Frozen thresholds push tax receipts to £515.9bn

The total tax take hit a record £515.9bn in the first eight months of the tax year, up £24bn on last year, dominated by soaring income tax receipts

In November HMRC reported revenues of £58.7bn which was just slightly higher than the same month last year when the total was £58.6bn.

The biggest rises were in income tax, capital gains tax and National Insurance contributions, which were up by £12.1bn, while VAT was £8.2bn higher and business taxes were up by £7.3bn. Inheritance tax take has increased by £400m in the first seven months of the year, raising £5.2bn.

Income tax from April to November 2023 was £164bn, in comparison to £148bn in the same period last year. For the month £18.6bn was raised through income tax, nearly £2bn more than last November’s £16.8bn.

Income tax rising this much is clearly being affected by the freeze on tax thresholds set in 2021, which are set to remain unchanged until 2028.

In November 2020 before the thresholds were frozen, income tax receipts were £14.1bn. In just four years this figure has increased by £4.5bn due to approximately 1.2 million people being pulled into the higher tax brackets due to salary increases.

Shaun Moore, tax and financial planning expert at Quilter said: ‘This significant growth shows just how much of an impact the Chancellor’s frozen thresholds continue to have.

‘However, the 2% cut to National Insurance from 12% to 10% for the main rate of Class 1 employee NICs will bring a welcome increase in take home pay for workers in the new year.

‘The 2% cut to NI will allow basic rate taxpayers to save a maximum of £754, and in the coming months we can expect to see the total PAYE income tax and NI receipts to slow somewhat, but it is unlikely to counter the rapid increase seen as a result of frozen income tax thresholds and inflation driven wage growth.’

Overall income tax has stuck to a usual trend throughout the year, spiking for self-assessment payment dates, and also when annual bonuses for PAYE taxpayers are paid in January and April.

The biggest negative to the tax receipts was stamp taxes, down £3.7bn followed by tobacco taxes, which were down by £1.1bn so far this year.

Danni Hewson, head of financial analysis at AJ Bell sad: ‘Inflation has been a double-edged sword for public sector finances. On the one hand frozen thresholds combined with inflation busting pay increases and increased VAT as the cost of goods has shot up have helped increase the tax take by almost £3bn compared to the same period last year.’

VAT payments in total were £116bn which HMRC put down to the ‘high levels of inflation and subsequent changes in real consumer expenditure’ through the year.

The higher receipts did not reflect more consumption but showed the impact of rising prices during the current cost of living crisis.

Inheritance tax (IHT) is £4bn up on the year so far to £52bn from £48bn. In total there was £5.9bn taken in November which is the least it has been since the beginning of the financial year. It is estimated to be a record year for inheritance tax take.

Moore said: ‘Inheritance tax receipts are expected to continue rising and we will likely see them beat the previous £7.1bn record before the end of the tax year. It had been widely rumoured that the government was looking to make changes to its IHT rules, but at least for now more families will be topping up government coffers as they are caught by the IHT net.’

Will Drysdale |Reporter, Accountancy Daily

Will Drysdale is a reporter at Accountancy Daily - email news and leads to william.drys...

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