UK and International Tax news

Total Tax Contribution of UK Financial Services

Friday 20th December 2013

PWC has recently published its sixth study for the City of London Corporation on the total tax contribution of the financial services sector in the UK for the year to 31 March 2013.

The purpose of all six studies is to show the size of the contribution that the Financial Services sector makes in tax revenues in the UK, and how this has changed over time and been affected by the economic climate and changes in government policy.

The key findings from the latest study include:

The sector paid an estimated amount of total taxes, (including both taxes borne and taxes collected), in the region of £65.0bn, or 11.7% of total UK government tax receipts. This is 3.2% higher than PWC’s estimate of the contribution of the UK financial services sector in 2012 (£63.0bn; 11.6% of the total UK government tax receipts).

According to government figures, total corporation tax paid by the financial services sector in the period was £6.5bn, up from £5.4bn in the prior year.  This is despite the main rate of coporation tax reducing from 26% to 24% from April 2012.  The total accounts for 16.4% of total UK corporation tax receipts.  Corporation tax remains the third largest tax borne (19.0% of total taxes borne) for the survey participants.

£1.6bn of bank levy was paid by the FS sector as a whole according to government figures.

1.1m people (3.8% of the UK workforce) were employed by the FS sector in the years to 31 March 2013 and 31 March 2012. 

Estimated employment taxes generated by the sector increased to £28.4bn, 12.0% of government receipts from employment (2012: £27.7bn; 11.8%) and constitute both the largest taxes borne and collected.  PWC estimates that financial services companies pay £26,674 in employment taxes on average for each employee.

The study reflects a changing tax system and the impact of the financial crisis over the six studies. In 2013, corporation tax represents 19.0% of taxes borne (2007: 40.8%), employers’ NIC represents 34.9% (2007 21.3%) and irrecoverable VAT 22.1% (2007: 19.1%).  In 2007, for every £1 of corporation tax there was £1.45 of other taxes, in 2013 the figure is £4.26.

Twenty six companies in the sample spent a total of £5.0bn on capital expenditure, representing 4.1% of the total UK business capital expenditure in the period.

Within the financial services sector, for the survey population, banks are the largest payers of tax and are also the largest employers. The banks account for 40% of participants by number, 77.4% of taxes borne and 70.2% of taxes collected. They also employ 71.9% of people employed by the companies in the study.

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