UK’s Biggest Companies Pay More Despite Lower Corporation Tax

Britain’s biggest companies paid a total of £77.6bn in tax in the year to March 2013, up from £77.1bn the year before, despite UK chancellor George Osborne cutting the headline levy on business, corporation tax, from 28% to 24% last March. The rate will be further lowered, to 21% this year and then to 20% in 2015.

For the first time last year, employment taxes overtook corporation tax as the largest levy paid by PwC’s 100 Group, which includes most of the constituents of the FTSE100 index and some of the UK’s biggest private companies.

National Insurance (NI) contributions accounted for 27.5% of the total, reflecting higher UK employment rates and rising wages. PwC said the 100 Group hired 1.3% more people that the previous year and increased wages to an average of £31,000. Business rates, bank levies, value added tax (VAT) and excise duties contributed to the rise in the overall take.

The corporation tax take fell from £8bn to £6bn over the period, reflecting the reduction in rates but also lower profits from oil and gas companies. The oil and gas sector, together with financial services, contributed nearly half the total tax take. However, contributions from the retail, insurance and telecoms sectors grew from the previous year.

While corporate leaders have welcomed Osborne’s reductions to corporation tax as a way of attracting businesses to Britain there have also been complaints that reductions in the tax burden are simply being made up elsewhere.

PwC reported that overall taxes borne by the 100 Group have increased by 11% since 2005 when the annual study was launched. Although corporation tax has fallen 40% over the period, other taxes have risen by 70%.

“Looking at the full picture of tax paid by business, you see that tax on profits have fallen while taxes on labour and property have increased,” said Kevin Nicholson, head of tax at PwC.

“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.”

Robert Freestone, chairman of the 100 Group, added: “The government’s 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. These are now helping to stimulate UK economic activity and growth.”

Katja Hall, the Confederation of British Industry’s (CBI) chief policy director, said: “Despite the public perception and media debate on business and taxation, the vast majority of businesses pays, and wants to pay, the right amount of tax. This survey shows that the tax contribution of the FTSE 100 has remained constant, contributing 14% of government receipts, despite a cut in corporation tax.”

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