Business and the tax it pays
The CBI's Principal Economist looks at the trends behind the business tax contribution - and why the tax system must keep up with the way firms operate
Business in the UK continue to contribute significantly towards government revenues. CBI analysis of data published by the Office for National Statistics indicates that businesses in the UK paid £186bn in taxes in 2017/18, 27 per cent of total tax revenues. This almost represents the 2017/18 budgets for health (£124.7bn) and education (£66.4bn) combined.
Employer national insurance contributions (NICs), corporation tax and business rates continue to be the most significant taxes paid by businesses – together making up over three quarters of their tax contribution (78 per cent).
Over the past decade, corporation tax receipts have been increasing, growing by more than 50 per cent since their trough during the financial crisis in 2008/09. Receipts are now above pre-crisis levels – and have continued to grow, despite relatively subdued economic growth.
It is difficult to disentangle the exact reasons behind this. Since the crisis, the headline corporation tax rate has been falling, from 28 per cent to 19 per cent today, with further cuts coming into effect in 2020. But official data from the ONS indicates that profits of private non-financial corporations have increased over the period. There could be several reasons for this including a higher number of firms coming to the UK, anti-avoidance measures such as BEPS and the beneficial exchange rate environment for firms who export heavily.
Revenue from business rates has also been increasing since the financial crisis. But in an increasingly digitalised world, where a large number of companies no longer require a physical presence on the high street, a question mark hangs over whether business rates can sustainably continue in their current form. And as an operating cost, business rates disproportionately affect less profitable or low-margin businesses.
While revenue from NICs overall has increased since last year, this has been driven by employee NICs rather than employer NICs, as the growth in the self-employed has outpaced growth in employees. Spurred on by job losses during the financial crisis, and improvements in technology since, the age of the self-employed has arrived.
However, this is not the whole story. While the traditional large taxes of corporation tax, NICs and business rates continue to be the main drivers of the business tax contribution, firms operating in the UK also face a host of other taxes.
And the list of “other” business taxes appears to be increasing over time. Over the past few years, taxes such as the bank levy (2011) and the apprenticeship levy (2017) have been introduced, increasing the tax burden businesses face.
The level of “other” taxes paid by business has more than doubled since 2009/10, which suggests a likely conscious shift away from traditional sources of revenue to new and more targeted tax solutions.
This new data highlights the symbiotic relationship between tax revenue and growth, and the importance of focussing on the key drivers of future prosperity to deliver the tax revenue needed to fund vital public services. The UK’s future tax system will be a key enabler of that growth and must continue to keep pace with the way our businesses operate in a digital and globalised world.