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Where do our UK Treasury tax receipts come from?

Quite often I see posts on Facebook vilifying companies for paying too little or no corporation tax and as a tax professional they often make me cringe.

In the run up to the December 2019 election, I'm dreading more arising and hope this post will give non-tax professionals a little perspective on whether corporation tax is an indicator of social responsibility.

Focusing on corporation tax may give the wrong impression.

So where does our tax come from?

How does our country raise the money to pay the NHS, Armed Forces, Non-privatised infrastructure maintenance, Social Support, Civil Service etc etc.

I have compiled the illustration below from the HMRC data on tax revenues collected (Sept 2019). A key to the taxes included in each category is included at the end of this article.

UK Tax revenues collected by HMRC

It shows that the people generate the majority of the UK tax receipts, through their earnings and their consumer behaviour. Please note from the definitions that the personal and consumption taxes are partly aimed at companies.

Only 10% of tax collected relates to items that are purely Company Taxes and could be expected to be illustrated by looking at Corporate Tax.

To emphasise this point I have plotted the average weekly pay rates which follow a similar trend to the increase in total tax receipts. The trend is strikingly similar.

Furthermore the data shown in the graphic in this article doesn't include other government income areas, such as:

  • property rates (commercial and domestic),

  • vehicle excise duty and television licences

  • water abstraction or wavelength licencing (ie 4G) and any similar corporate consumption levies

  • Government regulated industry licence fees charged direct to companies in the relevant industries (utilities, banking, etc).

I totally agree that it is vitally important that entities and groups act fairly and responsibly in their corporate tax affairs. I just think that too often corporation tax can be used to spread negativity on social platforms, based on insufficient information or consideration.

  • Focusing on corporation tax contributions detracts from the real benefit of employing people within the UK economy.

  • Corporation tax payments say nothing about the hidden taxes within the corporate accounts, which include employers NIC (13.8% of relevant earnings), irrecoverable VAT, apprenticeship levy, consumption levies and licence fees, rates and regulatory fees.

  • If corporation tax payments alone are considered, then it doesn't even consider the effect of historical decisions or events on the current period (ie large investments in capital or losses brought forward from previous years).

For global entities, there is an international effort to ensure that fair tax is paid in each country in which a company operates and reduce the inappropriate use of "tax havens". Co-ordination increases between tax authorities across the world to ensure that corporations act in a responsible manner and contribute appropriately to the economies in which they operate.

I apologise to anyone who may be angered by this piece because they have specific examples of where corporations have clearly not followed the letter and intent of the tax laws. However, HMRC's penalty regime is growing teeth, with penalty receipts from all taxes currently running at £800m per annum and HM Treasury continuing their focus on penalties as a strong deterrent as is shown within the DAC6 proposals.

I would hope that in our green and pleasant land, we will continue to strive to pay the right taxes at the right time, in the right country and retain the use of draconian penalties to those with ill intent.

Key to categories in the illustration:

Personal taxes (including Ers NIC) includes:

  • employment and self assessment income tax (including bank payroll tax)

  • National Insurance contributions, both employee contributions and Employer Contributions ("Ers NIC")

VAT and IPT consumption taxes includes:

  • Irrecoverable Value added tax ("VAT") paid by individuals or companies with VAT exempt activities based on the products and services that they buy, charged at rates set by the UK Government in line with EU legislation.

  • Insurance premium tax ("IPT") paid on purchase of insurance policies, under rules and rates set by the UK Government (specific exclusions such as life and permanent medical insurance). IPT is irrecoverable by both companies and individuals.

Behavioural consumption taxes includes:

  • consumption taxes aimed at the consumption behaviour of individuals covering alcohol, tobacco, betting and soft drinks

  • consumption taxes aimed at the consumption behaviour of companies covering aggregates levy and landfill tax

  • consumption taxes aimed at the consumption behaviour of both companies and individuals such as fuel duties, climate change levy and air passenger duty.

Company taxes includes:

  • Corporation tax

  • Bank levy and surcharge

  • Diverted profits tax

Capital and other taxes primarily includes:

  • Stamp duties

  • Capital Gains tax

  • Customs Duties

  • Inheritance tax

I have also excluded HMRC penalty receipts data, which has grown from circa £350m in the year ended Sept 2011 to over £800m in the year ended Sept 2019. This is purposely omitted as I haven't included data on the levels of fines raised in other bodies within government (Industry regulators, HSE, Environment Agency, Information Commissioners Office etc).

Further reading:

This article includes links to the relevant locations of the supporting data.

If you are interested in broadly considering whether the personal tax regime is socially responsible, it is also worth noting that personal allowance has increased by 185% during the period from 2000/01 to 2018/2019 in comparison to an increase in payrates of 71%. This current personal allowance level of £12,500 results in over 30% of low earners receiving all their income without tax deduction. Of people who do pay tax, the June 2019 HMRC report looks at this is some detail illustrating that the bottom 50% of earners only contribute under 10% of the tax taken, with the top 10% of earners contributing 60% of the tax collected with average tax rates increasing steadily with rates of income.

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