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Business taxes increase despite falling profits as employment taxes become biggest burden for large firms

Out-Law News | 31 Jan 2014 | 9:59 am | 2 min. read

Taxes paid by the UK's largest businesses rose last year despite falling profits as employment taxes, VAT and excise duties made up a larger share of their contribution, according to new figures.

An annual survey of the 100 Group of large business finance directors by professional services firm PwC found that big firms now pay £2.86 in other taxes for every £1 they pay in corporation tax. Firms paid more in National Insurance contributions (NICs) for the first time as they employed more people, and increased their wages, over 2012 figures, according to its report.

According to the figures, the total tax contribution of 100 Group firms increased to £77.6 billion from £77.1bn in 2013, although corporation tax take fell from £8bn to £6bn over the same period. Of this drop, 30% was attributable to a lower corporation tax rate while falling profits for North Sea oil and gas companies also contributed to the decline. Firms can also deduct UK research and development costs and a substantial proportion of their capital investment from their taxable profits.

"It's not a surprise that for the first time corporation tax is not the largest tax paid by the UK's bigger employers," said Kevin Nicholson, head of tax at PwC. "Looking at the full picture of tax paid by business, you see that tax on profits has fallen while taxes on labour and property have increased. This is a global trend. By cutting the corporation tax rate, the Government is becoming less dependent on profit-related tax. This creates a more stable tax base."

"Measures like the lowering of the corporation tax rate and additional incentives for innovation are about attracting more investment to the UK, and we are seeing signs that this is paying off. Looking over a longer period, taxes borne by the 100 Group have increased by 11% since 2005 when the study began. While corporation tax has fallen 40% over that timeframe, other taxes borne have risen by 70%," he said.

The 100 Group is made up of the finance directors of the majority of the FTSE100 largest companies by share value, although with several large UK private companies and some multinational companies' UK operations. Together they employ over 7% of the UK workforce and account for over 14% of the total taxes paid to the UK Government.

Of the companies surveyed, those in the oil and gas and banking sectors remained the biggest contributors to the overall tax take. However, their percentage share had decreased since 2012 while that of retail, insurance and telecoms companies had expanded. A total of 25 different business taxes were paid by FTSE 100 firms in 2013 compared to 24 in 2012. After corporation and employment taxes, business rates accounted for the largest share of taxes paid, while surveyed firms also contributed £1.2bn to the bank levy.

The corporation tax rate has steadily fallen from 28% in 2010 to the current rate of 23%. It will continue to fall until 2015/16, when it will reach 20%.

"The rebalancing of business taxes away from corporation tax appears to have played a role in helping to incentivise increased levels of UK employment, as well as investment and research and development," said 100 Group chair Robin Freestone, the chief financial officer of media and publishing group Pearson.

Corporate tax expert Heather Self of Pinsent Masons, the law firm behind Out-Law.com, said that too much of the media debate on taxes paid by big businesses focused on corporation tax, without taking into account their investment decisions or entitlement to claim legitimate tax reliefs.

"The Government needs to collect a certain amount of tax, and it will take policy decisions on how this should be split between direct and indirect taxation, and companies and individuals," she said. "As business becomes ever more mobile it is inevitable that the balance will change."

"Having a competitive tax system in order to attract international businesses to the UK means having certainty and stability, as well as simply changing the amount of tax to be paid," she said.