Read on Twitter
Another tax myth: UK corporate tax has been cut over the last 20 years.
Blue line shows the % headline rate, and a big drop.
Red line shows the % of total UK corporate profits paid in tax. It's basically unchanged (slightly up over 20 years).
There has been no overall cut.
Blue line shows the % headline rate, and a big drop.
Red line shows the % of total UK corporate profits paid in tax. It's basically unchanged (slightly up over 20 years).
There has been no overall cut.
Why is this?
Not 100% clear, but mainly IMO because at the same time as the rate has gone down, the base (the way that taxable profits are calculated) has expanded. Generally that's a good thing - low rate and wide base minimises avoidance.
Not 100% clear, but mainly IMO because at the same time as the rate has gone down, the base (the way that taxable profits are calculated) has expanded. Generally that's a good thing - low rate and wide base minimises avoidance.
This is *not* a Laffer curve effect - that would show corporate profits rising (and hence more tax collected) but the effective rate dropping.
So - and I fear I'm getting boring - the comfortable myths of Left and the Right are both wrong.
So - and I fear I'm getting boring - the comfortable myths of Left and the Right are both wrong.
The profits and tax figures include financial and non-financial corporations (and therefore include the surcharge). I exclude offshore oil/gas (because it's a different regime).
Corporation tax figures from https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/652818/Corporation_Tax_Statistics_August_2017_v2.pdf, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/451335/2000_publication.pdf, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/802999/Apr19_Receipts_NS_Bulletin_Final.pdf and https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/871799/Budget_2020_Web_Accessible_Complete.pdf
Corporate profit figure is the ONS gross operating surplus of corporations - see https://www.ons.gov.uk/economy/grossdomesticproductgdp/timeseries/cgbz/qna, deducting offshore UKCS - https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/timeseries/lrwx/prof
Caveat 1: the years do not align. Tax years are April-March, gross operating surplus is by calendar year
Corporation tax used to be paid the year after the profits were earned; this has accelerated over time and now there is only approx 3 months difference.
Corporation tax used to be paid the year after the profits were earned; this has accelerated over time and now there is only approx 3 months difference.
So in essence there is a time lag between the two datasets which has reduced over time
This is complicated further by the fact that HMT used to account on a cash basis and now on an accrual basis.
This is complicated further by the fact that HMT used to account on a cash basis and now on an accrual basis.
Someone with lots of time and more accounting expertise than I have could correct this - but it won't change the overall trend.
Caveat 2: in principle there could be massive profit-shifting out of the UK, so there are hidden profits outside both corporation tax and the ONS figures. But would have to be at an extraordinary scale, essentially requiring a conspiracy at the ONS and HMRC. Not plausible.
Caveat 3: some additional corporation tax receipts have been driven by small businesses incorporating, i.e. more CT but less income tax. The IFS has estimated this adds c£1bn to the figures. So doesn't change the trend.
