HMRC collected a record £157.2bn from VAT bills in 2021/22, a 55 per cent increase on the £101bn collected the year before.
It comes after businesses were forced to make up for payments they deferred during the pandemic, said national accountancy group UHY Hacker Young.
HMRC’s VAT income has risen sharply after the rate of VAT paid by the hospitality sector increase to 20 per cent on 31 March 2021. The rate was temporarily reduced to five per cent during the pandemic to ease the burden on pubs, restaurants and hotels forced to close during lockdown.
Additionally, the Government introduced a VAT holiday between March and June 2020 to support businesses hit hard in the early stages of the pandemic. The holiday was later made more generous, allowing many businesses to defer their VAT payments into smaller instalments until March 2022.
Sean Glancy, Partner at UHY Hacker Young, explaiend sharply rising inflation has also played a role in driving up the amount HMRC collects in VAT.
“For all the good the VAT holiday did at the time it was introduced, it’s resulted in businesses paying the most VAT in recorded history the year after”, Glancy said.
“The VAT holiday saved a lot of businesses in 2020 but it effectively just pushed the bills from one year into the next. Those increased payments in 2021 hurt for some of them.”
“If inflation continues to run out of control the amount paid in VAT is only going to rise. Cutting VAT temporarily is one option the Government has to ease the cost of living crisis for individuals and businesses.”
Commenting on the findings, a spokesperson from HMRC said: “HMRC will support any taxpayer in financial distress as a result of COVID-19 and any business that may struggle to pay its deferred VAT should contact us to make an arrangement to pay.
“VAT is a vital source of revenue for the exchequer and helps to fund key spending priorities, including the NHS and policing.”