Is the system for voluntary tax payments due an overhaul?

25 July 2023

The amount of tax paid voluntarily in the UK is seemingly so negligible that it does not specifically feature in HMRC’s latest accounts. Voluntary tax payments are not common practice as the tax system is primarily based on mandatory tax obligations determined by income. 

Perhaps this should not be a surprise given that many people’s finances are suffering as a result of the Covid-19 pandemic and the cost-of-living crisis. However, many wealthy people have seen their wealth increase over the same period. This has resulted in calls from some for the wealthy to pay more taxes, including from some wealthy people themselves. 

The group, Patriotic Millionaires UK, for example, believe that the extremely wealthy should contribute more so that working people and those on low incomes are not endlessly picking up the pieces of our broken economy. They have written to the government to say that they are not being forced to pay their fair share towards the global recovery. 

Making “patriotic gifts” to the nation has a long tradition, dating back to the time of the Napoleonic wars. Yet we have seen Britons’ willingness to donate to the Treasury dwindle in recent years, even as the country’s debts reach a record high. It is already possible to pay more tax than you owe if you wish to do so. Donations can be given to the government via the form of a direct bank transfer towards public expenditure or via donations given specifically to reduce the national debt. You can also voluntarily overpay taxes during the filing of a self-assessment tax return by not claiming available reliefs, for example. 

Despite these easy ways to pay more to the government, according to the UK Debt Management Office only £2,108 was received in donations in the year to 31 March 2022. In contrast, HMRC’s recent UK charity relief statistics show that overall reliefs for charities rose by 8% to £4.27bn.

The Charities Aid Foundation reported that an estimated £12.7bn in donations were made in 2022, the most generous year ever for giving, increasing from £10.7bn in 2021. Whist the total amount of giving increased in 2022 the growth was driven by an increase in the average size of donation, accompanied with a fall in the overall number of donors. The trend therefore points towards fewer wealthy people giving more.

HMRC continues to invite “voluntary restitution” from taxpayers who owe tax but are unlikely to be pursued by the authorities. Could it be that high earners are less likely to want to make voluntary donations in tax but would instead prefer to donate to charity where they have more confidence on what their donation will be used for and the impact that it will create? 

Perhaps the option of making voluntary payments to the government could be made clearer as an option to taxpayers. Alternatively, maybe taxpayers want to see a more tangible return for such a gift. Maybe a donation system for taxation could be introduced which is earmarked for certain things such as the welfare state and NHS to readdress the balance between voluntary tax payments and charitable giving.