Big firms ‘paying less tax than 12 years ago’

Big companies in Britain are paying less tax than they did 12 years ago despite a huge jump in profits, according to research by Reuters.

Campaigners, who are angry that big US companies have managed to avoid paying tax in the UK, said tax avoidance has blossomed due to a more business-friendly strategy at Her Majesty’s Revenue and Customs (HMRC).

Large companies’ corporation tax payments totalled £21bn in 2011/12, according to HMRC.

This was down £5bn or 21 per cent since 2000/01 when the Government took the first steps towards a more collaborative approach to big business.

The gross operating surplus for all companies in the UK, a measure of profitability, has risen 65 per cent, to £329bn.

The economy has grown by 55 per cent over the same period, and receipts of both personal income tax and small companies’ income tax are higher.

HMRC denied the figures showed an increase in tax avoidance – legal tactics used by multinationals such as Google, Amazon and Starbucks.

HMRC pointed to recent economic weakness and lower corporation tax rates. The UK’s official corporation tax rate was steady at 30 per cent between 2000 and 2007 but has been gradually cut. In the last tax year it was 26 per cent.

Calculations by Reuters show that the lower tax rate and the weak economy account for about half of the fall, leaving around £2.6bn of the difference in the amount of corporate tax paid between 2000/01 and 2011/12 unaccounted for.

John Christensen of Tax Justice Network, a tax campaigning group, said the figures show successive Government attempts to create a more business-friendly administration – which includes a policy known as “enhanced relationship” based on mutual trust – have encouraged companies to avoid tax.

“These figures tell a more powerful story than any figures I have seen so far,” he said.

The Government declined to comment on the calculations.

Prem Sikka, a professor of accounting at Essex University, said that even allowing for the tax cut, the figures were “paradoxical”.

“How are they managing to reconcile higher profits with lower taxes?” he said.

“It can’t be done ... unless they are booking these profits somewhere else.”

Companies reporting for tax purposes are increasingly diverting UK profits to lower-tax jurisdictions, he said.

Google channels £2.5bn of UK sales through Ireland each year, most of which ends up in Bermuda.

Google said it complies with tax law in every country in which it operates but that it also has an obligation to its shareholders “to run our business efficiently”.

When shown the calculations, an HMRC spokesman said the downward trend may also have been emphasised by a shift in the way taxes were paid from 1999 which led to “elements of double counting” in 2000/01 and 2001/02. That could make revenues in those years look artificially high.

HMRC’s own data does not point to a spike in corporation tax payments over the period the changes were initiated.

Total corporation tax payments were just £2bn higher in 2001-2002 than in 1998-1999, a rise of seven per cent, while GDP rose 16 per cent over the period.

In 2001, former Labour Chancellor Gordon Brown directed the tax collector to take a new approach which would come to be known in the financial world as an “enhanced relationship”.

The aim was to lighten the regulatory burden on business.