HM Revenue & Customs (HMRC) statistics released this morning show that the total receipts of HMRC in the 2019/20 tax year were up 2.3% from the receipts of previous (2018/19) tax year. However, our experts say the total March 2020 tax receipts received by HMRC were down £2.2bn from the same month (March 2019) 12 months ago, as Coronavirus begins to hit the economy.
Paul Haywood-Schiefer, Manager, Private Client
These are the first statistics released since the Coronavirus took hold and the Government began the lockdown procedures, so they only provide a snapshot of what is to come.
Total receipts in 2019/20 are up 2.3% (£14.3 bn) from 2018/19, but this is going to be the end of the line from here on in. Looking more deeply into the detail, the March receipts are actually £2.2bn less than the March receipts in 2019, so the hit to the economy has already begun, and this is actually £3.2bn less to HMRC than they might have expected if the results had continued on the upward trajectory they were on.
Looking further through these, following the Chancellors’ announcement that VAT bills arising in the period to June will be deferred until the end of the tax year, the VAT receipts have quite obviously dropped off a cliff edge. The receipts last month (March 2020) were only £2.3bn. That’s £10bn less than the previous month and £5.5bn less than March 2019, so the receipts for March 2020 were less than a third of what was collected in March 2019.
As the amounts that were due to be paid in March were in relation to the prior quarter’s results, when Coronavirus was not affecting these businesses’ trades, it will be interesting to see later in the year if these businesses are able to meet their deferred VAT bills having most likely used the cash elsewhere to keep their businesses going. The Chancellor and HMRC might need to apply some leniency for quite some time to come to enable these businesses to stay afloat.
The anomaly, and the reason the annual statistics remain positive, is on Corporation Tax, which in March 2020 took £4.4bn more than the receipts of March 2019, a huge 205% increase. There is a sting in the tail for any bright shoots of hope from these results.
Genevieve Morris, Partner, Corporate Tax
It is a timing difference only. The huge spike in Corporation Tax revenues is a result of the earlier payments by very large companies, Month three (March) rather than Month seven (July) for December 2020 year ends, as this is the first period for which it’s relevant.
Alan Pearce, Partner, VAT
The standout comment here has to be the fall in VAT receipts in the month of March (down £5.5bn) which is obviously due to the COVID-19 deferral period, but this has been largely offset by the extra Corporation Tax revenues collected in March 2020 (up £4.4bn) resulting from the bringing forward of the payment date for large businesses.
Most VAT receipts in March are for the January/February returns, some of which would have already been paid before the 20 March deferral period was announced. Also, the April and May VAT receipts are historically much higher than in March (circa. £13bn compared to £8bn) so a similar deferral could see a further £10bn+ shortfall this month alone!
Overall, a downward trajectory will follow across the board and we will start to see the real impact of the virus on the receipts, including the effect on PAYE from furloughing of employees.
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