Record tax receipts bring a smile to the Chancellor's face, for now

HMRC’s latest report on monthly tax and NIC receipts is sure to bring comfort to the Treasury, but for how long?

Total HMRC receipts for April 2021 to January 2022 are £597.6 billion, which is £124.8 billion higher than in the same period a year earlier. Although comparisons against receipts in the same period last year are not representative, as they were heavily impacted by the effects of the Covid-19 pandemic, the year-on-year comparison shows how tax receipts are rebounding:

April 2021 to January 2022 receipts, year on year comparison - chart

Employment data contained in the report is also encouraging. This shows the number of paid employees increasing by 4.8 per cent over the year, with median monthly pay rising by 5.3 per cent.

As some of the published figures are provisional, we will have to wait until after the end of the tax year to be certain. However, at this point it seems that in January 2022, HMRC collected more tax than in any previous single month.

The increase was led by £47.2 billion in January 2022 self-assessment tax payments (January 2021: £36.7 billion) and VAT (January 2022: £18 billion). The VAT figure is particularly high because January saw the collection of considerable amounts of VAT which had been deferred during the pandemic.

Among the other taxes covered by the report:

• in January, SDLT receipts fell back to £1.2 billion, from a peak of £2.1 billion in December 2021;
• fuel duty receipts have been declining steadily since October 2021 and are now back to April 2021 levels;
• alcohol duty, as is typical, has dropped significantly since the Christmas and New Year holidays;
• environmental taxes remain below trend;
• air passenger duty continues to rise slowly but is running at only half pre-pandemic levels;
• January collections of inheritance tax were relatively high, but as ever these figures are difficult to interpret as they depend on processing times within HMRC, as well as mortality rates and the size of estates.

From the Chancellor’s point of view, this is good news. However, taxpayers may feel differently. While Omicron may not have a lasting impact on the economy, inflation is forecast to rocket in the coming months, peaking at around 7 per cent in April. Inflation and tax rises mean households' real incomes will fall by the largest amount in three decades in 2022, which will put a big dampener on consumer confidence and their ability to go out and spend.