The current parliament is on track to be the ‘biggest tax-increasing parliament since comparable records began’ according to new research from the Institute of Fiscal Studies (IFS). By the time of a 2024 general election, the report suggests that taxes will amount to around 37% of national income, compared to around 33% back in 2019 – levels not seen since the 1940s.
Major contributors include the increase in corporation tax from 19% to 25%, the energy profits levy (which is of course intended to be temporary) and freezes to income tax and NICs thresholds.
The report also notes that, although the level of overall taxation in the UK is at a historical high, it remains ‘middling’ compared with other developed countries (based on OECD data).
Separately, Tax Policy Associates reports that UK companies are now paying more tax than at any point since the 1970s’, according to its recent analysis. Companies can expect to pay more tax in 2023 as a percentage of their profits than at any time since the 1970s (and possibly going back even further), concludes the report, with the headline amount of corporation tax as a percentage of ‘gross operating surplus’ likely to rise to around 50% in 2023.
Given the increase in the headline rate of corporation tax on 1 April 2023, and the introduction of the energy profits levy taxes, it might seem obvious that corporate tax has increased, but the analysis draws together some interesting and rather different conclusions.
Where corporate rates have been cut, tax revenues have not fundamentally changed; the analysis shows no statistically significant pattern. The key has instead been in the expanding definition of ‘taxable profits’ (for example, by abolishing allowances, such as the industrial buildings allowance), in effect widening the tax base to which the headline rate of CT is then applied. The principle here being that when tax rates have been cut, the tax base has expanded – with a lower rate applying to a bigger profits figure smoothing out any effect on the tax actually paid.
The report suggests this is a more significant factor than the general principle of low tax rates attracting business, or the effect of lower rates during a period of booming corporate profits.
The April 2023 CT rate increase to 25% has, ‘by contrast, been accompanied by very little that narrows the tax base’, says the report, meaning that the effect is compounded – although the report does also note the potential impact of ‘full expensing’ capital allowances which may well reduce the tax base to an extent, although this is likely to be limited given the temporary availability of the reliefs.
The current parliament is on track to be the ‘biggest tax-increasing parliament since comparable records began’ according to new research from the Institute of Fiscal Studies (IFS). By the time of a 2024 general election, the report suggests that taxes will amount to around 37% of national income, compared to around 33% back in 2019 – levels not seen since the 1940s.
Major contributors include the increase in corporation tax from 19% to 25%, the energy profits levy (which is of course intended to be temporary) and freezes to income tax and NICs thresholds.
The report also notes that, although the level of overall taxation in the UK is at a historical high, it remains ‘middling’ compared with other developed countries (based on OECD data).
Separately, Tax Policy Associates reports that UK companies are now paying more tax than at any point since the 1970s’, according to its recent analysis. Companies can expect to pay more tax in 2023 as a percentage of their profits than at any time since the 1970s (and possibly going back even further), concludes the report, with the headline amount of corporation tax as a percentage of ‘gross operating surplus’ likely to rise to around 50% in 2023.
Given the increase in the headline rate of corporation tax on 1 April 2023, and the introduction of the energy profits levy taxes, it might seem obvious that corporate tax has increased, but the analysis draws together some interesting and rather different conclusions.
Where corporate rates have been cut, tax revenues have not fundamentally changed; the analysis shows no statistically significant pattern. The key has instead been in the expanding definition of ‘taxable profits’ (for example, by abolishing allowances, such as the industrial buildings allowance), in effect widening the tax base to which the headline rate of CT is then applied. The principle here being that when tax rates have been cut, the tax base has expanded – with a lower rate applying to a bigger profits figure smoothing out any effect on the tax actually paid.
The report suggests this is a more significant factor than the general principle of low tax rates attracting business, or the effect of lower rates during a period of booming corporate profits.
The April 2023 CT rate increase to 25% has, ‘by contrast, been accompanied by very little that narrows the tax base’, says the report, meaning that the effect is compounded – although the report does also note the potential impact of ‘full expensing’ capital allowances which may well reduce the tax base to an extent, although this is likely to be limited given the temporary availability of the reliefs.
