial services’ tax contribution before the Brexit negotiations begin, today’s figures are “hugely important”.

“In light of the UK’s decision to leave the EU, these new findings not only demonstrate the significant contribution made to government revenues, but are also key in helping us to understand the potential impact of Brexit on different sub-sectors within financial services.

“As one of the UK’s biggest service exporters, it’s understandable the sector also contributes a considerable amount of tax. 

“Despite this, the sector arguably stands most to lose as negotiations loom. 

“It makes it clear the argument that government should be engaging with firms as it approaches talks with the remaining EU 27, and the pulling of the political trigger.”