James Mason from accountants Fifth Element talks straight about business

Taxation vs Spending
More drama than Alien Vs Predator, the UK National Debt reaches a staggering £1 trillion!

Please bear with me. Ordinarily my remit is to write on micro subjects to better aid the understanding of business related, tax and financial issues for the local and wider business community; and I have said it before and I will say it again that this is not a political column and I am not an economist. However, I couldn’t resist the temptation on a day when the UK National Debt reached a record £1 trillion to have a macro dig about in the subject of what taxes we pay, who pays them and how the Government spends them. This is Taxation vs. Spending – The Ultimate Conflict.

Taxation
Where is the tax collected from?
Firstly, let’s have a quick look at what the Treasury collects in tax revenue. Source: OBR. Total tax receipts in 2011-12 will be £589bn. Income tax will account for £158bn (27%), National Insurance £101bn (17%), VAT £100bn (17%), Corporation Tax £48bn (8%), Excise Duties £46bn (8%), Council Tax £26bn (4%), Business Rates £25bn (4%) and Other Taxes (including stamp duty, capital gains tax, inheritance tax, royalties, insurance premium, air passenger, betting and gambling duties) £85bn (14%).

Now let’s look at who pays them. Source: BBC. 10% of the lowest paid people contribute 0.5% of total tax collected, 90% of all individuals contribute 47% of total tax collected while the top 10% of tax payers (individuals who earn more than £48k per year) contribute 58% of total tax revenue. More interestingly perhaps, is that the top 1% of tax payers (individuals who earn more than £158k per year, 300,000 people) contribute a staggering 27% of total tax revenue. Or to put it another way, the top 1% paid people in the UK contribute to over one quarter of all tax receipts collected.

Spending
What is the tax being spent on?
Not very interestingly, but necessary for completeness, is what the government spends it all on. Source: OBR. Social Security & Welfare gets £232bn (33%), Health £126bn (18%), Education £89bn (13%), Debt Interest £50bn (7%), Defence £40bn (6%), Public Order & Safety £33bn (5%), Transport £23bn (3%), Housing & Environment £24bn (3%), Industry, Agriculture and Employment £20bn (3%) and all other spending gets £74bn (10%).
Interestingly, well for me at least, and something those of you with an agile arithmetic mind (or a calculator to hand) will have spotted is that total spending adds up to a whopping £711bn. Now, I’m no rocket scientist (he says adding to the list of things he says he isn’t) but how long can we sustain spending £122bn annually more than we earn?

In conclusion
Let’s ignore the fact that if someone in your business took their eye off the ball to the same degree as this that they’d be a serious matter to be dealt with. What concerns me more is that the OBR is showing forecast spending for the year 2013-14 of £740bn which is £29bn more than current levels. If this is austerity then I’m frightened to ask what ‘business as usual’ would be like. One thing I can say with certainty is this, unless we see significant stimulation in the UK’s GDP then the politicians will simply put more pressure on the tax system to pay for it all. Is there anything you can do to protect yourself? The short answer is yes, start planning ahead now for ways to save any avoidable tax in the future.

Fifth Element is a local Brighton-based accountancy practice offering expertise in all aspects of Accounts Preparation, VAT, Taxation, CIS, PAYE, Tax Planning, HMRC Issues and Business Development.