4 May 2017 | By Rhiannon Jones Insight

Business contributes record amounts in tax

Insight: Rhiannon Jones, CBI principal tax and fiscal policy adviser

Business in the UK are currently contributing nearly one-third of tax revenues thanks in part to increases in overseas earnings and higher levels of employment 

Businesses in the UK are paying a record amount of tax - £19bn more in the past year. This puts the 2016-17 business tax contribution at £205.3bn. Growth of 10.2 per cent in business tax contributions on 2015-16 levels has outpaced the increase in overall tax revenue, which has only risen by 5.9 per cent. The business share of total tax contribution is now 30.5 per cent.

Business tax drivers

There are two factors driving the growth of business tax revenues in the UK. One is corporation tax. Depreciation in the value of the pound increased the value of overseas earnings pushing up profits on translation and allowing a healthier profit margin expansion for exporters. The other is national insurance. Higher levels of employment and changes to national insurance policy in relation to final salary pension schemes have increased the contribution from employer’s national insurance contributions

There are many different types of businesses and, as a result, their tax bills can take very different forms. Take a corner shop. This type of business is often unincorporated so would not be liable to pay corporation tax. Business rates on their premises is likely to be one of its main tax contributions. A large manufacturing company on the other hand will pay corporation tax on its profits, and the amount paid is likely to fluctuate depending on factors such as the volume of sales and margins, currency fluctuations and investment in plant and machinery.

Record high receipts

UK corporation tax receipts grew by 21.9 per cent to a record high during 2016-17. While the UK has the lowest corporation tax rate in the G20 its corporation tax revenue as a proportion of GDP is third-highest in the G7 after Canada and Japan. Adjusted for economic size, UK businesses contribute more through corporation tax than their counterparts in Germany, France, Italy or the United States.

But corporation tax is far from the whole story in terms of business tax contribution – in fact, businesses pay nearly £3 in other taxes for every £1 paid in corporation tax in the UK. In 2016-17 tax revenue from employers’ national insurance contributions - the largest business tax - increased by 10.1 per cent to £72.7bn.

A cumulative burden

CBI analysis suggests that business operating costs are expected to increase by £12.2bn per year between 2015 and 2021 as a result of a range of government policy decisions. This will be weighing on the minds of businesses across the country who want the UK to remain a competitive place to do business. Firms will now be looking for reassurance and certainty from all of the political parties on tax policy. Whoever forms the next government must prioritise stability in the tax system in the short-term, while working with business to create a modern tax system that reflects the economy in the longer term.


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