Three Threats to UK Tax revenues

The Office for Budget responsibility identified in their Inaugural Fiscal Report, 57 issues for the Government to consider when examining threats to revenues and expenditure.

 

3 threats of concern:

 

Protecting the City

Statistics have shown that the UK’s financial sector is ‘tax rich’. This means if the city takes a hit, so will the whole economy. The financial sector contributed much more to the public finances that its 7% contribution to national output suggested.

While the sector accounts for just 3% of total jobs, many of them are high-paid, taking the share of payroll income tax and national insurance receipts paid by these banks, analysts and financiers to 12%.

Brexit is said to pose a huge risk to the financial sector that would have a greater effect on income tax receipts than in other sectors due to the high concentration of top earners in that sector.

 

Self-employment

Self-employment has risen sharply since the financial crises, accounting for around 45% of total employment growth, according to official figures.

The OBR expects this to continue in the coming years rising from 15% of employment to 15.5% by 2021-22.

The number of people opening their own business and incorporating is also expected to keep rising. The OBR expects incorporations to rise 4% a year until 2021-22, outpacing average annual employment growth of 0.3% a year.

This matters because the same work is taxed in very different ways depending on whether it is done by an employee, self-employed person, or company owner manager. So for every £50,000 of compensation in 2017-18 an employee would pay 32.3% of it back to the Exchequer in tax or national insurance.

 

Fuel Duty

Since cars are becoming more and more efficient, tax revenues from fuel duty are expected to massively reduce. Currently fuel duty is the sixth biggest revenue raiser for the Treasury- so although its great for drivers, it is a big threat to the UK economy.

 

Contact us for expert tax advice