The latest survey of the total tax contribution of the Hundred Group, which consists of the finance directors of the UK’s biggest companies, shows that its members paid £56.8 billion in tax in the year ending March 31 2010. This equates to 11.9% of all government tax receipts.
And a study from Oxford University found that over the last 10 years, multinational companies have paid 86% of all corporation tax
This is the sixth year PwC, the professional services firm, has collected information to see the total UK taxes borne and collected by the Hundred Group.
“The survey spanned the particularly difficult period that followed the financial crisis - a time when lower profitability affected members’ corporation tax payments. However, the Hundred Group member companies continued to bear and collect substantial amounts of taxes,” said Ashley Almanza, vice chairman of the Hundred Group.
These figures are a slight reduction from last year’s survey when the total tax contribution was £66.6 billion, amounting to 13.1% of all government tax receipts.
The economic downturn meant falling commodity prices and this resulted in lower profits and a smaller amount of corporation tax.
“For every £1 of corporation tax, there was £1.97 in other taxes borne and £6.79 in taxes collected [for Hundred Group members],” said Susan Symons, leader of the Total Tax Contribution team at PwC. “[Of the] total tax contribution to the exchequer, corporation tax is about 10% of that,” she added.
While this is true, the amount larger companies pay as a percentage of their earnings within industrial sectors is less than other companies before interest and tax.
The PwC report goes on to dissect the contribution of various industry sectors within the Hundred Group’s members. In line with the findings of previous reports, banks, insurance companies, oil and gas companies, and retailers paid 66% of taxes borne and 69% of taxes collected though they accounted for only 31% of the companies participating.
Employment contributions
The Hundred Group companies in these four sectors also employ 6.1% of the UK workforce according to the survey and contribute £16.7 billion in employment taxes.
“The average wage for those employees is £46,500; significantly higher than [the] national average wage,” said Almanza.
That is almost twice the UK national average wage in 2010 of £25,900.
Total tax rate
The total tax rate (TTR) for Hundred Group members, which is a measure of all taxes borne in relation to profitability, was higher than it was in the years before the financial crisis, said Symons.
“The Total Tax Rate remained high at 51.8% as, unlike corporation tax, payments of other taxes did not fall with declining profitability and therefore become relatively more expensive,” added Almanza.
Cooperation and growth
One of the key motivations for the PwC/Hundred Group survey is to highlight the contribution of these companies to the economy as part of a lobbying effort to encourage the government to develop a more predictable and competitive tax system.
“Without undertaking the survey, this information simply wouldn’t be in the public domain,” explained Almanza. “It’s important as it fosters dialogue between business and Government and many Hundred Group members use the survey in the conversations they have with HMRC and other stakeholders.”
“There is a concerted effort from all sides to ensure the tax system is competitive,” said Symons. “Companies use the feedback from the survey results in a number of ways, for instance in board briefings.”
Symons expects the results of next year’s survey to be different as the economy continues to improve.
“The effects of the economic cycle can be clearly seen in these results,” said Symons. “We can expect next year’s survey to show contributions increasing again. With oil prices already recovering as well as corporate profitability returning, we should be able to see that come through in future results, so too the 50% top rate of income tax for high earners and the bank payroll tax which will both be relevant for next year’s survey.”
“The business community recognises and supports the need for fiscal consolidation and the near term imperative to repair the public finances. However alongside that we also need clear signals regarding the direction of travel, not only for corporation tax, but all taxes, so that UK businesses can make long term decisions about investment and employment,” said Almanza.
“This year our message to Government is consistent with our previous messages. In order for the UK to attract investment and employment it is vital that the tax system is predictable and internationally competitive,” he added.
Narrow base
The other report, from the Oxford University Centre for Business Taxation entitled Corporation Tax in the United Kingdom, reveals that despite a low corporation tax rate, the UK generates high revenues from this source. It says that, in 2010, the UK’s corporation tax rate was the lowest in the G7 yet as a proportion of GDP, corporation tax revenue in the UK has consistently been above the G7 average.
In a time where companies that are seen to have reduced their tax bills too aggressively are being criticised by people keen to see everybody making a fair contribution to the restoration of public finances, the Oxford report shows, perhaps surprisingly, that multinational companies have a similar proportion of zero taxpayers to other companies. Fifteen percent of profitable UK companies that are part of multinational groups pay no corporation tax while of profitable UK companies that are not part of a multinational group, 14% pay no corporation tax.
“The report provides a useful analysis of where UK corporation tax receipts come from, and will improve the evidence base which HMRC use to work with the Treasury in developing and monitoring tax policy,” said an HMRC spokesperson.
The centre, which has been funded by the Hundred Group since its establishment, received unprecedented cooperation from HMRC and companies in compiling the report. Confidential tax return data was made available to researchers for the first time by the tax authorities, as well as detailed accounting data from the FAME database published by Bureau van Dijk.
“HMRC and The Oxford University Centre for Business Taxation have been working closely on a pilot project to develop the HMRC Datalab,” said the HMRC spokesperson. “This is a secure IT suite that will allow approved external researchers to carry out analysis of tax policies and operations that benefit HMRC, by giving them access to anonymised taxpayer data. It will be made fully available externally in due course.”
“This is the first time HMRC data has been used for CT analysis in the secure HMRC Datalab. We hope that the Datalab leads to further interesting research findings in the future,” the HMRC spokesperson added.
