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UK Tax Systems; Is the Business & Personal Tax Burden Too Great?

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

TIGHTROPES AND TAX: IS THE BUSINESS AND PERSONAL BURDEN TOO GREAT?

The cynics among readers of this tax news blog might not be entirely surprised to hear someone in my line of work remarking that an efficient and effective tax system is a necessity.

Even so, governments at all times and of all political persuasions understand that they walk something of a tightrope when it comes to trying to set the right level of taxes.

The fact is that it’s incredibly difficult to strike the right balance and keep everyone happy.

It seems to me that taxes are like professional sports. There’s no shortage of individuals with their own theories as to how it should be done well, yet many are found wanting when it comes to displaying their own talents in practice.

Nevertheless, a new report from the Organisation for Economic Co-operation and Development has caused me to wonder whether criticism of the current UK Government’s tax policies may be justified.

The OECD has been looking at tax revenues of 80 countries across the world

Although one of the key elements of the data which it’s produced – a ratio of tax income to Gross Domestic Product (GDP) – shows that the proportion of tax gathered by HMRC is not as high as in other countries, such as France (45.3 per cent), Germany (37.6 per cent) or table-topper Denmark (a whopping 45.9 per cent!), it still amounts to 33.2 per cent of UK GDP.

That’s the 22nd highest of all the nations whose finances are analysed and higher than other leading nations, including the US (26 per cent), Ireland (23 per cent), Australia (28.2 per cent) and Canada (31.7 per cent).

It is a position which coincides with tax generating acute corporate and personal pressure in the UK.

In its annual report published only last month (read pdf), HMRC revealed that its total tax revenues had risen by £30.9 billion (5.4 per cent) during the last financial year.

Just over one-fifth of that came from VAT but even the increase which had been seen in that tax (3.4 per cent) was outstripped by the 4.3 per cent rise in Corporation Tax, which accounts for nine per cent of all taxes claimed by HMRC.

Furthermore, the tax gap – the difference between the amount of tax which the Revenue believes should be paid and what is actually collected – is down to 5.7 per cent, the lowest figure for five years.

As previously discussed on these pages, much of HMRC’s effort in closing that gap still further has focused on the £13.7 billion which it reckons is owed by small businesses. Some of that pressure is regarded by SMEs themselves as being a mite excessive.

Put those things together and is it any wonder that at a time when businesses are doing their best to plan for commercial life after Brexit, some leading entrepreneurs like Sir Jim Ratcliffe believe it’s best to take themselves and their companies overseas?

Those who perhaps cannot afford to relocate to the French Riviera are forced to weigh up whether, as my colleague Ryan Conlon has written recently, they can overcome an ever-more complex tax code and pursue their ambitions.

It is, of course, not just the burden shouldered by commerce which creates difficulties.

The same HMRC report details how the amount of Inheritance Tax paid by Britons over the last year was a record £5.5 billion – up from £5.2 billion the previous year.

It’s a common grumble that people are forced to pay what they regard as unfairly large sums both when they buy properties which are rising in value all the time (the amount of Stamp Duty received by HMRC was up 7.8 per cent last year) and when they die.

Even though the Daily Telegraph interprets the OECD figures as suggesting that Britain’s tax ratio has remained consistent since the turn of the century (read more), it’s the pressure felt by business and households which will ultimately decide whether it’s too high and a change in approach is called for.

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