HMRC’s total tax receipts drop 7.8% in 2020/21

The government has revealed that HMRC collected £584.3bn in taxes in 2020/2021, a decrease of 7.8% from the year before.

This figure reflects a fall from £633.4bn in 2019/20, with receipts as a proportion of GDP down from 28.5% to 27.9% in the latest tax year.

HMRC stated that the COVID-19 pandemic, and the government policies announced in response to tackling the crisis, have had “significant impacts” which are visible in receipts collected across a number of taxes.

Figures showed that during the 2020/2021 tax year, combined receipts from Income Tax (IT), Capital Gains Tax (CGT), NICs & Apprenticeship Levy (AL) accounted for 60% of the annual receipts. HMRC described the slight increase in receipts in the latest tax year, to £352.1bn, as “smaller than expected”. The government also stated this is likely due to a combination of reduced economic activity leading to lower tax liabilities and deferral and non-payment of liabilities during the COVID-19 pandemic

Inheritance Tax (IHT) receipts increased in 2020/21 compared to the previous year to reach to £5.3bn, although they remained below their 2018/19 peak of £5.4bn. HMRC suggested this increase is likely in part due to the higher number of wealth transfers that took place during the latest tax year, a result of the higher-than-usual deaths registered due to the impact of the pandemic.

For VAT, annual receipts reached a peak of £132.2bn in 2018/19 before falling slightly in the following year to £129.9bn, and a further fall in the latest tax year to £101.1bn. These falls can also be partially attributed to VAT payment deferment policy introduced by the government to support business during COVID-19.

Hargreaves Lansdown personal finance analyst, Sarah Coles, commented: “At a time when the government desperately needs taxes to feed into the Treasury, the pandemic has taken a £49bn bite out of them. Meanwhile, it has racked up a £78.5bn bill for support schemes. It’s no wonder the government is keen to claw back some cash.

“Some of the tax changes were natural consequences of the pandemic. We saw taxes on income rise much less than expected, because the pandemic meant the earnings of millions of people fell during the year. IHT, meanwhile, was up slightly – which sadly is likely to be due to the fact the death rate rose as the pandemic took hold.

“The figures reveal exactly why the Treasury is keen to start making up some of the shortfall with cuts in spending and new tax revenue. The scale of the figures involved means the government will be keen to make changes as soon as it feels the economy can cope with it.”

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