The tax that companies pay is an increasingly complicated picture. Particularly corporate tax, where the government uses tax reliefs to incentivise businesses to invest in the UK and to encourage firms to expand and create jobs. It’s right that companies should be able to make use of these incentives but it does add to the complexity of the system.And the picture gets more complicated again in a globalised economy.
All this intricacy means that tax is a tough subject for public debate.
But businesses, just like individuals, do need to pay their taxes. I am confident that the large majority of businesses pay the right amount of tax, and that evasive or abusive arrangements are not tolerated by the responsible business community.
Amongst our members the approach businesses take towards tax sits at the highest level, which is evidenced in the article by BP, highlighting that businesses take their responsibility towards tax seriously.
Altogether, UK businesses make a huge contribution to the economy, paying £172bn in tax last year. This is a third of total tax receipts and enough to fund the Department of Health and the Department for Education put together.
Nonetheless, legitimate questions remain about the corporate tax system, and how businesses manage their affairs. Groups are asking whether business pays its ‘fair share’ of tax. It’s a good question, but not one that is easy to answer.
The complicated nature of tax rules means that there isn’t always a straightforward answer, unlike for individuals who tend to pay their tax through PAYE on a single amount of income. And what is ‘fair’ means different things to different people.
Above all, companies need to do a better job of explaining the tax they pay. There are a few different approaches out there, including the Fair Tax Mark, but what is important is that the information is accessible and easy to understand.
That’s what the CBI emphasises in its Statement of Tax Principles. Given the growing complexity at the international level, it’s important to have a flexible approach that works for as many different types of businesses as possible, including those with multinational operations.
While some businesses may look towards the Fair Tax Mark to obtain an independent stamp it’s important that it is accessible for all types of businesses. That’s why we think the CBI Statement of Tax Principles offers best practice without being too prescriptive or expensive for businesses to adopt.
Any business should be able to explain why they pay the tax they do, and that’s why we are encouraging more businesses to find the best way that suits them.
Rain Newton-Smith is the CBI’s director of Economics. Rain was most recently head of Emerging Markets at Oxford Economics where she managed a large team of economists and was the lead expert on China.