Large companies pay less tax than small companies?

A study suggests that although big companies pay the lion's share of corporation tax, they pay out less of their profits than small companies, relatively speaking...

by James Taylor
Last Updated: 19 Aug 2013
More grist to the mill of the Guardian-led 'big businesses dodge tax' lobby: a new Oxford University study has found that in almost every sector, large companies pay less tax as a proportion of their earnings than smaller companies. OK, so they still end up footing nearly 90% of the UK's corporation tax bill. But it's a reminder that big firms have an ability to lower their tax bills by offsetting profits agains losses, interest deductions and tax breaks - typically with the help of some very expensive accountants - that their smaller brethren just don't have...

The research, by the Centre for Business Taxation at Oxford's Said Business School, does highlight how important big firms are to the Treasury's tax take. The top 1% of firms pay no less than 81% of all UK corporation tax, while multinationals have contributed 86% of the corporation tax take over the last decade. So there's a clear argument for not hammering big corporates too hard, or we really would have no money left for public services. It's also interesting to note that the UK's corporation tax take is above the G7 average, despite our rate being lower; lower taxes doesn't necessarily mean a lower tax take, as every economist will tell you.

What will raise hackles, however, is that these big firms seem to be handing over a smaller proportion of their profits to the Treasury. Indeed, 15% of profitable UK firms paid no corporation tax at all.

So how do they manage it? Well, the boffins at Said don't know, exactly - but Professor Michael Devereux, who led the study, suggested it was because they were better at offsetting profits against past losses, and taking advantage of all the available capital allowances and tax breaks. After all, the bigger you are, the more money it's worth you spending on accountants.

This isn't the full story, of course. A separate study by Pwc for the Hundred Group (a lobbying body for the FDs of the largest 100 companies, so hardly an objective body) claims that for every £1 in corporation tax its members pay, they also shell out £1.97 in other taxes - payroll, business rates, and so on). But corporation tax bills are clearly the hot topic at the moment. And studies like this, which hint at opaque tax planning that's way beyond the public's understanding, don't help their case.

Will big firms heed Treasury Minister David Gauke's argument that greater transparency will benefit them in the long run? Or will they just keep working on the basis that if the Government will insist on having a horribly complex tax system, there's no reason why they shouldn't take advantage of it?

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