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2020 Total Tax Contribution

Total tax rate for UK’s largest companies at 10-year high prior to Covid-19, study finds.

  • Total tax contribution of £84.1bn represents 11% of all government tax receipts
  • 100 Group companies spend £9.1bn on research and development
  • Next year’s contribution expected to be hit by impact of the pandemic

The UK’s biggest companies generated £84.1bn in tax during the 2019/20 financial year which largely preceded the start of the Covid-19 crisis, a study published today shows.

The 16th annual Total Tax Contribution of the 100 Group, produced by PwC, shows the companies contributed £26.9bn in taxes borne – those that are a direct cost to the company – and a further £57.2bn in taxes collected, such as income tax and employee National Insurance deducted under PAYE. The total amount represents just over 11% of all Government tax receipts.

The data, collected from 97 of the largest companies in the UK, largely relates to the period prior to the Covid-19 crisis. A significant fall in the tax contribution is expected next year as declining profitability leads to lower corporation tax payments. A severe drop in economic activity along with tax deferrals and business rates relief is likely to impact the overall contribution. A key change in tax policy introduced as part of the Chancellor’s support package in March was business rates relief for the retail, leisure and hospitality sectors, at an estimated total cost of £10bn.

Based on an analysis of the 2019/20 data, the report shows that decreasing profitability and increasing taxes borne have resulted in the total tax rate – taxes borne as a percentage of commercial profits –  increasing for the second successive year to reach 48%, up from 41% in 2018/19. Against a backdrop of weak GDP growth and continued political uncertainty, the total tax contribution of the firms surveyed fell by £0.6bn compared to 2018/19, due to decreasing taxes collected caused by a fall in fuel and tobacco duties.

Despite a period of weak business investment in the wider economy, capital investment by 100 Group companies was £25.6bn, while research and development expenditure stood at £9.1bn. Together, the companies employ just under two million people – 5.8% of the UK workforce – and contribute 9% (£26bn) of total UK employment taxes. Employees of 100 Group members earn an average salary of £37,486 and on average each contributes £13,265 in employment taxes.

Marissa Thomas, head of tax at PwC, said:

“This survey underlines the contribution of the largest UK companies to the economy and wider society. It’s clear that there are significant challenges to be overcome in the years ahead. Moving to a zero-carbon economy and reskilling in the age of increasing automation were already pressing priorities which now have to be accelerated against the backdrop of the recovery from the crisis.

“With the imminent end of the EU transition agreement, now is the time for a fresh assessment of how we create a tax system that addresses those priorities while encouraging investment and providing certainty for the future.”

The report highlights the trend in taxes borne since the survey began, shifting from profit taxes towards other business taxes based on property and employment. This has had a particular impact on the retail and financial services companies in the survey, which were responsible for 58.6% of total taxes borne in 2019/20. For every £1 paid in corporation tax in 2019/20, businesses paid a further £2.89 in other business taxes, such as employer national insurance and business rates, and generated a further £8.34 in taxes collected. In 2005, the ratio of corporation tax to other business taxes paid stood at 1:1.

Employer National Insurance Contributions and business rates combined accounted for 44.7% (around £11.5bn) of taxes borne, while corporation tax (£6.9bn) made up 25.5%. Irrecoverable VAT accounted for just over 15% of taxes borne.

Andy Agg, chair of the 100 Group tax committee, said:

“This study shows that despite challenging economic conditions, the total tax contribution from large companies remains significant. However, given the scale of the economic crisis caused by the Covid-19 pandemic, this contribution is likely to be significantly lower for 2020/21.

“The UK’s largest companies will play a pivotal role in the economic recovery. Supporting employees is clearly at the top of the agenda and, during the period in question, these companies provided employment for nearly two million people – just under 6% of the country’s working population. They have also demonstrated their wider contribution to the economy, contributing close to £35bn in capital investment and research and development combined.”