The key focus of today’s Exchequer figures was income tax.
January was a strong month for income tax and the question was whether receipts would hold up given the reduction in income tax rates and the impact of real time PAYE reporting launched in January.
February’s income tax figures were not as impressive as January, with the figures ahead of the same month last year, driven by a buoyant labour market and higher earnings, but behind target.
February is a quiet month for VAT but we would expect to see the higher disposable income translate into higher VAT receipts next month.
Obviously a big unknown is the impact of Brexit but so far uncertainty in this regard does not appear to be having an impact on the tax figures.
However a hard Brexit later this month would almost certainly depress tax figures significantly. In such an event we might see no further reductions in income tax rates in the Budget later this year and indeed potential increases in other taxes, such as property taxes.
February is also a quiet month on the corporate tax front so we wouldn’t read too much into the surprisingly high receipts in the month.
In recent years, strong corporation tax receipts have propped up any deficiencies elsewhere. The Minister has already flagged an expected dip in corporate tax receipts this year, with 2018 figures boosted by a one-off accounting change. Notwithstanding this, and global developments on the corporate tax front, we expect corporate tax receipts to remain robust in 2019.
So in summary, a good start to 2019. Unless we see a hard Brexit later this month, we expect further strong numbers in the months ahead.