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August 29, 2007

Corporations Don't Pay Tax

FT:

Almost a third of the UK’s 700 biggest businesses paid no corporation tax in the 2005-06 financial year while another 30 per cent paid less than £10m each, an official study has found.

Of the tax paid by these businesses, two-thirds came from just three industries – banking, insurance and oil and gas – while the alcohol, tobacco, car and real estate sectors contributed only a few hundred million pounds.

Altogether, these large public and private companies paid £24.4bn in 2005-06, or just more than half of all the corporation tax paid, according to a National Audit Office analysis of the tax raised from the 700 companies handled by the large business service of Revenue & Customs.

I've just had a look at the NAO site and can't see the report. Anyone got a copy? Apart from hte obvious points about tax incidence, I'd love to see why the tax isn't being paid. Is it, perhaps, because there are no taxable profits?

Update. Thanks to Bob Doney, the link to the report is in the comments. It's actually the NAO looking at how efficient Customs etc is at getting the tax owed: the figures for who pays it are almost an aside, there just to show the sort of work they do. Why so many companies aren't paying corporation tax isn't discussed (or at least I didn't see it in my skimming).

We have to assume that there aren't any taxable profits there to be taxed: if there were, a report on how well the taxman does at geting the tax owed would have made more of this.

August 29, 2007 in Business | Permalink

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Comments

I've covered this.

The article and a follow up article on page 3 explains how and why. My point is (economic incidence aside) even if Sainsbury's does not pay any corp tax, it collects and pays over shedloads of PAYE, National Insurance, VAT and Business Rates, so who cares, quite frankly. And their payment into a pension scheme is only a deferral, nto an absolute relief.

Posted by: Mark Wadsworth | Aug 29, 2007 3:11:30 PM

"Is it, perhaps, because there are no taxable profits?"

In the banking, insurance and oil & gas industries ? Yeah right.

Posted by: IanCroydon | Aug 29, 2007 6:48:22 PM

Is it, perhaps, because there are no taxable profits?"
In the banking, insurance and oil & gas industries ? Yeah right.

That's a pretty mixed up interpretation you got The article implies that most of the companies paying tax ARE in those three sectors and so any companies NOT paying the tax will probably not be banks, insurance or oil ones.

Posted by: Biodun | Aug 29, 2007 8:13:15 PM

Does Sainsbury's or its shareholders pay VAT?

Posted by: Matthew | Aug 29, 2007 8:46:25 PM

http://www.nao.org.uk/publications/nao_reports/06-07/0607614.pdf

Posted by: Bob Doney | Aug 29, 2007 10:10:51 PM

It's not at all clear to me that corporations pay any tax, in a moral or practical sense, anyway. Rather, the corporate income tax, though billed as "progressive," appears to operate as a highly regressive sales tax, with the corporation merely being a collector from the consumer on behalf of the government.

Posted by: Tom Kratman | Aug 29, 2007 11:37:41 PM

"Does Sainsbury's or its shareholders pay VAT?"

Sainsbury's doesn't. But its shareholders do: I used to be one and I still pay VAT.

Posted by: Kay Tie | Aug 29, 2007 11:48:11 PM

How odd. I remember being a m&S shareholder and they didn't charge me VAT on those.

Posted by: Matthew | Aug 30, 2007 8:48:10 AM

Tom K the corporate income tax, though billed as "progressive," appears to operate as a highly regressive sales tax.

Er, no, VAT is a highly regressive sales tax, corporation tax is nowhere near as damaging.

Posted by: Mark Wadsworth | Aug 30, 2007 9:54:18 AM

Mark:

No dispute about the nature of VAT, though at least it's billed as what it is. But in both cases, neither the corporations nor their shareholders pay tax, they simply pass it on. Hence, "highly regressive." And dishonestly so.

Posted by: Tom Kratman | Aug 30, 2007 12:21:14 PM

TK - it is simply not true that most businesses are in a position to pass on 100% of a cost increase to customers. Generally, the benefits/disbenefits of a fall/rise in a company's costs will be split between customers and shareholders. So corporation tax is inherently not as regressive as VAT.

Tim adds: Actually, there's a third group who can pay: the workers, in the form of lower wages. A Congressional Budget Office estimation was that they pay 70% of the US corporate income tax burden.

Posted by: john b | Aug 30, 2007 3:05:01 PM

Thanks, John B.

Posted by: Mark Wadsworth | Aug 30, 2007 4:03:08 PM

Tim: link? sceptical.

http://gregmankiw.blogspot.com/2006/08/who-pays-corporate-income-tax.html

Posted by: john b | Aug 30, 2007 4:41:36 PM

"there's a third group who can pay: the workers, in the form of lower wages"

There is an equal and opposite argument that as wages are (mainly) corporation tax deductible, a higher corporation tax rate (relative to income/payroll taxes) would encourage businesses to pay out more as wages.

Posted by: Mark Wadsworth | Aug 30, 2007 5:31:25 PM

Mark,

"There is an equal and opposite argument that as wages are (mainly) corporation tax deductible, a higher corporation tax rate (relative to income/payroll taxes) would encourage businesses to pay out more as wages."

I assume you're being facetious: raising the Corp Tax rate, thereby reducing your actually bankable/re-investable Profit AFTER Tax would cause you to take action to reduce your profit further?

??????

Posted by: Cleanthes | Sep 14, 2007 2:04:36 PM