Economics

Corporation tax and the budget: What will they really pay?

22nd June 2010 — Filed under: Economics

Richard Murphy Richard Murphy

The unfairness of the budget is shown in microcosm in the proposed changes to corporation tax. Over the next four years the top rate of corporation tax in the country will be reduced from 28% to 24%, only paid for in part by a small reduction in the investment allowances large businesses (in particular) enjoy. Small companies will, at the same time, see a fall in their corporation tax rate from 21% to 20%.

However, all is not as it seems. In the TUC publication The Missing Billions published in 2008 we showed that the effective rate of corporation tax paid by large businesses in the UK was no more than 22%. Subsequent data from HM Revenue & Customs published on their own web site has confirmed this estimate as generous – they show an average rate of 21% and that some large companies pay much less.

That however is not true of small businesses. Most of them claim few allowances against their tax bills, and do not use transfer pricing or offshore to avoid their obligations in this country. Indeed, in many cases they actually pay tax at a rate, when expressed as a percentage of their profit that is higher than the published rate of corporation tax for small businesses.

So we’re going to end up before this parliament is out with the extraordinary situation that after offset of all the allowances and reliefs large multinational corporations enjoy they might have an effective tax in his country of somewhat less than 20%. And that rate is lower than the basic rate of income tax, lower than the rate of VAT and lower than the rate of tax charged on small companies.

What an extraordinary outcome that is: when everyone else is going to be squeezed to pay for the deficits that banks caused their effective rate of tax will be lower than that of any real live living person enjoying anything but the most basic of incomes in the UK.

Where is the justice in that?

GUEST POST: Richard Murphy is a chartered accountant, and was Senior Partner at Murphy Deeks Nolan until he and his partners sold the firm in 2000. In parallel with his practice career, he has been chairman, CEO or finance director of more than ten SMEs. Since 2000 Richard has been increasingly involved in taxation policy issues. He is a founder of the Tax Justice Network and director of Tax Research LLP, which undertakes work on taxation policy for a clients including governments, commercial organisations, aid agencies and pressure groups in the UK and abroad (including the TUC, which he advises on tax issues). Richard is a visiting fellow at the Centre for Global Political Economy at the University of Sussex, External Research Fellow at the Tax Research Institute, University of Nottingham, and a prolific and influential blogger at Tax Research UK.

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