UK tax receipts drop by over $90bn during pandemic

UK tax receipts have fallen by over $90bn (£67.9bn) in real terms to $728bn (£549.6bn) during the pandemic, from $819bn (£618bn) the year before, according to a new study of tax revenues worldwide by UHY. UHY said the fall in tax revenue in the UK worked out at 11%, a far faster rate than the global average of 4%. The study showed tax revenues fell by $500bn (£377bn) in real terms to $11.7tn (£8.83tn) down from $12.1tn (£9.13tn) the year before. The firm said 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). UHY’s study showed that 26 out of 30 countries suffered from a hit to tax revenues. Some of the biggest decreases include the UK which saw tax revenues fall 11% to $784bn (£564) and Russia which also fell 11% to $296bn (£223bn). However, the UK government has pursued tax increases to balance its post-Covid budget. National insurance contributions will be rising by 1.25% for both employees and employers from April 2022, as will the rates of dividend taxes. UHY added these measures are expected to raise £17bn a year for the economy. Corporation tax is also set to increase from April 2023 up to 25% up from 19% for companies with profits over £50,000. With the UK’s national debt having risen from £1.88tn to £2.22tn. Worldwide, Germany’s tax revenues fell 8% to $858bn (£647bn) in 2020 after the German government introduced a number of tax cuts in the hope of boosting the economy. The standard rate of VAT in Germany was reduced from 19% to 16% last year. Businesses in the catering sector, arguably one of the sectors that suffered the most from Covid-19, benefited from an even bigger reduction in VAT from 19% to 7% on food sales. Another major economy that suffered from a fall in tax revenues was China, falling 5% to $2.4tn last year after it introduced a “significant” reduction in Corporate Income Tax, which for small and micro enterprises with a tax income below RMB 1 million, was reduced from 25% to 5% last year. In 2021, it was announced this rate would be cut even further to 2.5%. Other countries experienced significant variations in their tax receipts this past year. Most notably, Turkey saw its tax receipts increase by 7%. By contrast, the Philippines saw its tax receipts fall by 13% in real terms, and Nigeria, the largest economy in Africa, tax receipts experienced a fall of 17%. Andrew Snowdon, head of Tax at UHY Hacker Young said: “While the UK economy suffered a significant fall in its tax revenues, many businesses would prefer that this funding gap is dealt with gradually rather than hitting businesses and consumers with major new tax increases. “There’s a fine balancing act between keeping the national debt under control through a sensible tax policy and maintaining consumer spending by avoiding tax increases that make the consumer feel noticeably less well well-off. Next year’s increases in National Insurance contributions are going to be a major test both for consumers and employers.” 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 added: “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.”

UK tax receipts drop by over $90bn during pandemic

UHY’s study showed that globally 26 out of 30 countries suffered from a hit to tax revenues

Read Next

Crowe continues growth of Forensics team with new partner

TaxAssist Accountants unveils new group promotions

Crowe strengthens leadership with four new partners

Azets expands North East corporate finance team

KPMG names Susanna Crowder as Global Oracle leader

Crowe continues growth of Forensics team with new partner

TaxAssist Accountants unveils new group promotions

Crowe strengthens leadership with four new partners

Azets expands North East corporate finance team

KPMG names Susanna Crowder as Global Oracle leader

Today’s news in brief – 29/4/2024

Begbies Traynor advises Elite Emergency Medical Services on administration

Crowe continues growth of Forensics team with new partner

FRC questions Big Four on AI exam cheating prevention

ICAS appoints Vue CFO as president

Read Next

Crowe continues growth of Forensics team with new partner

TaxAssist Accountants unveils new group promotions

Crowe strengthens leadership with four new partners

Azets expands North East corporate finance team

KPMG names Susanna Crowder as Global Oracle leader

Related Articles

Today’s news in brief – 29/4/2024

Begbies Traynor advises Elite Emergency Medical Services on administration

Crowe continues growth of Forensics team with new partner

FRC questions Big Four on AI exam cheating prevention

ICAS appoints Vue CFO as president