The recent statistics released by HMRC, and reported on by the ONS (Office for National Statistics), on tax receipts reveal a significant increase in tax collection, amounting to £827.7 billion for the latest financial period. This marks an almost 5% increase from the previous period, with a noteworthy rise in what are termed "stealth taxes". These taxes include income tax, various classes of national insurance contributions, capital gains tax, and inheritance tax.
Record Tax Collections and Economic Implications
HMRC's record-breaking tax collection, which saw a 5.8% increase in personal taxes amounting to £361 billion, indicates a few causal factors. The first being a robust effort by the government to increase recovery of unpaid or undeclared taxes. The second being a strengthening economy. The third being that taxpayers are currently unaware of tax reliefs available, resulting in higher and inaccurate tax payments being made. Another perspective is that with the average wage increasing by approximately 6% last year, the revenue from income tax is also expected to increase.
However, the term "stealth taxes" suggests a method of taxation where the increases are not immediately apparent to taxpayers. There is a concerning nature of these statistics, indicating a potential reliance on subtle tax increases to support the fiscal targets. This could suggest that government spending is excessively high, necessitating elevated or “stealthy” tax rates that could be hampering the country's economic growth.
The Stealth Tax Strategy
The government's approach seems to focus on freezing and lowering tax allowances, a tactic that raises tax liabilities to the public and for companies without increasing the rates. This method is known to help boost revenue while maintaining stable tax rates. These actions may not be obvious to the public, resulting in a subtle reduction in disposable income.
Long-Term Tax and Economic Growth
It is clear that some are advocates for a shift in tax policy towards enhancing personal allowances and adjusting the base rate band to mitigate the increasing number of individuals falling into higher tax brackets. This approach, would provide more tangible relief to taxpayers, particularly middle-class, and could potentially encourage economic growth due to increasing true disposable income amongst tax payers.
However, with all this being said, I do not foresee the tax rates decreasing anytime in the near future. It is now becoming more important than ever that taxpayers are educated on the topic of taxes. Particularly surrounding what they are paying in total, what its used for and what reliefs are available to them. Simply paying a tax bill without consulting professionals on its accuracy is the leading problem we see, in reducing taxpayers disposable income.
The Challenges Facing HMRC
The increase in tax burdens and the complexity of the tax system is clearly placing additional pressures on HMRC, which is already clearly under-resourced and struggling. In recent correspondence between our company and HMRC, it was stated that HMRC are 5 months behind on reading their post. A simple task. Which draws concern for how far behind HMRC are with other more serious aspects of their role in our country. This overall situation not only complicates tax collection and compliance but also risks increasing the tax gap — the difference between what is owed and what is collected. Its no surprise that HMRC are struggling, given that the UK has one of the most complicated tax systems in the world.
Future Outlook and How You Can Manage Your Taxes
As mentioned, the UK is recognised as having one of the more complicated tax systems. As such, it’s important to take appropriate tax planning measures as a UK taxpayer. By having professional guidance in place and appropriate planning, taxpayers will know exactly what taxes they will owe and pay throughout the year. Ultimately this will provide more financial freedom and stress-free spending due to taxpayers knowing exactly how much they have available net of taxes. It is my view that this can lead to economic growth due to increasing consumer spending confidence.
The discussion around tax policies is likely to be a focal point in the upcoming elections. With both major parties needing to fund campaign pledges, tax policy could become a bit of a battleground for party advantage. However, I wouldn’t rely on these promises and instead, I would urge you to reach out to a professional accountant to begin tax planning processes. It’s important taxpayers rely on something they can tangibly effect. Tax planning for yourself or your company is something you can guarantee will have an immediate impact on bettering your financial position. Our advisors are always on hand to discuss appropriate options.
Conclusion
The record tax receipts reported by HMRC indicate an increase in stealth taxes, reflecting deeper fiscal and economic challenges faced by the government. While these measures have lined the treasury's pockets, they have also introduced complexities and burdens that affect both taxpayers and the tax administration itself.
Looking forward, the balancing act between fiscal responsibility and tax fairness will remain a critical issue, with significant implications for economic policy, public service funding, and political strategy in the UK. As such, taxpayers should be encouraged to take responsibility for their own tax and financial position with effective tax and financial planning, rather than depending on the government to ‘save the day’.
Author: MJ Kane
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