HMRC published the latest figures on personal income and taxation in the UK at the beginning of March. The data covers the 2015/16 tax year, and reveals a number of fascinating insights into tax throughout the country. Perhaps the biggest revelation is that total income in the UK surpassed £1 trillion for the first time during 2015/16, reaching £1.040 trillion.
Together, taxpayers in the UK paid £178 billion of income tax on this amount, a figure which makes up 25% of the government’s total tax revenue for the year. In contrast, the revenue from corporation tax was only around a third of this, making up just 8% of UK tax receipts.
The forecast suggests that £53.2 billion will be raised from corporation tax during 2017/18, representing a slightly lower 7.8% of the year’s total tax receipts and 2.6% of national income. This represents a fall from the high of 3.2% seen prior to the recession, and the figure is expected to fall further by 2021/22 to 2.3%.
Despite volatility over the economic cycle, onshore receipts did not display a downward trend during the thirty years prior to the 2008 financial crisis, even though the main corporation tax rate was almost cut in half from 52% in 1981 to just 28% in 2008. The reasons for this include the corporate sector becoming bigger and more profitable, as well as the tax base becoming broader.
Corporation tax rates have dropped further to 19% in 2017/18, and are expected to be cut further still in 2020/21 to 17%. However, onshore revenues have been supported by new taxes levied against banks and anti-avoidance measures, as well as the restriction of loss offsets which has brought revenues forward. As such, by 2020/21, onshore revenues are expected to return to around the same level as seen in 2010/11.
Despite this, analysis of tax revenues from 2010/11 onwards reveals that corporation tax revenues are forecast to be lower by 0.4% of national income by 2020/21. The dip in overall revenues is due to a sharp drop in North Sea revenues. Recent years have seen these regularly being revised down as oil prices have fallen. Combined with the fundamental dwindling of resources, offshore receipts are forecast to provide negligible returns for the government for the foreseeable future with North Sea revenues not expected to form a significant part of the UK tax base.