Tax is on the British Chancellor's mind. In this week's Spring Statement Philip Hammond said the government will be revising its ideas on fairer taxation of multinational digital businesses, in a move that could tackle profit shifting. But will it? In recent years, the amount contributed to state coffers by corporation tax has fallen, at a time when the country is seeing spending cuts to hospitals and schools and a rise in child poverty.

UK's corporate tax gap

The UK's corporation tax is the lowest of any G7 country (at 19 per cent, down from 30 per cent in 2005) and one of the lowest rates among the OECD nations. The current government plans to reduce it further to 17 per cent before the next general election.

A report from the IPPR, a progressive policy think tank, shows that the 11 per cent cut in corporation tax has reduced revenues for the state from 3.5 per cent of GDP in 2006 to 2.6 per cent of GDP today. It also estimates that the corporate tax gap is worth from £3 to £12 billion per year.

At the same time, there has been an increase in employers’ national insurance contributions, putting a larger burden on companies that employ more staff and placing them at a disadvantage compared to high-profit companies that employ fewer people.

Tackle profit-shifting

In its report Fair dues: Rebalancing business taxation in the UK, the IPPR recommends an increase in the rate of corporation tax from 19 to 24 per cent, in order to fund a reduction in employers’ National Insurance contributions by 2 per cent from 13.8 to 11.8 per cent. The report's author, Grace Blakely, writes: “This would have the effect of benefiting high-employment businesses – allowing for an increase in wages – while placing a higher burden on profitable companies which can afford to pay. It would also ensure that the burden of taxation fell more fairly on shareholders rather than employees.”

The report also proposes an ‘alternative minimum corporation tax’ that links the amount of tax a company pays to its economic activity in the UK, in order to tackle multinational tax avoidance and shifting profits to lower-tax jurisdictions.

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CTMfile take: Corporate taxation is a subject close to the heart of corporate treasurers. What do CTMfile readers think is a fair amount to pay? Does the current government have it right or would you support a rise to 24 per cent?