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Tax, the weighty burden

19 Jun 2012

HM Revenue & Customs document

This IoD report shows that while the total tax burden on businesses has fallen slightly, it remains far higher than corporation tax would suggest and radical action is needed to reduce it.

Summary

  • The overall tax burden on businesses is a lot higher than the corporation tax rates of 20 and 24 per cent. Typical SMEs suffer burdens of between 32 and 41 per cent.
  • This has serious implications for the economy. It is risky to start, or to expand, a business. Entrepreneurs will not put their own capital at risk, and other providers of capital will hold back, if the potential rewards are too greatly reduced by taxation.
  • Even providers of loan capital, who are paid their returns before corporation tax is computed, will be put off by high taxes. Other taxes, which are imposed regardless of profits, can take so much of a company’s resources that its ability to pay interest and repay its loans may be put in doubt.
  • We can take into account corporation tax, employers’ national insurance, business rates, road fuel duty, climate change levy and stamp duty land tax. Other taxes also bear on businesses, but the data that would be needed to identify the business burden are not available. We concentrate on incorporated businesses.
  • A business can expect to have to pay four or five months’ worth of profits to the state each year. The position has improved slightly since last year, but there is still a long way to go to create a truly business-friendly tax environment.
  • We could cut tax rates further. Significant reductions in corporation tax, or in employers’ national insurance, would lead to worthwhile improvements.
  • Larger gains would come from being more radical. The proposals of the 2020 Tax Commission would merge income tax and national insurance in a flat rate income tax, and would not tax companies’ profits until they were paid out to shareholders. The result would be considerable incentives to invest, and a marked reduction in tax burdens on businesses.

Read full report

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