Members comment on report suggesting that UK taxpayers are funding businesses to the tune of £93bn
Members of the UK200Group of independent chartered accountancy and lawyer firms have responded to a report in the Guardian that UK taxpayers are funding businesses to the tune of £93bn a year, or £3,500 per household.
Analysis found that in the financial year 2012-13, businesses received £44bn through 27 corporate tax reliefs and £14.5bn in direct subsidies and grants while the government collected £41.3bn in corporation tax receipts.
Jonathan Russell, partner at UK200Group member firm ReesRussell, said: “Much is made of the tax benefits received by companies and, in particular, the lack of tax paid on profits by some companies.
“Whilst I strongly favour companies paying the ‘right’ amount of tax, and not using complex structures to avoid paying tax, I would also suggest that if companies paid no corporation tax at all it might benefit the entire country.
“We are dependent upon economic activity and growth to create UK wealth and ultimately it is businesses which do this, so anything that can be done to encourage businesses to be in the UK, rather than elsewhere, is good. Removing tax from a business decision is also good.
“By their existence and trading in the UK, businesses employ people and therefore pay employer’s national insurance: the more employees, the more national insurance.
“The more profit that a company makes, the more money the company has to pay out in wages, dividends and investment, which again stimulates economic activity, creating VAT revenue and personal taxes for the government.
“It is far too simplistic to say companies were ‘given’ this but only paid ‘that’. It has to be considered against an overall strategy. How much of that money ‘given’ to companies created jobs, in turn creating national insurance and Income tax and resulting in employees spending money, therefore contributing VAT and other taxes?”
John Watkins, senior partner at UK200Group member firm Dickson Middleton, said: “When considering how much a company contributes in tax to the economy, you need to look not only at corporation tax on UK profits but also at all of its activities, through sales and how much VAT this brings into the Exchequer, along with people employed, and how much in the way of payroll taxes this brings in and benefit payments it avoids.
“Only when all factors are considered can you truly consider what benefits a company operating in the UK brings to the economy. The myopic debate over how much is raised from a company in corporation tax really misses this point.
“Included within the £44bn in tax reliefs are items such as the Annual Investment Allowance on investment in plant and machinery. Given that taxation rules disallow depreciation, it is misleading to single this out as a perk of doing business in the UK. How else could you incentivise anyone to maintain a manufacturing facility in the UK?”
David Whiscombe, director of tax at UK200Group member firm BKL, said: “Nearly half of this figure of £93bn is accounted for by ‘corporate tax reliefs’ – that is, allowing businesses to keep a bit more of their own money.
“On that logic, any reduction in the rate of business tax amounts to ‘government funding’ for business. If I earn £100 and I pay £20 in tax, does that mean that the government have funded me to the extent of £80? I think not.”
David Ingall, past president, UK200Group, said: “Whilst not disputing the figures, the report appears to be somewhat selective in recognising the benefits received by the country from the grants and allowances.
“Where does VAT feature, or the PAYE and national insurance generated from additional employment, not to mention the savings in benefits paid to the formerly unemployed in the jobs created?”
Duncan Montgomery, tax partner, UK200Group member firm Whittingham Riddell LLP, said: “The amounts shown as corporate benefits are taken off before the receipts, which means that basically the corporate sector is paying in £40bn, and a few national infrastructure companies like Network Rail, which we used to finance anyway, get most of that back in subsidies.
“The right answer from this research is that the corporate sector is in effect helping to fund the railways, defence and energy sectors, so that we don’t have to. When you add in the mountains of national Insurance they pay as employers, it is clear that these businesses contribute massively to our economy and we should recognise that.”