Tax cuts for business boosts public revenues

TAX cuts may be boosting the amount of public revenue derived from business, according to PwC.

A study conducted by the Big Four firm of members of the the influential 100 Group of finance directors showed increases in yield coming from taxes that had been cut.

Taxes borne and collected by 100 Group companies totaled £80bn in 2014, up £2bn on last year, and surpassed any year since in the decade since the study began.

“This report shows the clear link between helping businesses grow, invest and employ and how much money goes into the public purse. Taxes must be looked at in the round: businesses tax costs extend way beyond corporation tax and their wider tax and economic contribution is far greater still,” said Andrew Bonfield,chair of the 100 Group tax committee.

“At a time when tax transparency and competitiveness are under the spotlight, and the international tax rules are changing, understanding the full tax contribution has never been more important.”

The increase on 2013 was driven mainly by higher employment and wages, PwC said. Employee numbers rose by 1.2% to more than two million, while wages rose by 4.3% to average £31.9k, increasing income taxes generated. Greater VAT on sales has also played a role in the record tax contribution, partly reflecting higher turnover in some firms.

The report also illustrated the shift from direct taxes to indirect levies such as VAT. In 2005 about half of all the tax borne by companies was accounted for by corporation tax – about a one to one ratio. However, in 2014 for every £1 paid in corporation tax £3.27 was paid in other taxes.

Contributions from business rates have increased by 78% since 2005, driven mainly by increasing rateable property values and growth in the retail sector.

In the year to April 2014, the corporation tax yield fell primarily as the result of lower receipts from North Sea oil companies. Greater capital investment, large operating costs and lower oil prices were the principal causes. Stripping out oil & gas companies, corporation tax increased by 6.7% and other business taxes borne increased by 6.2%.

Corporation tax has been cut to 21% and is due to fall to 20% in April next year. National insurance contributions have also risen despite the tax-free allowance being raised to £12,500.

“The tax per employee is down £51 on last year to £11,214, which may reflect the higher personal allowance threshold affecting firms with a greater proportion of lower paid workers, such as retail companies,” said Kevin Nicholson, head of tax at PwC. “However, the overall employment tax generated by big firms has increased, as they employed more people.”