CBI tax misinformation – 60% of small businesses don’t pay corporation tax

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The CBI said in its tax briefing last week that:

Corporation tax paid differs by sector due to sector size, profitability and the availability of tax reliefs – the top 1% of companies pay 81% of all corporation tax, and 60% of small companies pay no CT.

This is massively misleading. You'd think from reading this that somehow 60% of all small companies are let off paying tax. Well, if they are it's for a good reason. According to HMRC they don't make profit. Now I have argued that almost certainly HMRC massively underestimate the number actually making a profit because only 65% of all companies asked to submit corporation tax returns actually do so, but let's ignore this for a minute. If HMRC data gathering is right (as the CBI obviously assume), then as my research has shown of about 2.8 million companies in the UK in 2009-10 only about 915,000 according to HMRC paid corporation tax. The rest were dormant or made losses according to HMRC. In fact - according to HMRC, all companies who did not submit tax returns - over 1.6 million in all, or 57% of companies -  were dormant. I don't believe that, but this is the basis for the CBI claim.

In that case the CBI claim is wrong. They can't say 60% of all companies don't pay tax when the reality is they're dormant. They're not operating companies if that is the case - and so of course they don't owe tax. The CBI claim is like suggesting all children in the UK with no income should be included in the sample of taxpayers when calculating effective tax rates across the population as a whole although it would be blatantly absurd to do so. 99% of children have to be excluded from such data as they are not economically active, and nor are these companies. But the CBI does not say that - and instead grossly distorts its claims by deliberately ignoring the fact.

The resulting claim by the CBI is deliberately misstated as a result, and undermines their entire credibility on this issue.