UK tax receipts fall at faster rate than other countries

The fall is in keeping with global experience with 26 out of 30 countries suffering a fall in tax revenues but the UK fall was greater than most other countries.

The report also suggests that post-pandemic rebuild plan will see tax rates rise across all demographics.

The fall in tax revenue in the UK worked out at 11 per cent, a far faster rate than the global average of 4 per cent. The study showed tax revenues fell by $500 billion in real terms to $11.7 trillion down from $12.1 trillion the year before. 

The fall in tax revenues is due to the COVID-19 pandemic, as governments around the world cut taxes for individuals and businesses in an effort to boost their economies. In addition, global tax revenues were hit by a fall in tax on corporate profits and a reduction in transactions that are subject to tax (e.g. VAT on purchases and tax on property transactions).

At the same time, governments introduced COVID support schemes to help those who were impacted by the pandemic. For example, the UK reduced the rate of VAT for hospitality and leisure businesses, as well as deferred VAT payments for businesses struggling to manage their finances during the pandemic. The UK’s furlough scheme covered 80 per cent of the wages of those out of work, and emergency credit streams for businesses such as the CBIL and BBL schemes were introduced.

The UK government has pursued tax increases to balance its post-COVID budget. National insurance contributions will be rising by 1.25 per cent for both employees and employers from April 2022, as will the rates of dividend taxes. These measures are expected to raise £17 billion a year for the economy. Corporation tax is also set to increase from April 2023 up to 25 per cent up from 19 per cent for companies with profits over £50,000. With the UK’s national debt having risen from £1.88 trillion to £2.22 trillion in a year, more tax rises might be on the way.

Subarna Banerjee, chairman of UHY International said the enormous impact of the pandemic on tax revenues has been felt worldwide.

“Many governments have been put in difficult positions, having to provide support to those who have been hit hard by Covid-19 while trying to prevent revenues from falling too far. Unfortunately, there will come a time where they need to balance the books and some governments may look to use tax increases to do so,” he said. 

“However, governments need to be cautious about any dramatic plans to increase their tax revenues. Sudden, large tax increases will place huge amounts of pressure on taxpayers, many of whom are also still getting back on their feet.”