Multinational companies have paid 86% of all UK corporation tax over the last ten years but the largest 100 companies generally pay less tax than other companies as a percentage of earnings before interest and tax, according to a report published by the Oxford University Centre for Business Taxation.
‘Corporation Tax in the United Kingdom’, a 72-page report by Michael Devereux and Simon Loretz, is based on anonymised, confidential corporation tax return data made available to researchers for the first time by HMRC, as well as financial accounting data.
The authors found that corporation tax payments are ‘highly concentrated’. The top 1% of all companies pay 81% of UK corporation tax, the report said.
‘Tax return data indicate that a significant proportion of companies do not have a positive tax liability. Amongst the smallest companies, this proportion is around 60%; as size increases, the proportion drops to 40% and then increases slightly to about 50% for the largest companies.’
It added: ‘Within each sector there is evidence that, as a proportion of trading profit, the tax liabilities of the largest 100 companies are generally lower than for other companies.’
The BBC’s Business Editor, Robert Peston, observed that ‘unsurprisingly, big companies have the wherewithal to engage in sophisticated tax planning that reduces their tax bills’.
The Financial Times quoted Michael Devereux, co-author of the report and director of the Centre for Business Taxation, as saying there were a number of explanations, including big groups’ greater use of capital allowances and ability to offset losses against profits.
But he warned against drawing firm conclusions, telling the FT that the researchers did not have enough information.
A significant proportion (around 13-15%) of companies that have a positive accounting profit do not show a positive corporation tax charge in their accounts, the authors found.
While the CT600 tax return data provided considerable detail, the authors observed that some key elements were excluded, such as the extent to which taxable profit is reduced by interest payments and details of the level and treatment of foreign income.
The authors noted: ‘The dataset does not contain information on ownership, and so we do not know (other than indirectly in some cases, by observing group relief) whether a company is part of a group or a multinational company. This is particularly important in identifying the role of losses, since we are not able to observe a company surrendering losses to another company for group relief.
‘Since data is limited to the CT600 form, we also have limited information about other financial information. We are not able to construct a good measure of an effective tax rate, and the only variable we can use to measure size is turnover.’
The Centre for Business Taxation was founded using ‘generous’ funding from companies from the Hundred Group, which represents the finance directors of the UK’s largest companies. ‘Subsequently, other companies have also offered us their support,’ the Centre’s website says. The Centre also receives ‘significant’ funding from the Economic and Social Research Council.
Multinational companies have paid 86% of all UK corporation tax over the last ten years but the largest 100 companies generally pay less tax than other companies as a percentage of earnings before interest and tax, according to a report published by the Oxford University Centre for Business Taxation.
‘Corporation Tax in the United Kingdom’, a 72-page report by Michael Devereux and Simon Loretz, is based on anonymised, confidential corporation tax return data made available to researchers for the first time by HMRC, as well as financial accounting data.
The authors found that corporation tax payments are ‘highly concentrated’. The top 1% of all companies pay 81% of UK corporation tax, the report said.
‘Tax return data indicate that a significant proportion of companies do not have a positive tax liability. Amongst the smallest companies, this proportion is around 60%; as size increases, the proportion drops to 40% and then increases slightly to about 50% for the largest companies.’
It added: ‘Within each sector there is evidence that, as a proportion of trading profit, the tax liabilities of the largest 100 companies are generally lower than for other companies.’
The BBC’s Business Editor, Robert Peston, observed that ‘unsurprisingly, big companies have the wherewithal to engage in sophisticated tax planning that reduces their tax bills’.
The Financial Times quoted Michael Devereux, co-author of the report and director of the Centre for Business Taxation, as saying there were a number of explanations, including big groups’ greater use of capital allowances and ability to offset losses against profits.
But he warned against drawing firm conclusions, telling the FT that the researchers did not have enough information.
A significant proportion (around 13-15%) of companies that have a positive accounting profit do not show a positive corporation tax charge in their accounts, the authors found.
While the CT600 tax return data provided considerable detail, the authors observed that some key elements were excluded, such as the extent to which taxable profit is reduced by interest payments and details of the level and treatment of foreign income.
The authors noted: ‘The dataset does not contain information on ownership, and so we do not know (other than indirectly in some cases, by observing group relief) whether a company is part of a group or a multinational company. This is particularly important in identifying the role of losses, since we are not able to observe a company surrendering losses to another company for group relief.
‘Since data is limited to the CT600 form, we also have limited information about other financial information. We are not able to construct a good measure of an effective tax rate, and the only variable we can use to measure size is turnover.’
The Centre for Business Taxation was founded using ‘generous’ funding from companies from the Hundred Group, which represents the finance directors of the UK’s largest companies. ‘Subsequently, other companies have also offered us their support,’ the Centre’s website says. The Centre also receives ‘significant’ funding from the Economic and Social Research Council.
