• Indirect taxes harder to collect, so shift creates more opportunity for abuse
• Bloomsbury Professional celebrates its 10th anniversary in October
The Government has made a significant shift in its revenue raising from direct to indirect taxes as the amount of indirect taxes levied by HMRC has risen by 49% over the last ten years, compared to a 38% rise in the amount collected through direct taxes, says Bloomsbury Professional, a leading tax and accounting information group.
The amount of indirect taxes collected by HMRC has grown from £93bn in 2003/04 to £138bn last year while HMRC's receipts from direct taxes have risen at a slower pace, from £255bn to £352bn over the same ten year period.
Indirect taxes are levied by raising the price of goods so the tax is included in the price charged to the consumer. Indirect taxes include Value Added Tax (VAT) and Insurance Premium Tax as well as duties on customs, alcohol and tobacco.
Indirect taxes are thought to have less of a negative impact on the incentive to create wealth than direct taxes such as Income Tax or Inheritance Tax.
Bloomsbury Professional explains that indirect taxes can be collected at a much lower cost than direct taxes, which may also be one of the factors behind the increase. Also, indirect taxes afford Governments the flexibility to encourage or discourage the consumption of certain products.
The total amount of tax raised by HMRC has increased by 43% over the last ten years, from £344bn to £490bn.
Martin Casimir, Managing Director of Bloomsbury Professional, explains:
"Taxpayers are paying more tax than ever but over the last ten years there has been an increased emphasis on those taxes that are less noticeable to the general public. The shift to indirect taxes is partly because they are seen as less likely to disincentivise wealth creation.
"There's been a huge shift to taxes based on consumption and purchases and away from headline-making direct taxes. For example, tax taken through PAYE is clearly signposted on every taxpayer's paycheck, so politicians have been slowly shifting the tax burden to more stealthy indirect taxes like VAT and duty on alcohol.
"An increased tax burden on VAT has had a dramatic impact on the cost of living as many everyday items have gone up in price due to the VAT increases."
Indirect taxes are harder for HMRC to collect
Bloomsbury Professional points out that indirect taxes are more complex to administer, meaning that the growing reliance on revenue from indirect taxation may have created more opportunity for tax evasion.
Martin Casimir continues: "Direct taxes like stamp duty and PAYE are very easy for the taxman to administer and harder for taxpayers to evade. The shift by the government towards revenue from indirect taxes means there is more opportunity for simple mistakes and even abuse of the system."
Bloomsbury Professional celebrates 10th anniversary
This month marks the 10th anniversary of Bloomsbury Professional. The group was founded in 2004 as Tottel Publishing, producing tax information to lawyers, tax practitioners, accountants and business professionals.
Martin Casimir explains: "We're very proud that Bloomsbury Professional has been a trusted source of information for business professionals and the public for a full decade. Our success during this time has been built on staying true to our values by providing reliable and concise tax advice and we will continue to do so in the coming years."
Indirect tax – Top five taxes that have seen the biggest growth
Direct tax – Top five taxes that have seen the biggest growth