Member Article

UK companies – doing the right thing by the taxman?

Last week we commented on the apparent success of HMRC’s policy requiring major companies to give a certificate of good tax behaviour before applying for government contracts. This week we look at another sign that the public perception that ‘they’re all at it’ can’t be supported by the evidence.

HMRC publishes endless tables of statistics. Lots of them are pretty boring, but it’s worth making the effort to analyse them because they can be illuminating. Last week HMRC published detailed figures for corporation tax receipts setting the figures in a way which we’ve not seen before. They break numbers down separately so you can see gross trading profits, capital allowances, other income and allowable deductions across industry sectors.

Firstly, the average rate of corporation tax payable by these companies was 22.4%, which is well in line with expectations. For 2012/13 the headline rate was 24% but for smaller companies the rate was only 20% - so an average of 22.4% seems right. All but two of the industry sectors are broadly within the norm, but there are two exceptions…

The first is Mining and Quarrying which has an average rate of nearly 40%. That seems odd to start with, but once you realise this includes the North Sea oil and gas sector, with its own high tax regime, the figures make more sense. The other outlier is Finance and Insurance, where the average rate is only 18%. Again there’s a possible explanation here – a lot of the income received by these companies has tax deducted at source, so the net tax payments made by them is reduced because tax has already been accounted for. If you strip this out the figures come broadly into line.

Raw figures can only tell you so much, but reading these figures suggests that UK companies are paying broadly the amount of tax which might be expected. That’s not to say that every single company is a good tax citizen – everybody accepts that there is some non-compliance in the system – but these figures certainly paint a very different picture to the one held by the public.

We’ve said before that there’s a real danger of taxation by public opinion replacing tax by rule of law. Public debate about tax policy is a different matter and should be encouraged. But please let it be rooted in reality.

This was posted in Bdaily's Members' News section by Baker Tilly .