TAXATION DEVELOPMENTS/DEVELOPMENTS IN TAXATION
Synopsis: The latest HMRC data on tax receipts for the current fiscal year tell some interesting stories about how the shape of tax is changing and the Chancellor’s two way pull on a booming housing market.
Date posted: Wednesday, August 27, 2014
Last week HMRC published showing how much had flowed into its coffers in the first four months of 2014/15. On the face of it, the numbers were not great news for the Chancellor. The increase in total tax receipts over the same period last year of 2.1% was not enough to stop the government deficit ending up £1.8bn higher than at the same stage in 2013/14.
Drilling into the figures reveals why and helps to explain the Treasury’s current lack of concern:
Income Tax Total receipts were down 0.6%. With a rising employment rate this looks odd, but there are several factors at work:
• In early 2013/14 receipts were bolstered by bonus payments which had been deferred from 2012/13 to capture the benefit of the cut in the additional rate of income tax to 45%. This tax rate fillip should re-emerge in January 2015, when balance payments for 2013/14 are due under self-assessment.
• A large slice of the rise in employment is actually self-employment, where real earnings have been falling faster than in the employed sector and where income tax payments are generally in arrears.
• Average earnings are not growing (the latest annual was -0.2%), but personal allowances are: the 2014/15 allowance of £10,000 is nearly 6% higher than last year’s. As the politicians keep reminding us, raising personal allowances takes people out of income tax (about 250,000 of them in 2014/15).
Corporation Tax Despite cuts in the mainstream rate, corporation tax receipts rose by 5.3%. However, corporation tax is less important than it used to be: in 2007/08 it generated 10.3% of all revenues, whereas in 2013/14 its share was only 8.5%.
VAT VAT receipts were up 8.1% year on year, underlining that even though wage growth is zero, consumer spending is picking up strongly. Lower unemployment clearly helps here, even if it does not work through to income tax.
Stamp Duty Land Tax The recovery in the housing market has given a useful boost to the Exchequer. The ‘slab’ nature of the tax has helped, with a small increase in purchase price potentially yielding a much larger increase in tax as bands are crossed. SDLT income in the first four months of 2014/15 was up 34.1% on 2013/14, with July 2014 the first month to record SDLT income of over £1bn.
There are some interesting tensions here, as the Chancellor wants the Bank of England to stave off a house price bubble, but at the same time he is becoming increasingly dependent on rising property prices and sales to plug the revenue gaps emerging elsewhere.
Inheritance Tax IHT receipts were up by 1.8%, but for all the attention it receives, the levy remains very small beer, accounting for only 0.7% of total HMRC receipts in 2013/14.
At the time of the Budget, the OBR forecast that the 2014/15 deficit would be £96.6bn, down £12.2bn from last year. Mr Osborne therefore needs to make up £14bn in the next eight months. A great deal now depends on those January 2015 numbers.
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