Corporation tax is complex to read - IoD's Ron Lynch
CORPORATE tax avoidance is a hotly debated subject at the moment, both in Nottingham and UK-wide, with fingers being pointed at some major players including Starbucks, Amazon and Apple.
Corporation tax is at best complex and contributes to the overall tax burden on businesses trying to survive, expand and invest in the current testing economic climate.
In the IoD's latest Big Picture – a regular review of business issues and comments from members and specialists – Richard Baron, the IoD's head of taxation makes a case for eliminating corporation tax.
He says: "Corporation tax distorts the balance between debt and equity, imposes heavy burdens and taxes profits which are re-invested.
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"It is grit in the engine of business and could be replaced with a radically different tax on returns to capital."
Our overall view is that corporation tax – currently running at rates of between 20 and 24 per cent – should be reduced because of increases in tax in many other areas of business activity.
It's easy to make snap judgements about the corporation tax paid by companies without knowledge of the full facts.
Tax evasion is illegal and if investigations into companies identify examples of this then the penalties should be severe.
But quite often trying to assess the overall profit of a large corporate entity and the resulting tax bill is made very difficult because of investments such as sustainable and environmental developments, expansion (and ultimately creation of new jobs), company pension contributions and more.
These can distort both accounting profits and taxable profits.
It's also very important not to judge one tax in isolation.
Consider the other contributions and the whole range of taxes these companies pay – such as National Insurance, VAT, energy surcharges, green tax, parking levies and business rates.
All of these mean that the overall burden of taxation is high.
It should also be recognised that companies contribute a great deal, through these taxes, towards all the public services delivered by central and local government and their agencies.
They also contribute directly in other ways by improving infrastructure and creating new jobs.
Just taking Boots, the largest local employer, as an example, the company has committed to investing around £1 billion in store improvements.
This will provide jobs in Nottingham but also opportunities for those sub contractors who carry out the work who, in turn, will be able to sustain or create jobs.
Then there's the Enterprise Zone in Nottingham which will require investment by Boots and others to ensure that the maximum benefit is obtained from the government incentives available.
These types of development require funding and this has to be generated from the profits the companies make.
Some investments can be rightly offset against profits and taken into account before corporation tax is paid.
To survive at all in this challenging business environment demands a lot of determination, risk-taking and entrepreneurial ability.
A lot of it is about ensuring there is investment in infrastructure in order to remain competitive, both in the UK and overseas markets and developing sustainable businesses to keep people in jobs and to create a buoyant economy.
When looking at corporation tax payments of companies don't immediately judge the book by its cover. Read the index and the chapters – and the actual accounts to make a proper assessment.
The IoD continues to make informed representations to Government to reduce the overall tax burdens and red tape which large and small and medium enterprises (SMEs) have to bear. Taxes are paid to both central and local government who in turn reallocate to a wide range of services.
We have to ensure our investment and hard-earned cash is well spent. In Nottingham, local government and businesses need each other to make it work.