HMRC has come under fire for boosting the Treasury’s coffers through a silent raid on savings and investments.
The Revenue’s own figures reveal that although its tax take is at a record high, only a small percentage of that is down to income tax. The rest is made up from a “stealth” combination of levies that have benefited from rising stock markets and increased consumer spending.
Income generated from stamp duty has skyrocketed by 80% over the last five years, while capital gains tax and inheritance tax receipts have increased by 62% and 40% respectively. Meanwhile, government income from VAT has jumped by 30% – meaning the levy now brings in more cash than National Insurance.
Commentators claim that this dramatic increase is the result of unchanged allowances and thresholds that have quietly dragged more taxpayers into the net. This is known as “fiscal drag”.
The phenomenon has had a major effect on inheritance tax take, boosting revenue from £2.7 billion in 2010-11 to £3.8 billion in 2014-15. Analysts claim this is largely due to the fact that the threshold of £325,000 per person or £650,000 per married couple has remained untouched since April 2009.
Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants (ACCA), said: “Both the Conservatives and Labour have become ingenious at engineering fiscal drag into their tax and spending plans.
“While earners are more or less aware of the impact of income tax and NI on their wages, it is easier for governments to shift the tax burden to other ‘one-off’ taxes that do not arise regularly or frequently.”
Meanwhile, the Institute for Fiscal Studies warned that efforts to raise the basic rate of tax are unlikely to reverse the effect of fiscal drag. It claimed that five million people will find themselves paying the higher or additional rates by 2020.
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