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Tax mythbuster: 8 myths about businesses paying tax

There is a loud debate underway about how business manages its tax affairs and whether they are making the ‘right’ contribution. But the UK tax system is incredibly complicated and it’s no surprise that there is still a great deal of misunderstanding about how business manage their taxes. It is important to have a debate about business tax, but it is vital that that discussion is based on facts.



Myth: Business isn’t listening to public concerns about tax
The reality: More and more, businesses are thinking about how tax impacts on their employees and customers when it comes to managing their tax affairs and are committing to becoming clearer about this. Through its Statement of Tax Principles, the CBI encourages all companies to explain why they pay what they do in a straightforward way.


Myth: Tax is the main way that business ‘contributes’ to the UK
The reality: On top of the taxes it pays, business has a massive wider economic role – creating jobs, paying wages, helping to fund retirement and supplying the goods and services we all need and use. It’s also is an unpaid collector of income tax and national insurance from its employees and VAT on goods and services.


Myth: The amount of corporation tax that firms have to pay is based on their total income
The reality: Corporation tax is calculated based on the profit that businesses earn, not the total income they receive. That means they are taxed on the money they get after removing the costs of earning it. Taking the example of a local corner shop, the owners would pay tax after taking into account the costs of things like buying more stock, paying for staff wages and rent on the premises.


Myth: Corporation tax is the biggest tax on businesses
The reality: Businesses also pay tax based on their roles as property owners, employers, consumers of goods and services, and for the environmental impact of their business. For every £1 of corporation tax paid, business pays £2.86 in other business taxes.



Myth: What businesses call ‘tax management’ is no better than tax avoidance or evasion
The reality: Non-abusive tax management is a legitimate business function – it means making decisions on the basis of the existing and complicated tax laws. Business does not condone abusive avoidance schemes that serve no commercial purpose other than the minimisation of tax, even if they are legal. Tax evasion – not declaring taxable income – is rightly illegal.



Myth: Most tax reliefs for business are tax loopholes and should be scrapped
The reality: The government uses tax reliefs to incentivise businesses to invest in the UK and to encourage firms to expand and create jobs. In one example, GlaxoSmithKline announced it would spend £500m more on R&D and create 1000 jobs in the UK after the introduction of a lower rate of corporation tax for profits earned on patented innovations.



Myth: Multinationals based in the UK don’t make a ‘fair’ contribution
The reality: The UK taxes company profits that are made from activities carried out in the UK. International tax rules try to work out which profits are allocated to each country across different parts of the business, in order to work out how much tax is owed and where. The rules are complex but altogether, 90% of all corporation tax in the UK is paid by multinationals.



Myth: Business has a cosy relationship with HMRC
The reality: This is not the case.The complex UK tax system means that sometimes there is a difference of opinion between HMRC and a business about how much tax is owed. If the two sides cannot agree, a case must go to the courts to reach a final decision. Because going to court is expensive and uncertain, it is normally in the interest of both sides, and the taxpayer, to reach a settlement.


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