Where did the money go?

January is the most important month of the year for HM Revenue & Customs. It’s when the largest amounts of tax are paid. Corporation tax and VAT have quarterly peaks - and January is one of them. It’s also the main month for the self-employed to pay their tax (July being the other one). Finally, it’s the month when income tax on investment income and capital gains tax is paid.

However, total tax receipts in January 2010 dropped by over £5 billion, compared to prior years.

The explanation is relatively simple. Capital Gains Tax payments reached their highest ever level in 2009, due to Alistair Darling's decision in October 2007 to abolish the 10% effective rate on business assets - from April 2008. Consequently, many people decided to sell assets to take advantage of the old rate. CGT is payable on 31 January following the tax year in which the sale took place. The chart shows capital gains tax payments for the last few tax years:

Over 260,000 people paid the tax in January 2009 - but it's expected that far fewer paid CGT in 2010.

The £5 billion drop is accounted for by the drop in CGT.