1 The level and
distribution of Corporation Tax receipts from large businesses
1. In 2006-07, Her Majesty's Revenue & Customs
(the Department raised £23.8 billion in Corporation Tax from
large businesses, 54% of the total Corporation Tax raised. This
was a fall of £0.5 billion in real terms from 2005-06, which
the Department considered largely related to the exceptionally
high level of receipts in the previous year (Figure 1).
These arose from a change in the instalments regime for North
Sea taxation, which resulted in collection of an extra quarter's
worth of tax in that year.[2]
Figure 1: Corporation Tax raised from large businesses from 2002-03 to
2006-07, shown in real terms
Note: Data is shown in real terms, at 2006-07 prices using HM Treasury
Gross Domestic Product deflators
Source: C&AG's Report, HM Revenue & Customs:
Management of large business Corporation Tax, HC (Session 2006-07)
612
2. Much of the Corporation Tax raised from the
700 large businesses within the Large Business Service (LBS) comes
from a small number of businesses (Figure 2). In 2005-06,
just 50 businesses (7%) paid 67% of the Corporation Tax raised
from all large businesses. In the same year, 181 large businesses
paid no Corporation Tax. The Department considered that the distribution
of corporation tax receipts generally reflected the distribution
of market capitalisation among larger UK businesses.[3]
3. Corporation Tax receipts are also heavily
skewed by industry sector. In 2005-06, just three of the 17 industry
sectors in the Large Business Service (banking, oil and gas, and
insurance) raised 67% of all large business Corporation Tax. These
sectors accounted for 28% of the businesses managed by the Large
Business Service .[4]
Figure 2: The distribution of Corporation Tax payments by large businesses
in 2005-06
Source: C&AG's Report, HM Revenue & Customs:
Management of large business Corporation Tax, HC (Session 2006-07)
612
4. The Department considered that some large
businesses pay little or no Corporation Tax, because, although
they have based their headquarters in London as a major financial
centre, they have little economic activity in the United Kingdom.
Nearly 38% of the activity of United Kingdom quoted groups happens
overseas, with much of the profit taxed abroad.[5]
5. Of the 181 businesses that paid no Corporation
Tax in 2005-06, 53 did so because of historic tax losses. Some
large businesses, particularly in telecommunications and manufacturing,
had substantial accumulated losses from the late 1990s, which
reduce their current Corporation Tax payments. A further 19 businesses
were largely inactive during the period, for example, because
they had ceased trading, gone into liquidation or they had reduced
their UK presence.[6]
6. Ninety-seven large businesses paid no tax
in 2005-06 because of tax losses in that year. Their tax losses
were for various reasons including use of reliefs for pension
contributions, for research and development expenditure, and for
finance costs. The Department acknowledged that the United Kingdom
has a relatively generous regime for tax relief on payments of
interest on debt. In 12 cases, avoidance activity extinguished
all tax liabilities. In all these cases, the Department was challenging
the avoidance schemes through its enquiry work, with possible
litigation in three cases.[7]
2 Q 121; C&AG's Report, para 1.11 Back
3
Q 145; C&AG's Report, para 1.12; Ev 16, para 1 Back
4
C&AG's Report, para 1.13 Back
5
Q 5 Back
6
Ev 16, para 1 Back
7
Q 5; Ev 16, para 1 Back
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