The financial services sector paid a total tax contribution of £71.4bn in the year to 31 March 2016, a 7.4% rise on the previous year’s figures and the highest since the finance crash, according to analysis by PwC
The report for the City of London Corporation shows banks and insurance firms were the highest overall tax-paying sub-sectors, due to reforms in corporation tax and the bank levy. The analysis reveals financial firms paid £8.4bn in corporation tax, up from £7.6bn (10.5%) on the year before, whilst the bank levy saw foreign and UK based banks contribute £3.4bn in the last financial year – an increase of more than 25%.
Data from the report shows that the equivalent of almost a quarter (23.3%) of financial services’ turnover in the last financial year was paid out in tax.
The contribution, which is the last set of financial services tax data to be published before Brexit negotiations commence, is 11.5% of total UK government tax receipts. It also shows that for every £1 of corporation tax paid – one of the largest direct taxes - there is another £3.83 paid in other direct taxes.
Overall, employment generates the largest amounts of tax paid into the public finances, accounting for 47.8% of total receipts. Financial services employs 1.1m people across the UK (3.4% of the workforce), while the study found average employment taxes per employee were over £32,000. Reforms on pension drawdowns, which came into force in April this year, are also represented in employees’ tax totals but is expected to level out in next year’s data.
Mark Boleat, policy chairman at the City of London Corporation said: ‘In light of the UK’s decision to leave the EU, these new findings not only demonstrate the significant contribution made to government revenues, but are also key in helping us to understand the potential impact of Brexit on different sub-sectors within financial services.’
Andrew Kail, head of financial services at PwC, said: ‘The report highlights an increasing reliance on tax receipts from banking and insurance firms. This is balanced against a backdrop of downward pressure affecting return on equity for the banks in particular, resulting from regulatory changes and the low interest rate environment.
‘With the added potential adverse impacts of Brexit on the sector, the question arises as to whether the current levels of tax contribution are sustainable.’
