21% increase in tax take in just 10 years

21% increase in tax take in just 10 years

VAT is undeniably a secure form of revenue for HMRC as they continuously look to deal with the government’s deficit—but is it fair to the consumer?

More news has been revealed about HMRC this week, as UHY Hacker Young reports receipts have hit a record high; total tax take has increased by 21% in the last decade. In 2008-09, the percentage of HMRC’s total tax take was measured at 18%.

This proves that the Treasury has “become increasingly reliant on VAT as a source of revenue”, the firm has stated.

“VAT has become a crucial component of total tax take and the government will be keen to protect this revenue source,” said Sean Glancy, VAT partner at UHY Hacker Young.

The total amount of VAT that is collected annually by HMRC had jumped by 60% since 2008-09 when recorded in 2017-18 at £125bn (as opposed to £78bn ten years before).

The most concerning factor is how this change in statistics is an example of “how the tax burden in the UK is increasingly being shifted onto consumers,” UHY Hacker Young has emphasised. This shift disproportionately affects consumers on lower incomes, and therefore they are more likely to spend a larger portion of their earnings on tax.

Glancy said: “The long-term increase in VAT receipts will be most keenly felt by lower income consumers who will be further squeezed by higher import costs feeding through into prices post-Brexit.”

VAT, such as the consumption tax that applies to the purchase of services and goods, is currently set to 20% (although this has increased by 2.5% since 2011). The scenario many members of the public – as well as those in industry – will be considering is whether rates that have previously been raised will be hiked up even further.

It is undeniable that HM Treasury has become increasingly reliant on VAT over the last decade as a more easily procurable aid for continuing to bridge the government deficit.

VAT is not the only area in which HMRC is monopolising to increase their revenue. Income tax receipts came in at £180bn last year, and corporation tax receipts at £54bn.

However, there has been the suggestion that VAT could be decreased post-Brexit, in order to encourage consumer spending and to avoid the fall in receipts.

“Depending on the outcome, Brexit could result in falling VAT receipts as consumers spend less due to higher prices and increased economic uncertainty,” Glancy added. “Falling receipts post-Brexit would certainly be a concern for the Treasury.”

HMRC’s total tax intake is now at a 30-year high, increasing to £594bn last year. This represents 33% of GDP and means that the UK is now ranked at number 20 out of the 36 OECD countries for highest tax burden.

France tops the table at 46%, whereas countries like Ireland are considerably lower at 23%.

Uncertainty looks set to further cloud the horizon, so it will be very interesting to see how the government plans to maintain security for both the public and UK businesses.

Glancy concluded that it would be vital for “the government [to] put contingency plans in place to help counter the potential fall in receipts. For example, VAT rates could be reduced in order to encourage consumer spending post-Brexit.”

The burden on the consumer, however, does not look set to alleviate any time soon.

Do you think this is a bigger issue that highlights the unfair powers of HMRC? Please reach out to us on any of our platforms to let us know your views. 

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