I did a simple bit of research yesterday. I produced the following graph from the data noted below it:
The number of companies increased over the period from 1,595,000 t0 2,629,900.
The tax paid grew from £32 billion to £42 billion with some bumps on the way (and especially a dip in 2009-10).
It's immediately possible to say that of course the amount of tax per company has gone down because the number of companies has gone up, but then so has to proportion of profits in GDP, so that doesn't quite stack, but I agree I need to do more on that issue.
And it's also possible to say all the new companies were small - but then a 25% jump in corporation tax between 2004-05 and 2005-06 may well be very largely small company related as there was a rush to incorporate over the 0% tax fiasco, which was then withdrawn. So that doesn't really stack either - small companies do pay tax.
And of course a lot of the new companies could be dormant.
Or could it be that the fact that less than 1.2 million of those 2.6 million companies submit tax returns with maybe 700,000 a year ignoring the demand to do so might just explain the fall, coupled with the fact the Companies House has cut its staff by 25% and HMRC has done so by over 30% during this period? Could it be, in other words, that tax evasion explains the fall, and the fact that corporation tax is now becoming something of a voluntary payments donation box exercise rather than a serious exercise in taxing most businesses might explain the fall?
I can't prove that on the basis of one graph. But it's a hypothesis. And there's ample evidence to support it.
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An interesting graph Richard, but as you say there are some large uncertainties in the data – the huge increase in total number of companies, the number of dormant companies etc. If there was a way of isolating the data, it would probably be more useful to just include the companies that submitted tax returns. It would exclude a large number of companies, yes, but it would be easier to show a decrease in tax paid despite an increase in profits – hence more widespread tax avoidance.
Matt
It’s not just avoidance I am worried about
Evasion may well be the bigger issue
Richard
isn’t the obvious problem with this graph the timescale? If you were to draw a line from 2003/4-2010/11 it would show a small increase in the amount being paid. I don’t question your point, which may be correct, but a graph with a longer timescale would provide better evidence one way or another.
But the big change in company numbers came in 2004 – and I want to highlight a before / after
Is there a way to link the Companies that send PAYE/NI payments against VAT returns against Corporation Tax returns against the annual return.
If you are claiming that there are thousands of Companies out there trading and evading tax then they must refuse to send any of the above returns in….
Do the banks send in a list of all accounts against Company reg numbers, I can’t believe you are getting serious levels of evasion without bank accounts.
I suspect the answer to this issue is quite mundane, thousands of dormat companies waiting for better times, thousands of failures improperly shut down and thousands of hopeful startups that exist only on paper……
You are letting your bias lead you to condem the situation without evidence..
They do refuse them all
Yes
And HMRC has no idea which companies do have bank accounts – if you’d followed my arguments you’d realise that is the data I want supplied to tackle this
I am seeking evidence
You are making the aspersions
As ever
Amazing that you haven’t considered the effects of recession. Recessions usually lead to decrease in profits
The share of profits in the economy is rising overall
I made that point
It’s you who is asserting without evidence
“It’s you who is asserting without evidence”
All I asserted was that in a recession profits fall. Are you seriously questioning that?
The % of profits in the economy going to business is irrelevant when considering the absolute amounts of corporation tax paid.
Companies can still be making less profits whilst seeing an increase in the % of profits going to them.
And that assumes you are correct that the % of profits going to business is increasing. It may be, it may not be, but you have asserted it without evidence.
The ONS is clear on the data on profits – just go and see
I did not dispute profits fell – I drew attention to the decline in 2009
Richard, what is the rule in regards companies submitting tax returns? How is it possible that there are so many that fail to submit returns, without them being investigated? How is it that HMRC cannot seem to do their job properly?
They’re issued with fines but as my research shows HMRC don’t collect them either
They just sweep it all under the carpet as they don’t have the people to adress the problem
If something like 1.4m companies aren’t bothering then all the extra manpower in the world won’t help. The only hope is better systems and regulations, make it impossible for a company to open a bank account without it being linked to their tax records. Have the banks electronically submit and annual statements of gross incoming and outgoings (to indicate whether dormant or not) and have the ability to force banks to freeze accounts if tax return not made/fines not paid.
It seems HMRC is just not fit for purpose.
I have argued for this
Caroline Lucas presented a bill to demand this
The Tories refused to agree it
“The tax paid grew from £32 billion to £42 billion with some bumps on the way (and especially a dip in 2009-10).”
From your graph it appears that the change was from £20 billion to £16 billion, having troughed at £13 billion.
Where on earth are you getting the figures of £32 and £42 billion from?
The figures on the graph are in thousands and are per company
The figures quoted are total corporation tax paid
The average comes from dividing total corporation tax paid by the number of companies at the start of each year, as I say in the blog
Having had a think about it, the falling average may not mean that much (though the fact that a lot of companiers don’t submit returns would be). Increased regualtions, especially in finance has meant the need to more more corporate vehicles in order to properly divide business units for regulatory reasons.So you end up with the same absoute profit (or actually lower due to the additional costs of the extra corporate entities) but spread out over more corporations. I recently looked at a retail company that had gone into administration and it had 33 subsidiaries despire being a tiny company.
Possible….but profits are rising….
No they aren’t. They bounced back a bit in 2010 but have fallen since. Corporate profitability is still awful, especially in manufacturing where it is at an all-time low. And Q4 2011 corporate profits are the lowest % of GDP since 1984, according to Citicorp’s Michael Sanders. Analysis and graphs here – I’ve cribbed Michael Roberts’ work rather than reinvent the wheel (he can hardly be called right wing!):
http://thenextrecession.wordpress.com/2012/05/01/the-uks-weak-recovery-and-profitability/
Except his argument does not seem to make your case
It is labour at an all time low
Not profit
Richard
I’m not sure why you’ve used ‘no of companies’ it seems a somewhat abstract variable to introduce.
If you take the basic corp tax figures from http://www.hmrc.gov.uk/stats/tax_receipts/tax-receipts-and-taxpayers.pdf you can see a general uptrend as one would expect, dip due to recession as expected.
Year Tax
2001-02 32,041
2002-03 29,268
2003-04 28,077
2004-05 33,641
2005-06 41,829
2006-07 44,308
2007-08 46,383
2008-09 43,077
2009-10 35,805
2010-11 42,121
2011-12 43,721 (provisional)
That’s the data I used – yes
And since it’spaid by companies what’s wrong with averaging it?
Or noting that the basic data does not tell anything like the whole story – like the increasing number of companies and share of profits, boith of which suggest markedly declining payment trends, as does tax rate data?
Or aren’t you interested in seeking useful answers?
The first chart in the link I posted showed clearly that profitability in non-financial industries is significantly lower than it was before the financial crisis and profitability in manufacturing is at an all-time low. The second chart showed equally clearly that UK corporate profits have been falling since Q4 2010.
I think that’s an interesting interpretation of the data
But not one the data strongly supports
As the data on overall profits revealed