Speaking at the launch of Tax and British Business: Making the Case CBI director general John Cridland pointed out that businesses contribute an annual £163bn to the UK exchequer, which represents nearly 30% of the government’s total tax take of £551.4bn.
He also stressed that business acts as a major tax collector – at significant cost to itself – of National Insurance, PAYE and VAT.
Tax and British Business: Making the Case is designed to highlight “the significant contribution business makes to our economy and society” and “combat the misunderstanding (and sometimes misinformation) that has been clouding this debate”.
Held at Policy Exchange headquarters in Westminster, attendees at the launch heard that the large majority of UK companies accept tax as a part of doing business and view paying tax as an “important licence” to act.
This is in spite of a widespread misconception in the UK that businesses – and in particular larger companies – spend much of their time looking for ways to avoid paying tax.
In fact, the largest 1% pays 81% of all corporation tax and 60% of small firms pay no corporation tax at all.
UK companies also pay more corporation tax than businesses in many competitor countries, including France, Germany and the US.
One view expressed in the report was that although only a very small minority of companies pursue “abusive” tax avoidance schemes, the majority of companies have been tarred with the same brush.
In addition, the complexity of the tax system and various myths that have become “reality” in the public’s mind – like sweetheart tax deals with HMRC – have combined to give business a bad name.
Even tax planning, a necessary part of business activity, is currently regarded as suspect.
“Tax management is an important and legitimate aspect of business,” Cridland said. “It is essential that it is clearly distinguished from tax evasion and abusive avoidance schemes – which may be legal but not something businesses should do.”
Claiming tax reliefs, for example, will reduce a company’s corporation tax liability but is entirely legitimate.
“It’s a dangerous – if sometimes convenient – myth some people peddle that all tax management is abusive and amounts to evasion. It doesn’t. Tax evasion is illegal, immoral and damages the integrity of honest businesses the world over.”
Cridland believes that the opportunities for abusive tax avoidance schemes have greatly diminished over recent years and the introduction of the General Anti-abuse Rule (GAAR) will help. He also described talk of sweetheart deals between business and HMRC as “wide of the mark”.
“Anyone who has had any dealings with HMRC knows that it simply doesn’t happen,” he observed.
“The tax gap between what should be collected and what actually is has been shrinking in recent years and only £1.2bn (or 3.4%) of the total £35bn is attributable to corporation tax paid by the largest companies.”
Cridland pointed out that the gap also includes honest disagreements over the interpretation of tax law.
However, legitimate questions about some aspects of the business tax regime do remain, he added, pointing to the need to distinguish between low tax jurisdictions like Ireland and the Netherlands – which are transparent – and tax havens. And he also suggested that further work was needed on transfer pricing.
Cridland called on business to defend itself. “For too long, business has been slow – or perhaps even reluctant – to enter the public debate on tax policy. That needs to change. We want to defend robustly our record – and advocate pro-growth tax policies which are in everybody’s interests.”