91探花

The headline appears to be good news for UK plc; recently published statistics show on the previous year to £169bn. Our detailed review of these figures suggests that there was a fall in the VAT paid on sales suggesting that consumers were focussing on essentials (eg VAT-free rent and food) rather than VAT-bearing discretionary costs (eg eating out). However, the more worrying trend is that VAT recovered by organisations fell by a greater proportion than VAT on sales, leading to a rise in net receipts in 2023/24 compared to 2022/23. We explore some of the other trends, and speculate on what might have happened, below.

A missed opportunity, a warning to large businesses and signs that HMRC nudge campaigns are working

There are a host of insights in the VAT world that these statistics reveal but we’ve provided some highlights and comments:

• £10bn of import VAT is still paid every year when goods enter the UK from abroad, which represents an own goal for importers when the postponed import VAT scheme offers a simpler solution which improves cashflow.
• 75 per cent of all VAT receipts were collected from 2% of the taxpayer community (businesses with turnover over £10m). With HMRC seeking increased revenues from the influx of officers announced at the Budget, we expect that large businesses will face the brunt of HMRC compliance enquiries going forward.
• The amount of VAT HMRC has repaid has decreased by nearly £92bn since 2022/23, which may suggest that HMRC’s campaigns to reduce VAT recovery on entertaining and the costs of buying and selling businesses is reaping rewards. It might also point to a fall in capital spending as businesses ride out an uncertain trading period.

The hospitality sector: falling numbers of operators before latest tax hikes

As 91探花has reported, the Autumn Budget’s measures were particularly punishing for hospitality, a sector that remains fragile after a period of high inflation. The VAT statistics reveal that the number of ‘food and beverage service’ businesses fell by nearly 14,000 in 2023/24, which is a decrease of over 11% from 2022/23, suggesting many businesses in this sector either failed or are now deliberately trading below the VAT threshold to remain viable.

Despite these headwinds, the sector made a significant contribution to the exchequer with VAT receipts of £8.45bn in 2023/24, and £11.2bn if you include the accommodation sector. Thus, the government’s recent measures might be damaging an industry that makes an important contribution to its coffers.

The retail sector: largest contributor to VAT receipts hits a tough trading patch

There is a similar story in the retail sector with the number of retailers (excluding the motor industry) falling by 12.7% or 42,450 businesses in the year. Despite this, VAT receipts were £16.4bn – over 9% of the total VAT collected by HMRC in the year.

What does this mean?

We’ve reported in the past on the challenges facing consumer businesses; these figures show the challenges that these businesses face but also the importance of their contribution to the exchequer and suggests that further tax changes attempting to raise additional tax revenues could be self-defeating if they negatively impact these sectors. Furthermore, on VAT technical areas, HMRC appears to be having success with its campaigns, usually focussed on larger businesses, to reduce VAT recovery by these businesses. These VAT statistics show that despite a slide in VAT-bearing sales, and a fall in the number of VAT-registered businesses, HMRC has been able to collect more VAT than ever before. Taxpayers must be alive to these challenges as we expect that this trend of HMRC scrutiny will accelerate in the future.