I have referred already to the Oxford report on corporation tax, just published, and Robert Peston's reaction to it.
There is however another important point to pick up, and that is that the data confirms I was right all along on the scale of the corporate tax gap.
As Oxford note:
Within each sector there is evidence that, as a proportion of trading profit, the tax liabilities of the largest 100 companies are generally lower than for other companies.
So, on average large companies are paying tax at less than the 21% at which small companies pay tax.
Then note:
Independent companies pay just over 10 percent of UK corporation tax. By far the largest share of corporation tax is paid by companies that are part of multinational groups, with a similar proportion from UK-owned and foreign-owned groups.
By 'independent companies' they mean companies that are not part of groups - which means UK small companies in other words.
And
The top 1 percent of all companies pays 81 percent of UK corporation tax.
In fact, based on graphs in the report it seems 90% of tax is paid by 10% of companies.
Corporation tax paid in all in 2009/10 was £36bn. It was £43bn in 2006 when I did my research for The Missing Billions for the TUC.
Now let's pull this data together. 90% of companies paying 90% of all corporation tax do not pay at the expected rate of 28% but instead probably pay at a rate less than 21%. Of course that's an extrapolation of what Oxford say, but it seems a fair one based on what they say. So, currently £32.4bn of corporation tax paid is the result of tax charged on large companies at a rate of less than 21% (let's call it 20.5% - we don't want to over-egg this) when as Oxford note (and they would not note this unless they thought it reasonable to surmise this) a rate of 28% was expected, irrespective of allowances and reliefs.
So let's gross up £32.4 billion and see how much tax would have been paid if settlement had been at 28% and not 20.5%, and the answer is £44.3billion. Take off the sum we first thought of - i.e. £32.4 billion - and the difference is £11.9 billion. Which give or take is near enough £12 billion. In fact if I'd assumed the rate was 20% and not 20.5% the gap would have been £13 billion.
In the Missing Billions I said the expectation gap - the difference between the sum we'd expect large companies to pay and the amount they actually pay - was £12 billion a year at the time. And now it's near enough almost exactly £12 billion.
The fact is the Missing Billions was right all along. And those who have used my data as the basis of their tax protests - saying we're not all in this together as ordinary people and small business are paying for the abuse big business and banks in particular have unleashed on our economy - can take considerable comfort from the fact that they now have the backing of Oxford University and H M Revenue & Customs data to show that the number they have been using on corporate tax avoidance - the activity that ensures they're not in this altogether with the rest of us - was right all along.
Thanks Oxford. I appreciate your support.
The question now is - what is anyone going to do about it - because I suspect this will only reinforce demands for action. £12 billion would
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“The Trickle Down Theory suggests that tax breaks for big businesses and the wealthy are beneficial to the broader economy. Although I agree that any tax cut is beneficial to the economy in the current environment, I think that the cuts could be more effective if put in another direction. In particular small businesses would benefit the economy more if they were given the tax breaks instead of big businesses. I think this because small businesses often fail in the first year of trading due to financial constraints”
http://morganisteconomics.blogspot.com/
But the “Trickle Down theory” is just an unproven theory, one which flies in the face of observed reality.
@James from Durham
“Flood up theory” is the reality
So how come up millions of people in developing countries have been lifted out of poverty in the last 30 years?
And can we now assume that the fabled £120bn figure for the Tax Gap which you have quoted is simply rubbish?
“when as Oxford note…a rate of 28% was expected, irrespective of allowances and reliefs.”
Expected by whom? Parliament, Oxford, you?
We’re not getting anywhere with this debate are we? We’ve come full circle here and we’re back to the starting position which many of us questioned at the time and that is you ignore reliefs and allowances. Just because Oxford ignore them doesn’t mean they are correct – they are as wrong as you are in ignoring them.
All you are doing is looking at profits of £158bn, multiplying them by 28% and comparing the result to tax actually paid. Your work can be reduced to the simple formula £158bn x (28% – 20.5%) = £12bn therefore the tax gap is £12bn!
It’s hardly rocket science, is it? And you make it sound all so complicated. The problem is your assumptions do not stack up – in fact I’d go as far as saying there are no assumptions.
@Gary Hughes
a) They haven’t been – billions remain in poverty and relatively it is worse
b) No – what this shows is that a component is right
So you’re doubly wrong
@Tom Olver
Expected by all three
And no – this is not about reliefs and allowances – it is about the fact that those appear to favour or are abused by one sector – and because we don’t know whether or not the difference is even down to them it may not be that at all – but something else besides – like avoidance
So yes we are getting somewhere
It’s proveen the gap is as big as I said
It’s proven it cannot be shown to be reliefs and allowances – because with data Oxford could not show that
So it may well be avoidance
I’d say we’re proving the problem is real – and that I’ve been right all along
The problem is for you deniers – who still have not a scrap of evidence to support your case when all of it supports mine
Further comments like yours will be deleted for that reason – unless you have something to say bar ‘I don’t like these findings which make me uncomfortable as they look to be true’ then you’re not debating, you’re asserting
I do something rather better than that – I give evidence
“It’s proven it cannot be shown to be reliefs and allowances – because with data Oxford could not show that”
They weren’t trying to prove it. They make no reference to allowances and reliefs.
“Expected by all three”
So you’re saying that when Parliament passed the 28% rate of CT they expected the effective rate to be 28% – i.e. they forgot about capital allowances? Pull the other one.
Unfortunately your assumptions are incorrect. Given the Oxford work is based on trading profits, which is pre interest costs, it is not comparing taxable income and hence no conlusions can be drawn from it.
On a different issue, I thought you calculated the tax gap at £120bn, now you are saying that large corporations only accounted for £10bn of that. So is the rest all small business/individuals?
@PaulF
In that case you’re saying Oxford should not have made the comparison – but they did – and drew conclusion from it – in which case so do I
But don’t raise the objection with me – ask why they got it wrong if that’s what you think
And re the £120 bn – just go and read the whole thing and stop wasting my time – it’\s readily available but you don’t even seem to be bothered to research the most basic facts – which I think telling
@Tom Olver
Respectfully, read the report
They compared accounts and tax and found a low rate of tax and could not explain why
And yes – the result was expected by all three – or they would not have commented on it and nor would MPs, often
No Oxford didn’t make the erroneous comparison, you did. If you read the quote from the report that you have reproduced, it merely says that as a proportion of trading profit, large companies paid less than small. They didn’t infer that it meant the actual tax rate was lower than the small corporation rate of 21%, this is an assumption you made.
In fact later in the report there is this statement :
“The previous subsection shows that companies within multinational groups are more likely to pay corporation tax at the main statutory rate of 30 percent.”
I think very little true conclusions can be drawn from this report other than firstly, the UK is heavily reliant on tax from large multinationals and secondly, that there are a lot of smaller conpanies that pay no tax.
It is on this second point that I asked the question re your work on the tax gap. Having had a look at it it again, it does seem like the majority of the £70bn evasion of tax that you come up with, would be from small business/self employed at little risk of being audited.
@PaulF
They say:
Within each sector there is evidence that, as a proportion of trading profit, the tax liabilities of the largest 100 companies are generally lower than for other companies.
But follow that through and all else follows – it really cannot
How could it not?
Re the £70 bn – of course that’s not in the large multinational corporation sector
You are attempting to fit the Oxford report into your own shaky conclusions, despite the Oxford report not having anything to with what you’re trying to prove. This is a hollow attempt and most people can see straight through it.
@PaulF
If I made the error so did the FT:
“http://www.ft.com/cms/s/0/128e36e6-4444-11e0-931d-00144feab49a.html#ixzz1FYksgnxj
Very large companies pay lower rates of corporation tax than smaller businesses, according to research by Oxford University that will fuel debate about whether big business pays enough tax.”
That’s because Oxford said it
The inference I have drawn is entirely reasonable
@Richard Murphy
“They compared accounts and tax and found a low rate of tax and could not explain why”
Yes – but they didn’t consider alowances, reliefs and exemptions! This is the point! I give up.
@Dennis Ryder
Far from it – I am drawing the conclusions they refuse to make from their work
Ask them why they won’t draw the conclusion, I suggest. Their paper clearly supports it
@Tom Olver
Please do – because you’re wrong
They had access to all the data and could not expolian it
So perhaps tax avoidance does
As I’ve always said
With respect I think you’re drawing conclusions that aren’t there.
The Oxford report is not concerned with explaining why big companies pay a lesser % of tax than they do.
They may have had access to data if they wanted to find it but it wasn’t the aim of the report to explain the “Tax Gap”.
To surmise that their absence of comment on such matters somehow proves that your Tax Gap calculations are right is dangerous, illogical and wrong.
@Nick Horton
If you compare accounts and tax paid and look at differing effective tax rates please pray tell me what it was about if not the tax gap?
And why did the FT make the tax gap its headline as noted if it was not about that?
I put it to you – and I’ve given all the evidence, that what I’ve done is justified, logical and right and only your prejudice stops you agreeing
@Nick Horton
Then I found this – seems to be by you? http://www.thelawyer.com/postcard-from-hong-kong/1003592.article
Refers to deliciously low tax rates?
Any bias in your comment, maybe, blinding you to the truth?
Just because the newspapers draw a flawed conclusion doesn’t make it right. A simple example can demonstrate why the tax rate difference they have found is meaningless.
2 companies each earn trading profit of 1000, A pays 280 in tax B pays 140 in tax, so in terms of this report A pays 28% of trading profit in tax and B 14%. But B has capital assets that are debt financed and paid 500 in interest. Hence B’s taxable income is 500. So looking at actual tax rate, bioth A and B pays the 28% statutory tax.
Hence no conclusions can be drawn from the reports findings on avergae tax to trading profit.
The main point I would raise from this report (and one you alluded to) is why there are so many small companies that appear not to make any taxable profits yet still exist.
@PaulF
I don’t think your analysis flows from the Oxford report…but we’re not going to agree on that
I will be publishing a report on the second issue within ten days
I’m astounded that you think millions have not been lifted out of poverty in the last 30 years. In that time China’s poverty rate has gone from 85% to 15%, that is 600 MILLION people taken out of poverty in one country alone.
World Bank data shows that the percentage of the population living in households with consumption or income per person below the poverty line has decreased in each region of the world since 1990.
Sure many billions remain in poverty but to deny any improvement is to ignore the evidence of the world around you.
What is probably more relevant to discussions on the Tax Gap is what the Oxford study says on p20. Having noted the limitations on the data they say “Among other things, the lack of any other data makes it impossible to make an assessment of a tax gap”. As they wrote it, maybe they can judge what they do and don’t know?
@Mark Saville
The Oxford centre is sponsored by the FTSE 100
It’s not ability or data that stops them doing bthis
It’s lack of willing, lack of objectivity and political bias
How very comforting — the sort of thing CIOT would knock out in one of its press releases.
What if the trading profit in both cases is £1B instead of £1000? What if the difference in taxable profits is attributable to B’s use of non-criminal debt structure and cost tax evasion schemes the purposes of which is to artificially depress taxable profits? One could even turn this into a “Toby Young” example by ridiculed A for behaving with a modicum of social responsibility.
@belgravia raises a good point that perhaps this blog can expand upon. Frequently, when debtaing this topic at uni, I encounter those on the extreme right who claim that no laws are being broken by these large multi-nationals and their various tax evasion schemes.
Is there a list of laws which we can cite in fighting back against the misinformation spread by these tax evading apologists?
@Natter
IIt’s not quite right to say that no laws are broken when “tax avoidance” occurs. What happens is that regulators secretly settle the law breaking with simple monetary restitution (i.e. without detriment to the law breaker). The existing distinction between “tax avoidance” and tax evasion isn’t helpful in explaining what happens or in working out what should be done to prevent “tax avoidance”.
On reflection, it would be good if we could get into parlance the concept “non-criminalised tax evasion” rather than “tax avoidance”. We can then move on to debate how non-criminalised tax evasion should be treated. Public ASBOs for CEOs, CFOs and non-execs are one obvious response, but more serious public sanctions ought not to be excluded from consideration.
@Natter
The answer is tax avoidance is legal
But it is seeking to get round the law
And the law is also a poor moral arbiter – I usually refer to apartheid being legal in SA at one time
The reality is that those undertaking tax avoidance don’t always know they’re being legal – every morning two lawyers get up in a court both thinking they’re right and one of them is not
That’s tax avoidance – living in the grey area of the law
There is a way to be sure you’re legal – and that’s to be tax compliant
Tax compliance is seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes.
It’s the right option
The rest os risk – risk not revealed to shareholders and so transferred to them – and so to society
That’s not a benefit to shareholder value – but it does boost share option schemes in the short term – which is the aim