Business taxes
Helen Miller
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IFS hosts two ESRC Research Centres.
Corporation tax revenues
0.9%
0.8%
2.5%
0.7%
2.0%
0.6%
0.5%
1.5%
0.4%
1.0%
0.3%
0.2%
0.5%
0.1%
Onshore corporate tax receipts (LHS)
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2018-19
2017-18
2016-17
2015-16
2014-15
2013-14
2012-13
2011-12
2010-11
2009-10
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
0.0%
2000-01
0.0%
Receipts from financial sector (RHS)
Percent of national income (%)
Percent of national income (%)
3.0%
Capped loss offset for banks
• At present: trading losses can be carried forward indefinitely and
offset against any trading profits
• From 1 April 2015 proportion of banks’ annual taxable profit that
can be offset with prior losses will be capped at 50%
• Adds uncertainty about relief of future losses
• Revenue: £3.5bn over forecast period
• Works to bring revenue forward, not to increase revenue overall
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Diverted profits tax (‘Google tax’)
• New tax of 25% on diverted profits from 1 April 2015
– legislation to be introduced next week
• Idea: identify cases where companies have economic substance in
the UK, but profits are being artificially diverted offshore
– need to define artificial diversion & how much should be taxed in UK
– long running difficulties with allocating profits
• Fits with the Base Erosion and Profit Shifting (BEPS) agenda
– focus on aligning taxing rights with economic substance
– layering another principle onto international tax rules and adds
complexity
• Revenue: £0.3bn per year
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Supplementary charge & fair fuel stabiliser
• Budget 2011 - fair fuel stabiliser introduced
– link supplementary charge and fuel duty escalator to oil prices
– supplementary charge increased from 20% to 32%
– plan: if oil price falls below a trigger supplementary charge moves
back towards 20% and
– fuel duty price rise would be revised to increase by RPI plus 1 penny
• Oil price has been moving towards trigger
– cut in the supplementary charge to 30% from 1 January 2015
– fair fuel stabiliser scrapped - no increase in fuel duty
• Poorly designed policy – so welcome removal of FFS
• But announcing a policy, and then scrapping it when meeting
policy conditions looks likely is a bad way to make policy
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Devolving corporation taxation to NI
• Devolution of CT to Northern Ireland agreed in principle
– 3 years of consultation but no details on how will work or whether
base will also be devolved
• Corporation tax is not a good candidate for devolution
– introduced profit shifting and tax competition within the UK
– adds complexity
– arguments that NI has special circumstances
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Devolving corporation taxation to NI
• How to determine how much profit is earned in NI?
– uncertainty about CT raised in NI: £450m (HMRC), £650m (NI govt)
– separate accounting or apportion the base using a formula
• How to adjust the block grant from Treasury to NI?
– account for the effect of rate changes on revenues in the rest of the
UK, including via profit-shifting and tax motivated incorporation
• Earlier consultation documents suggests complicated method
– separate accounting (with transfer pricing etc.)
– if rate changed, estimate ‘mechanical’ revenue change, adjust for the
effects of profit shifting, investment and other behavioural changes
and change block grant accordingly
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Business Rates
• Review of the structure of business rates by Budget 2016
– ideally should move towards a Land Value Tax
– other options in chapter 11 IFS Green Budget 2014
1. ‘Temporary’ doubling Small Business Rate Relief
–
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AS 2014 extends temporary doubling to 1 April 2015
‘Temporary’ doubling of small business rate relief
Tax as % of rateable value
50%
45%
40%
35%
30%
25%
20%
15%
10%
with 'temporary' extension of relief
5%
without extension of relief
0%
£0
£10,000 £20,000 £30,000 £40,000 £50,000 £60,000 £70,000
Tax base: rateable value
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Business rates
1. ‘Temporary’ doubling small business rate relief
–
AS 2014 extends temporary doubling to 1 April 2016
2. Temporary relief for retail
– Budget 2014: £1,000 discount for retail properties with a rateable
value ≤£50,000 for 2014–15 & 2016–16
– AS 2014 : additional £500 discount for 2015-16.
3. 2015-16 increase in business rates multiplier capped at 2%
– usually uprated in RPI
– giveaway to property owners in the long run
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Summary
• Capped loss offsets for banks – brings forward revenue but also
adds uncertainty
• Diverted profits tax – is aiming to reduce multinational avoidance,
but will be complex
• Reduction in the supplementary charge and scrapping of fair fuel
stabiliser – poor design and policy making
• Devolution of corporation tax to Northern Ireland – may introduce
tax competition and complexity
• Continued business rates reliefs – too much tinkering
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