A sour taste, but corporation tax will linger for a few more years

08 December 2015

George Bull

With recent headlines about Cadbury’s tax affairs and the latest report from the OECD showing business tax receipts on a continued downward trend, what is the future for UK corporation tax?

The taxes paid by limited companies are seldom out of news these days but two recent developments have thrust corporation tax firmly back into the spotlight.

The most eye-catching piece of news was the announcement that the owner of Cadbury, one of the UK’s favourite chocolate companies is apparently paying no UK corporation tax.The second announcement – far less eye-catching – was an OECD report showing that corporation tax in the OECD nations averaged 8.5 per cent of all taxes collected, the lowest figure since 1994. As if that wasn’t bad enough, corporation tax in the UK accounted for only 7.7 per cent of all UK taxes.

Although there is widespread recognition that the tax burden is gradually shifting away from companies and onto individuals, many people have been shocked by these figures. “Only 7.7 per cent? How can that be?”

That seems like a fair question, particularly as the current rate of corporation tax is 20 per cent, albeit set to reduce to 18 per cent by the year 2020. By way of a comparison, when I began my career in tax in 1976, the main rate of corporation tax was a whopping 52 per cent, with a rate available to smaller companies of 42 per cent. These headline figures – no pun intended but I did have a full head of hair then – belied one important constant in the UK tax regime. Then as now, the various deductions, allowances and reliefs available mean that many companies pay tax on profits figures which bear little resemblance to their accounting profits. Link that with interest and royalty payments to overseas parent companies, transfer pricing and other tax-efficient structures, and it’s hardly surprising that many people are now questioning whether UK corporation tax is fit for purpose. Change seems inevitable but, with inheritance tax and income tax/NIC also up for reform, corporation tax is likely to be with us for a few more years yet.