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The tax contribution of the UK financial services sector remained at a record level in the year to 31 March 2019, with a total of £75.5 billion paid to the public purse, according to a new report.
A report published by the City of London Corporation revealed that the total contribution, comprising £33.4 billion of taxes borne and £42.1 billion of taxes collected, is “broadly stable” compared with last year’s £75.0 billion despite ongoing economic uncertainty, and represents 10.5 per cent of all UK tax receipts.
“Despite a challenging economic climate and uncertainty around Brexit, the sector has maintained its tax contributions from the record high of last year,” said Catherine McGuinness, policy chair at the City of London Corporation.
“With Brexit looming, however, the UK must remain competitive to safeguard the sector’s employment base and significant tax contribution. The sector is vital to supporting prosperity right across the country.”
According to the report, produced by professional services firm PwC, employment taxes made up the largest share of the sector’s tax contribution. Financial services firms employ 1.1 million people across the country, accounting for around 3 per cent of all UK employment, generating 7.1 per cent of GVA and 11.6 per cent of all UK employment taxes (£34.5 billion).
The report also highlighted the difference of tax profiles by financial services sub-sector. For challenger banks, corporation tax made up 34 per cent of their total tax contribution, compared with 15 per cent across the banking sector as a whole.
However, partly due to their smaller employment base, challenger banks’ share of contribution from employment tax was 37 per cent – lower than the banking sector average at 50 per cent.
Tax receipts from banks were found to be more dependent on where their employees and business operations are located, while insurers generate a higher proportion of taxes based on the location of their customers.
Andrew Kail, head of financial services at PwC, applauded the apparent resilience of the financial services sector, but urged for a closer look at the tax system to ensure it is ready for the changing nature of work.
“This report highlights the resilience of the financial services sector. Contributing more than one pound in every 10 of total UK tax receipts, despite ongoing uncertainty, is a major achievement,” he said.
“A slipstream is being created across the sector due to technological advances; incumbents and challengers are disrupting the market, adapting to meet customer demand.
“New ways of working, operational business models, and technological disruption have the potential to change the employment profile – and therefore the tax profile – of firms across the sector. It’s important that we look closely at our tax system to ensure it’s fit for new ways of working and doing business while optimising the competitiveness of the sector post-Brexit.”