Tax has hit the headlines again. This time it was a report from the National Audit Office that got the blood boiling. Analysis of the figures showed that of the 700 largest companies in the UK, just 270 firms paid corporation tax in excess of £10 million. And 220 of the 700 firms paid no corporation tax at all.

Press and pressure groups immediately slammed corporate Britain and the tax system – saying that the current regime just benefits those who are clever with their accounting.

“Not so fast,” say some. Yesterday, HM Revenue and Customs hit back.

“It is ridiculous to suggest that business does not pay its fair share of tax,” it said and added “Businesses are using the capital allowances and deductions that government has put in place to stimulate investment, create jobs and build economic stability. These are not loopholes – these are properly policed business reliefs.”

And so the debate rumbles on. The UK benefits from successful business, it’s true. But if business pays little tax, then the Exchequer sees less benefit. Suppose the business employs only a modest workforce, or labour is recruited from abroad, then once again it could be argued the UK sees only modest gain.

The other big benefit enjoyed by the UK from booming business is that it results in demand for other services. Accountancy firms, cleaners and car sellers, local coffee shops and landlords all do well when business grows. So, even if business pays the minimum tax and employs a small workforce, UK PLC can still benefit.

But equally, if business comes to the UK to benefit from its favourable tax regime, takes on highly paid staff from abroad, then the result can be increases in house prices and luxury goods: it could be argued that the average Brit, especially the average Brit who does not own a property, loses out.

Today, the UK is doing very well out of the favourable tax regime – it’s certainly a factor behind our remarkable run of uninterrupted economic growth, but there could be problems for the future.
Copyright #169; 1996-2007 Find.co.uk Limited. All rights reserved

© Investment & Business News 2013