The homework shift caused by the pandemic could cost the UK economy up to £ 32 billion in income tax losses annually.
Highly paid workers who live abroad but work in the UK pay their income tax in their country of residence, not to HMRC – which could cost billions each year, researchers say.
This new labor mobility can also affect where corporate tax and value added are paid, as well as VAT and where goods and services are bought.
Professor Rita de la Feria, Chair of Tax Law at the University of Leeds School of Law, co-led the new research with Dr. Giorgia Maffini, tax policy expert at PWC, London.
Her paper The Impact of Digitalization on Personal Income Taxes was published in the British Tax Review.
Professor de la Feria said: “The acceleration of digitization and the global spread of teleworking as a result of the pandemic are major challenges for income taxes.
“New mobile workers are likely to be at the top of the income distribution, and even a small number could result in a significant loss of income for the UK between £ 6 billion and £ 32 billion.
“The likely impact will be tightening employment regulations, introducing new tax avoidance rules and increasing income tax competition with countries struggling to recruit new mobile workers.
“The impact of these changes in working life is likely to be greater in countries like the UK, which is heavily dependent on income taxes – especially a small number of high-income – and now potentially mobile – taxpayers.
“How big these challenges are and how the countries react to them will be a central topic in the coming years.”
The total income tax paid in the UK in 2018-19 was £ 187 billion, with 35% paid by the 4.2 million higher rate taxpayers and 31% paid by higher rate taxpayers.
An estimated 31% of UK jobs can be performed remotely – an as-yet unknown proportion of which will be internationally mobile.
Assuming only higher and additional taxpayers are internationally mobile, the researchers say the potential income tax loss would be between 2% and 10% of total revenue – between £ 3.8 billion and £ 19 billion per year.
Including social security contribution losses between £ 2.7 billion and £ 13 billion per year, the total loss in income tax revenue would be between £ 6.5 billion and £ 32.5 billion per year.
The researchers say recent global tax discussions have focused on solving the corporate tax challenges posed by digitization, but the shift to remote working caused by the pandemic could be an even bigger crisis.
Professor de la Feria said: “This crisis has the potential for far wider economic and societal repercussions than the corporate tax challenges. The challenges of adapting our tax systems to a digital economy are far from over and have only just begun.”
For media inquiries, contact Lauren Ballinger, Press Officer for the University of Leeds, at [email protected].
University of Leeds
The University of Leeds is one of the largest higher education institutions in the UK, with more than 38,000 students from more than 150 different countries, and a member of the Russell Group of research-intensive universities. The university plays an important role in the Turing, Rosalind Franklin and Royce Institutes.
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