Big businesses – paying as much tax as they’ve always done

There has been endless complaining over the last few years about just how little tax big companies operating in the UK pay here.

At first glance, those complaints are completely valid. It is clearly absurd that Facebook paid only just over £4,000 in tax in the UK in 2014, or that a company the size of Amazon somehow managed to cut its tax bill to under £12m in the year. Ryanair has apparently been avoiding tax by classifying its crew as “independent subcontractors”; Cadbury’s owner Mondelez International paid not a penny of corporation tax last year; and Mappin & Webb hasn’t paid any for five years.

It also seems wrong (if not exactly a surprise) that – thanks to the low rate of corporation tax in the UK and the various wheezes companies use to avoid paying even that – corporation tax as a whole makes up less of our tax take than it did a few years ago.

In 2008, says the Sunday Times, it was 10% of the take. It is forecast to come in at around 7% this year. Look at how the corporate world has evolved and you can see how it has happened: companies have got bigger and more powerful – and more able to hire huge teams of lawyers to exploit any and all loopholes. Irritating isn’t it?

But a letter to the FT this week made a much missed point on the matter. Corporation tax receipts says PwC’s head of tax, Kevin Nicholson, “provides a misleading picture of the value added to the UK by multinational companies”.

UK governments have long been aware that collecting corporation tax is tough (and therefore inefficient). They know they can’t easily stop multinational companies shifting intellectual property and debt around the globe (although they are trying – note Osborne’s Google tax). So they have focused their efforts elsewhere: steadily reducing the dependence on corporation tax by “cutting the tax rate while increasing taxes on employment and property”.

The result is that, whereas ten years ago the corporation tax take from the UK’s 100 biggest firms was about equal to the take from business rates and employer’s National Insurance, today, for every £1 of the former the state takes in about £3.27 of the latter and the “overall tax borne by big business has been sustained”.

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