Another record year for HMRC

HMRC’s full figures for the 2023/24 tax year reveal a taking of £827bn, their highest in a single year, which is a 5% increase on 2022/23.

Joe Neal, Tax Manager said:

HMRC has had another record year. The effects of high inflation and wage growth compounded with frozen tax thresholds are really starting to show. The 2023/24 tax year produced record takings for income tax, national insurance, VAT, corporation tax and inheritance tax.

The total income tax takings have increased by over 10% in 2023/24 compared to the prior year and are 23% higher than in 2021/22. Interestingly, the PAYE takings have increased by 11.4% in the period, whilst income tax collected through self-assessment has decreased by 0.7%. This shows that the increase in income tax takings is due to salaried employees. The average wage increase in the year to January 2024 was 6.1% as employees ask for pay rises to keep up with the rising costs of goods. This, however, can push them into higher tax bands and increase their overall effective rate of tax.

More worryingly, with self-assessment income tax receipts decreasing, sole traders and partnerships are becoming less profitable. This is likely a result of increased inflation, causing small businesses to have higher direct costs and salary expenses. The government announced £200m of funding to support small businesses in the Spring Budget; Jeremy Hunt will be hoping that this is sufficient to help the heartbeat of the UK economy through this current period.

Joe said:

Despite the cut in class 1 national insurance from 6 January 2024, the takings in for 2023/24 have increased to a year high of £177.7bn. This shows that fiscal drag from freezing the thresholds and increased wages is offsetting the cost of the reduction in the rate.

VAT receipts for the year were a record £169bn. This follows a relatively flat 3 years following COVID, but it now appears to be turning a corner. This may be a sign that consumers are now regaining confidence and starting to spend.

Corporation tax takings have increased by over 36% in the last 2 years to a record £86.8bn in 2023/24. This shows that companies are remaining profitable, and their increased operating costs are being passed on to consumers. Part of this will also be due to the increase in the corporation tax rate from 19% to 25% from April 2023.

The IHT takings for 2023/24 was also a record at £7.5bn. IHT bands have not changed for many years. The effect of fiscal drag is causing increased takings year on year. Some of the IHT thresholds that have remained stable are:

• £325k nill rate band since April 2009.
• £250 small gift allowance since 1991.
• £3k annual gift exemption since 1981.

With recent inflation being high, many families will see themselves being pushed into the scope of IHT, whereas previously, this would not have been an issue. This is why IHT is one of the most disliked taxes. Currently, it only makes up 0.9% of HMRC’s total receipts, and only 3% of deaths result in an IHT liability.

Would you like to know more?

If you have any questions about the above or would like to discuss your specific circumstance, please get in touch with your usual Blick Rothenberg contact or Jo Neal using the form below.