Accountants and law firms pay £19.1bn in taxes

The UK’s accountancy and legal firms paid £19.1bn in taxes in 2018, a 6.8% rise in their total tax contribution compared to two years ago, according to a report from TheCityUK

However, future growth depends on attracting highly skilled personnel, and the continuing uncertainty around Brexit negotiations may put that at risk, according to a report from TheCityUK.

Data analysis by PwC shows the amount paid over by the two professions was equivalent to 2.8% of total tax receipts, and comprised £8.3bn in taxes borne and £10.8bn in taxes collected (£10.8bn). For every £100 of turnover, UK accounting and legal firms contribute £38.40 in taxes.

The industry body’s report says the UK government was the largest beneficiary of the value distributed from the two industries, taking 49.4% of this in the form of taxes borne or collected. The next largest beneficiaries were employees in the form of wages and salaries at 30.5% of total value distributed, followed by partners at 20.1% of value in the form of profits after partner taxes.

The largest tax payments are for partner and employment taxes, indicating the importance of highly skilled labour, the report suggests. The net VAT contribution is also significant compared to other sectors, representing 5.9% of total UK VAT receipts.

Total partner taxes were estimated as £5.1bn, which makes up 26.7% of the total tax contribution for the legal and accounting sector in the UK. On average, for the study participants, total partner taxes as a percentage of profit were 42.5%.

TheCityUK found that the two sectors’ overall growth has outpaced wider UK economic growth in every year since 2010, with their combined gross value added (GVA) increasing by 58% compared to 35% for wider UK GVA.

This has resulted in the industry making up a greater proportion of the total UK economy in terms of GVA, up from 2.4% in 2010 to 2.7% in 2018.

In total, 743,000 people are employed by the UK’s accounting and legal sectors, representing 2.4% of the total UK workforce. EU statistics show that the UK has the largest number of people working in these two areas of any EU country, with employees in the UK representing 23.5% of the total number of legal and accounting employees in the EU.

Anjalika Bardalai, chief economist and head of research, TheCityUK, said: ‘Legal and accounting firms are a key part of the UK’s world-leading financial and related professional services ecosystem. The expertise and experience they embody help to make the UK an attractive and competitive place to do business, serving as an important part of the mix which draws investment and jobs to the UK.

‘They also make a substantial contribution in the form of high-quality jobs, and from taxes which help to pay for the public services which make the UK an attractive place to live and work.’

The report highlights the point that provision of legal and accounting activities relies upon the labour of skilled personnel rather than inputs from suppliers. This means the future health and contribution of the industry is highly dependent on its ability to attract the best talent and those with the right skills, both from within the UK and from overseas.

Iain Wright, ICAEW director for business and industrial strategy, said: ‘Chartered accountants up and down the country are adding real value to our economy, which is reflected in the size of the sector’s contribution to the UK’s tax receipts.

‘We want to maintain and grow that accounting experience and expertise – helping ensure that the UK remains a great place to do business.

‘However, as mentioned by TheCityUK, the accounting sector needs to attract the best talent, no matter where it’s from, and we know that continued Brexit uncertainty is undermining that and posing a risk to the UK’s reputation.

‘It could also affect the ability of our members, and other UK professionals, to win work and provide certain services overseas. We need clarity very soon, to help ensure that the sector can remain strong, continue to grow and provide tax receipts to fund public services.’

Total tax contribution study for UK legal and accounting activities

Pat Sweet | 22-07-2019

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