HMRC release tax collection statistics for March and for the 2020/21 tax year today, revealing the first fall since the financial crisis of 2008-2010.
In 2020/21 tax receipts were down 7.8%, or £49.1bn from a year earlier, totalling £584.3bn. Sarah Coles, personal finance analyst at Hargreaves Lansdown, said “COVID has picked the pockets of the taxman.”
With business shut up for large portions of the year and hurried tax breaks to get the economy moving last summer the Treasury took a £50bn hit.
Inflows from income tax, national insurance, capital gains tax and the apprenticeship levy rose, but less than expected. The more modest rise can be attributed to lower business activity, and businesses delaying and defering taxes.
Along with lower business activity came lower VAT revenues, which fell from £129.9bn a year earlier to £20.9bn. VAT deferment and the temporary 5% VAT reduction for hospitality will have had significant impact on total revenue too.
Fuel duty also fell, from £27.bn to £20.9bn, along with air passenger duty, which fell £0.6bn from £3.6bn the year earlier.
Coles commented, “While people who were able to spend less during the crisis will have felt the benefit of lower taxes on spending, we’re all likely to feel the impact of the flip side of this particular coin.”
Coles contniued, “The Treasury is reeling from the lower tax take at a time of record spending. It means that once the worst economic effects of the crisis have passed, the government will be keen to fill its coffers again, and the threat of higher taxes and lower spending is looming ever-larger.”
There were some areas of higher inflows for the Treasury, namely in alcohol duty. It bounced back from £11.8 billion a year earlier to £12.1 billion, as wine and spirit spending more than offset the fall in beer and cider duty.
Coles concluded her analysis by saying, “It pays to stay one step ahead of whatever tax pain the government has planned, and think about protecting yourself from paying over-the-odds. If you haven’t already taken advantage of this year’s ISA allowance, and considered making the most of your annual pension contributions, it’s worth doing so while you still can.”