Britain's missing billions: counting the true cost of corporate tax avoidance
There's a painful subtext to yesterday's public finance figures. While most of us are paying more tax, many big companies are paying less
Yesterday's public finance figures were a tale of two countries: the public paid more and corporations paid less.
Last month Treasury receipts from VAT and income tax – which we all pay – rose by 6.4 per cent relative to October 2011. But corporation tax receipts – levied on the profits of the largest firms in the land – fell by 10 per cent on the same month a year earlier. In October companies poured £7.8bn into the state's coffers, down from the £8.7bn they handed over last year.
And this shortfall was not just a monthly aberration. Since George Osborne delivered his Budget in March companies have paid £24.9bn in corporation tax, 9.8 per cent less than the £27.6bn they handed over in the same period of last year.
The trend is an ominous one for the Chancellor. In March HMRC
Mr Osborne's official fiscal forecaster, the Office for Budget Responsibility, predicted that corporation tax receipts would grow by four per cent this financial year. But they are presently running about 10 per cent lower.
The shortfall in tax revenues is one reason why many analysts expect that the Chancellor will be compelled to announce further spending cuts and tax rises in his autumn statement on 5 December to meet his "fiscal mandate". This requires Mr Osborne to put plans in place to eradicate the structural deficit within five years.
The Treasury suggested yesterday that weak corporation tax receipts over the past seven months are largely due to a collapse in North Sea output this year after a gas leak, which means that large energy firms have been paying less tax. There is some truth in this. Output has been disrupted by problems on the Elgin Platform and maintenance work elsewhere.
Yet the Government's own figures also suggest that corporations are evading and avoiding many billions of pounds of corporation tax. Her Majesty's Revenue and Customs performs a regular estimate of the "tax gap", which is the difference between what it believes companies ought to be paying in corporation tax and what the state is actually receiving. In its latest estimate for 2010-11, HMRC put that figure at £4.1bn. Some campaigners, such as Richard Murphy of Tax Research UK, think that the real figure could be £12bn or more.
To put that in context, even the HMRC figure represents a sum that could finance the construction of 300 new schools. It could be used to build 25 new hospitals. £4.1bn would pay the annual salaries of around 153,000 nurses, or 164,000 police officers. It would pay for 430,000 nursery places a year. The money could be used to fund a penny cut from the basic rate of income tax.
According to HMRC large businesses accounted for £1.4bn of this unpaid tax. Multinationals such as Amazon, Google and Starbucks, which have attracted criticism for the low amount of corporation tax they have been paying in Britain, apparently legally, would be included in this category.
Tax avoidance by companies is not the only reason the Treasury's coffers are emptier than they should be. HMRC estimates that in 2010-11 it was deprived of £9.6bn in VAT, £3.3bn in excise duties, and £14.4bn in income tax revenues, national insurance contributions and capital gains tax. The National Audit Office said yesterday that aggressive tax avoidance schemes by individuals and small companies are costing the public purse billions of pounds. According to HMRC the tax gap for the entire economy amounted to £32bn in 2010-11.
If the Treasury closed this tax gap it would cover almost a third of the £120bn deficit projected for 2012-13 and consequently reduce the need for further spending cuts and tax rises. Earlier this month Mr Osborne and his German counterpart, Wolfgang Schauble, called for an international crackdown on tax avoidance by large multinational companies.
Yet the Chancellor has also tried to encourage multinational companies to move their headquarters to the UK by cutting corporation tax rates. In his March Budget Mr Osborne announced that the rate companies will pay on profits will fall to 22 per cent by 2014. The Government has also been accused of cutting staffing levels at HMRC by 10,000 as part of its austerity drive, thereby reducing the ability of officers to extract more tax from companies and others unwilling to pay their fair and legal contribution to the public purse.
Mind the £4.1bn tax gap...
A number of famous multinationals have come under the spotlight over corporation tax. Starbucks has reported taxable profits in the UK only once in the past 15 years. Google reported revenues in Britain of £395m in 2011, but paid just £6m in corporation tax. Amazon booked £3.3bn in UK sales in 2011 but paid no corporation tax at all. Senior executives from all three companies appeared before the Commons Public Accounts Committee this month. Starbucks told MPs it paid a royalty to its parent company in the Netherlands, which offset profits made here. Amazon said its profits are all booked in Luxembourg, and Google's profits are registered in Ireland.
A cautionary tale for ambitious would-be authors
X Factor judge will appear in court later this month
- 1 Dear Sir Jimmy Savile: A comedian's words of valediction to the nation's trusted uncle
- 2 Gurdwaras-turned-food banks: Sikh temples are catering for rise in Britain’s hungry
- 3 Teenage girl convicted of robbery after taking pre-crime selfie wielding knife
- 4 Newly vegan Beyoncé wears fox fur to dine in meat free restaurant
- 5 'I'm experiencing austerity as well', says Princess Michael of Kent
- < Previous
- Next >
iJobs Money & Business
£65000 - £80000 per annum + Excellent Bonus, Package : Harrington Starr: Busin...
£75000 - £90000 per annum + UNCAPPED OTE + PACKAGE: Harrington Starr: European...
attractive: Citifocus: Prestigious Investment Management Company seeks a finan...
£70000 - £90000 per annum + Package + Bonus: Harrington Starr: ETRM Project Ma...
Day In a Page
A three-bedroom Grade II-listed mews house with vaulted ceilings and roof garden
A spacious Grade II-listed family home with annexe and equestrian facilities among four acres of land in Itchingfield
A four-bedroom home with exposed brick walls and open fires in the picturesque village of Northill
A Grade II-listed property with five bedrooms and unique tower, overlooking Hastings Old Town
A charming five-bedroom detached family home, set within half an acre in Kew
A two-bedroom maisonette set on the top two floors of a period building, close to Kentish Town Tube.
Take advantage of the extra space provided by former stables and outbuildings at this five-bedroom farmhouse.
This three-bedroom Victorian terrace is near to Queen’s Road Peckham station, Nunhead station.
A five-bedroom modern house with terrace, swimming pool, Zen treehouse and large carp pond
An unexpected gem with four bedrooms, remarkable vaulted reception and a galleried study area
A five-bedroom house in one of Lymington's most sought after tree lined avenues, moments from the marinas and sailing clubs
A grand early 19th century B&B close to the historic harbour, with four en suite bedrooms
A four-bedroom, 17th century home with walled gardens, a landscaped terrace, cellar and open fires
A six-bedroom house with five bathrooms and four reception rooms spread over 4,000sq ft of luxury living space
A stunning three double-bedroom apartment with two decked terraces in the exclusive gated community, Bromyard House
A 10-bedroom period, family home amid beautiful surroundings in the centre of the Wentworth Estate in Longcross village
A stylish three-bedroom apartment with two bathrooms and private landscaped garden, moments from Fitzroy Square
A Grade II-listed Elizabethan barn with landscaped gardens, exposed elm beams and four bedrooms, all with lovely views
A six-bedroom family home, dating back to 1280 with four reception rooms, barn, swimming pool and tennis courts in Harwell
A spacious two-bedroom flat, refurbished to a very high standard with private landscaped garden, close to Kentish Town station
An exceptional two-bedroom apartment with balcony and underground parking in the centre of Richmond
A one-bedroom, luxury, duplex apartment in the grand landmark building, Imperial Hall
Run a fabulous boutique shop, live above it in a one-bedroom flat and let a second one-bedroom flat that comes part and parcel
A Grade-II listed, thatched cottage in Hundleby village, with five bedrooms, a coach house and three and a half acres
A spacious two-bedroom flat in the heart of Hoxton Square with wooden floors and roof terrace
A five-bedroom family home with stunning pool and gym complex set among two acres of land
A six-bedroom period house with heated swimming pool and a separate two-bedroom annexe cottage in Townlake, £795,000
A spacious and contemporary two-bedroom flat arranged over three floors, with garden patio close to St George Square, £600,000
A one-bedroom flat in a beautiful Regency building opposite the beach in Kemp Town, £190,000
A two-bedroom flat with London skyline views close to Surrey Quays. £395,000.
A seven-storey tower with three bedrooms and a stunning roof terrace. Guide price: £850,000.
A 16-bedroom country pile with nine reception rooms, four self-contained flats and a 13th century Peel Tower. £850,000.
A classic six-bedroom Victorian Manse house 10 miles from Edinburgh. £495,000.
John Lennon's childhood home in Liverpool to be sold at auction. Guide price: £150,000-£250,000.
A six-bedroom detached period property with secluded gardens, ample parking and a double garage in Rye, £675,000.
A large split-level property with three double-bedrooms and roof terrace, close to Crouch End Broadway, £625,000.
A charming barn conversion in the picturesque Cotswold village of Ilmington with three bedrooms, a detached garage, workshop and beautifully manicured gardens £675,000.
A three-bedroom new build, ground-floor flat with two bathrooms, close to Bermondsey tube, £445,000.
A three-bedroom house in an enviable new development moments from Oxshott High Street, with secluded garden and decked area, £385,000
A two-bedroom split-level flat with stunning south-west facing roof terrace in the popular Brondesbury Conservation Area, £549,950.