UK finance sector keeps the taxman happy

Brexit relocations have failed to put a dent in the record level of tax contributions from the UK's financial services sector, according to a new report.

David Sapsted

8 January 2020

Published this week by the City of London Corporation, the Total Tax Contribution of UK Financial Services report says that, in the last financial year, the sector contributed £75.5 billion to the public purse – a figure that represented 10.5 per cent of all UK tax receipts.It had been widely expected that the tax haul from the sector would decline in the wake of the Brexit referendum and the need to move staff to new hubs within the EU27. However, the workforce in the UK has remained largely unchanged, defying predictions of a 'Brexodus'.

Corporation tax receipt decline

While the report produced by professional services firm PwC, does show that corporation tax receipts have fallen for the first time since 2014, this is attributed to a slight decline in the profitability of participating companies. The 2018-19 total contribution comprises £33.4 billion of taxes borne and £42.1 billion of taxes collected."Employment taxes have always made up the largest share of the sector’s tax contribution and this has not changed this year," says the report. "Financial services firms employ 1.1 million people across the country accounting for around 3 per cent of all UK employment, generating 7.1 per cent of GVA (gross value added) and 11.6 per cent of all UK employment taxes (£34.5 billion)." The report also highlights the difference of tax profiles by financial services sub-sector.For challenger banks, corporation tax made up 34 per cent of their total tax contribution, compared with 15 per cent across the banking sector as a whole. However, partly due to their smaller employment base, challenger banks’ share of contribution from employment tax was 37 per cent, considerably lower than the banking sector average at 50 per cent.

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Catherine McGuinness, policy chair at the City of London Corporation, comments, “Despite a challenging economic climate and uncertainty around Brexit, the sector has maintained its tax contributions from the record high of last year. It is only right that the City continues to make a fair contribution to support the wider economy and public services.“With Brexit looming, however, the UK must remain competitive to safeguard the sector’s employment base and significant tax contribution. The sector is vital to supporting prosperity right across the country."Besides 1.1 million directly employed, it provides services such as bank accounts, mortgages and business loans on which millions more depend upon in their daily lives. It will play a critical role in fuelling our economic success after we leave the European Union.”

A resilient financial services sector

Andrew Kail, head of financial services at PwC, adds, “This report highlights the resilience of the financial services sector. Contributing more than one pound in every ten of total UK tax receipts, despite ongoing uncertainty, is a major achievement.“A slipstream is being created across the sector due to technological advances; incumbents and challengers are disrupting the market, adapting to meet customer demand.“New ways of working, operational business models, and technological disruption have the potential to change the employment profile – and therefore the tax profile – of firms across the sector. It’s important that we look closely at our tax system to ensure it’s fit for new ways of working and doing business while optimising the competitiveness of the sector post-Brexit.”