UK businesses hit by jump in VAT and job tax

Tim Wallace
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BRITISH businesses are seeing their tax bills stay high despite George Osborne’s pledge to cut corporation tax, as the chancellor has simply increased other charges on the firms, according to a PwC study out today.

That means the government is not increasing the UK’s appeal as a competitive place to do business as much as the chancellor may be hoping.

The FTSE100 firms paid £77.1bn in the tax year 2011-12, almost identical to the amount paid the previous year, even though the headline rate of corporation tax fell from 28 per cent to 26 per cent. That represents 14.2 per cent of total government receipts.

The difference was made up in other taxes with businesses shelling out more to cover charges like the rise in employers’ national insurance and the increase in VAT.

PwC’s study of the top 100 listed firms has been running since 2005.

Since then the tax take from firms’ profits – taxes borne, in PwC’s words – has jumped 19 per cent to £24.8bn.

The amount paid from its outgoings, like staff pay – known as taxes collected – has risen by nine per cent to £52.3bn.

Corporation tax only makes up £8bn of the top 100 firms’ tax payments. Pay as you earn income tax collections come to £13.8bn while national insurance comes to £10.1bn.

That represents a shift in government tactics from taxing variable figures, like profits, to more fixed factors like business rates on property and national insurance on employment.

PwC fears that could make it harder to start a business as more taxes are due before the firm makes a profit.

“The effect varies from business to business – when setting up a retail business you will pay more national insurance contributions and business rates, while a technology firm has lower costs, with less rates,” said PwC’s Andrew Bonfield.

But the shift to more predictable taxes makes it easier for the government to get the annual deficit down.

“These other taxes tend to be easier to collect and less volatile since they’re not dependent on profits,” added Bonfield.