Recent research says that VAT receipts now represent 21 per cent of HM Revenue & Customs’ (HMRC) total tax take and are just behind Income Tax at 31 per cent and National Insurance Contributions at 22 per cent.
According to the research, the total amount of VAT collected by the taxman rose by 60 per cent, from £78 billion to £125 billion, between 2008/09 and last year.
The total tax take rose to a 30-year high last year, reaching £594 billion, which, as well as VAT, included £180 billion in Income Tax receipts and £24 billion in corporation tax receipts.
The research suggests that VAT has become a crucial component of the total tax take and the Government is likely to be keen to protect this source of income. However, some commentators say that Brexit could result in falling VAT receipts as consumers spend less due to higher prices and increased economic uncertainty.
One of the report’s authors said that the long-term increase in VAT receipts would be felt most keenly by lower-income consumers, who would be squeezed by higher import costs feeding through post Brexit.
He added that the fear of losing this revenue stream could force the Government to take action to counter the potential fall in receipts, which could even involve reducing VAT rates in order to encourage consumer spending post-Brexit. HMRC have not commented on this possibility.
Julian Borley, Director of VAT at Milsted Langdon said: “The figures show that VAT has become a crucial part of HMRC income and the Government will be keen to protect this source of income after Brexit.
“If you are worried about the potential tax impact Brexit could have on you and your business it is important that you seek specialist advice. Contact Milsted Langdon today”