personal finance

Drop in drinking and smoking hits HMRC ‘sin tax’ receipts


The trend for healthier lifestyles has led to a slowdown in the amount HM Revenue & Customs has collected from “sin taxes” over the past decade.

The money received from duties on alcohol, cigarettes and gambling activities has failed to keep up with the overall tax take, HMRC figures crunched by accountants UHY Hacker Young found.

The amount received by HMRC from all forms of taxation between March 31 2009 and 1 February 2019 increased from £412bn to £622bn — a hefty 51 per cent. But tax receipts from alcohol, tobacco and gambling over the same period climbed at a slower pace from £19bn to £24bn — up by 25 per cent.

Smoking has been in decline in the UK for several decades. The latest 2017 figures from the Office for National Statistics found 7.4m adults — or 15.1 per cent of the population — smoked, down from a peak of 46 per cent in 1974 when records began.

Meanwhile, a steady drop in alcohol consumption among millennials is also depressing the tax take. Last year a study carried out by UCL revealed, 29 per cent of 16 to 24-year-olds in 2015 were non-drinkers, compared with 18 per cent in 2005.

“As consumer lifestyles change and fewer individuals smoke or drink HMRC is starting to reach the limits of what it can feasibly collect from sin taxes,” said Clive Gawthorpe, tax partner at UHY Hacker Young. “The Treasury has introduced the soft drinks levy partly to help our health but perhaps more importantly it boosts HMRC sin tax receipts.”

This levy, which came into force in April 2018 and adds a charge of up to 24p per litre of soft drink depending on sugar content, has already raised £240m for HMRC, Mr Gawthorpe said.

The tax authorities have also shown willingness to adapt to changing consumer habits by bringing in a new duty category for heated tobacco products in the 2018 Budget. This will come into effect from 1 July.

The tax receipts received from gambling and betting activities over the past decade grew notably faster than those received from tobacco and alcohol duties. Last year a study by the Gambling Commission revealed nearly half a million children aged from 11 to 16 bet regularly.

Lucy Brennan, partner at Saffery Champness, an accountancy firm, said cigarette use was on a downward trend and many people had switched to other alternatives to help them quit. “If sin taxes continue to dwindle then HMRC may start to think further outside the box to ensure that the Treasury doesn’t take an income hit,” she said.

Property is an area Ms Brennan suggested may see further taxation, in particular for landlords and overseas owners of UK property, noting that UK property was taxed relatively lightly compared with many jurisdictions around the world. “We are already seeing a range of new property taxes coming into force over the next couple of years and this may at least be partly a tactic from HMRC to address any potential tax shortfall from other sources.”

Another potential factor behind the fall in sin tax receipts could be the increased prevalence of bootlegged goods. “High taxes on alcohol and tobacco products in the UK increases the incentives for smugglers to illegally import them, which in turn leads to a reduced tax take for HMRC,” Mr Gawthorpe said.



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