Much has been made in the media about a small number of high-earning public servants who may have reduced their tax bills by working through personal service companies. Rather less has been made of the UK’s excessively burdensome tax regime, although a new study from the accountancy firm UHY Hacker Young leaves little doubt that this is the case.
The study reveals that the UK collects a hefty 34% of GDP in tax, a proportion that compares unfavourably with other major economies such as the US, which collects 24%, and Japan and Australia, which collect just 23%.
The EU emerges as one of the few places on the planet to make the UK’s tax take look modest. Both Italy and Germany collect a thumping 43%, while France grabs a wince-inducing 44%.
Contractors who work through umbrella companies, of course, have their tax and national insurance deducted automatically on a PAYE basis. Although they generally earn higher hourly rates than salaried employees, they may nonetheless concur with the views of Roy Maugham of UHY Hacker Young, who believes that the UK’s high income tax rates are driving individuals to seek aggressive tax avoidance schemes.
The firm’s in-depth research confirms the suspicion that a sizeable proportion of the UK’s tax grab is made up of sneaky ‘indirect taxes’ – only Russia and Italy took a bigger share of the total by these means than the UK’s 32%.
Efforts to improve public finances by raising taxation further is, the report suggests, a counterproductive strategy for highly-taxed economies such as the UK’s and risks jeopardising any prospect of recovery.