The UK’s largest companies are paying less tax than they did in 2001 despite a huge leap in their profitability over the past 12 years.
Corporation tax receipts from big businesses have fallen from £26bn in 2000/01, when the then Labour government initiated a more “collaborative approach” in the state’s relationship with large firms, to £21bn in 2011/12.
This 20pc decline in tax receipts coincides with a 65pc improvement in overall corporate profitability, according to one official measure.
The so called 'gross operating surplus’ of all UK companies a measure of profitability compiled by the Office of National Statistics has grown to £329bn over the last 12 years, outpacing economic growth over the same period.
The research, which was conducted by Reuters , reveals the “scaling up” of controversial tax avoidance tactics by big business over the last decade, tax campaigners said.
Multinationals such as Google (NasdaqGS: GOOG - news) , Amazon and Starbucks have faced heavy criticism from MPs and campaigners in recent months for using legal ploys to reduce their tax bills such as diverting their profits to low tax jurisdictions.
Google, for example, channels almost £2.5bn of UK sales through Ireland (OTC BB: IRLD - news) each year, most of which ends up in Bermuda. The web giant says it complies with tax law in every country in which it operates but that it also has an obligation to its shareholders to run its business “efficiently”.
In 2001, the then chancellor Gordon Brown directed HM Revenue & Customs to take a new approach to big business through a so called “enhanced relationship” to lighten the regulatory load on business. HMRC now says it aims to work in an atmosphere of “mutual trust” with big companies but campaigners accuse the tax authority of doing too little to prevent aggressive tax avoidance. A HMRC official claimed that “if you go into HMRC to collect tax, you won’t get very far ... the remit now is to make the taxpayer happy”, Reuters said.
However, HMRC denied there had been a significant increase in corporate tax avoidance and said the decrease in receipts is a result of the economic downturn and lower rates of corporation tax. Reuters researchers said that these factors accounted for around half of the decline in tax payments from giant companies, leaving £2.6bn “unaccounted for”.
John Christensen, of campaign group Tax Justice Network, said the figures highlight that tax avoidance by large businesses has become a “much bigger issue” over the last 10 years because of the “enhanced relationship” policy. “Successive (UK) governments have been sending out strong signals that they were going to be fairly lenient in their attitude towards [tax avoidance].”
A spokesman for HMRC said: “[We] ensure that multinationals pay the tax due in accordance with UK tax law. We have been successful in reducing tax avoidance by large businesses in recent years. We relentlessly challenge those that persist in avoiding tax and have recovered £29bn additional revenues from large businesses in the last six years.”