The tax debate
Since the financial crisis the tax affairs of major businesses in the UK have been subject to unprecedented levels of scrutiny by politicians, the press and NGOs. A series of exposes by the media (e.g. Private Eye, The Guardian and Panorama), interventions by the Public Accounts Committee into the taxation of multinational companies and campaigns from a variety of social justice groups captured the public’s mood during a time of austerity.
A lot of this attention has focused on corporation tax, but this only accounts for 23% of all taxes paid by business. Many of the questions raised have not just been about companies evading taxes since most businesses manage their taxes within the law. Instead the questions have be asked about whether businesses pay their fair share based on their activities in the UK. After all, businesses rely on many things that are government funded: the availability of skilled and healthy staff; a transport system to distribute goods; reliable internet services to stay connected. So business should contribute the right amount of tax to fund these services and more.
Successful businesses create jobs, pay wages, produce and supply the goods and services we use on a daily basis, and help fund our retirement pots. It is through all of these activities and more that taxes are paid and collected – for example income tax, national insurance contributions , VAT, corporation tax and stamp duty to name a few.
In total, businesses in the UK pay 30% of all tax. On top of this, they collect a significant amount on behalf of the government by operating payroll and VAT systems, all footed at the company’s own expense.
Transparency is the key
The UK tax system is one of the most complex in the world. Such complexity makes it difficult to tell from the outside whether a group is paying the right amount of tax. But in all of this debate, it’s clear there is an increased expectation on businesses to explain the taxes they pay. At the CBI, we’ve seen tax become a more important issue for most companies, often on the agenda for the board of directors. There are greater reputational issues at stake than ever before and companies have started to talk about their tax affairs in a different way and through different channels. Many companies now have a tax strategy and policies that explain how and why they pay the taxes they do.
To support this trend, the CBI offers its Statement of Tax Principles to its members to promote responsible tax management. This means businesses should seek to increase public understanding by explaining the taxes they pay. In fact 75% of businesses in the UK agree that these principles will provide better public understanding and the challenge now is for all businesses to embrace this.