Twelve years ago when PricewaterhouseCoopers began tracking how much tax Britain’s biggest companies paid, the survey found that half the total came from corporation tax and business rates represented a relatively paltry 11 per cent of the take. Step forward to 2016 and the situation is rather different.
Today corporation tax as a proportion of the taxes borne by the 100 Group of companies has dropped to 19.7 per cent but business rates have jumped to nearly 21 per cent.
While corporate tax rates have fallen from 30 per cent to 20 per cent since 2005, the cost of business rates, at least to the largest companies, has nearly doubled over the same period.
Back in 2005, English businesses were charged a multiplier on their property of 42.2 — 42.5 if the real estate was in the City of London — but by the latest tax year this rate had risen to 49.7. In real money, this means a firm with a property reckoned to be worth £100,000, for example, has seen its bill rise on average by £7,500 a year.
However, the picture is rather more complex than this. For instance, in 2015, Lloyds Banking Group was the country’s biggest single private taxpayer, according to private figures distributed by PwC, paying £1.8 billion. But Lloyds’s place at the top of the table is a direct result of changes to tax policy since the financial crisis.
Last year banks were responsible for half the direct taxes paid by large business, but again this does not tell the entire story. Looked at from the point of view of business rates, it is the retail sector that has been the biggest contributor. As a proportion of retailers’ taxes, business rates make up about 49 per cent of the total and overall the retail giants pay just under half of all the rates levied on big companies.
It is not entirely a tale of woe for the likes of John Lewis and Tesco, as at least part of the reason for their higher rates is the expansion of their businesses. Put simply, the more floor space you occupy the more you are going to pay in business rates. This has not stopped the retail sector from arguing that the continual uptick in business rates risks leading to job losses if a cap is not imposed. Such a move might be popular but as recent tax history has shown, if one rate goes down, another must go up.
What are business rates?
The equivalent of council tax for businesses,they are chargeable on 1.8 million commercial properties in England and Wales, including shops, offices, pubs, warehouses, factories and holiday rentals. There are exemptions for agricultural land.
How are they calculated?
Using a formula based on a property’s “rateable value” (the yearly rent it could achieve), last assessed on April 1, 2008. This is combined with a “multiplier” set to ensure that the nationwide total collected remains the same, making it “revenue neutral”.
In 2012 Eric Pickles, the communities secretary, announced that the five-yearly review of commercial property values would be delayed by two years to prevent “unexpected hikes” in business rates. On the original schedule, the new rates would have come into effect in April 2015, a month before the general election. The revised revaluation was based on rentable values on April 1, 2015, and will take effect this April.
What about council tax?
No 10 confirmed this week that there were no plans for a revaluation of domestic properties, even though there has not been one for 24 years.
Business rates will fall for 920,000 companies, will be unchanged for 420,000, but will rise sharply for 510,000. Places where property values have soared will be hit particularly hard.
How much will it raise?
£27.8 billion this fiscal year, according to Office for Budget Responsibility forecasts.
Why do retailers often complain more?
Retailers and factories pay about two fifths of business rates, despite accounting for 17 per cent of economic output. This is because their premises are more valuable: shops need prime locations and manufacturers need specialised buildings.