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UK Government Defends Business Tax Regime

by Jason Gorringe,, London

30 August 2007

The UK's tax authority has issued a strong defence of the country's business tax regime, after a National Audit Office report showed that one third of large businesses paid no corporate tax.

In a statement, HM Revenue and Customs argued that it was "ridiculous" to suggest that business does not pay its fair share of tax, and pointed out that these businesses pay many other taxes, not just corporate tax.

“Businesses are using the capital allowances and deductions that government has put in place to stimulate investment, create jobs and build economic stability. These are not loopholes – these are properly policed business reliefs," the department stated.

The Treasury has been forced to react, after the NAO analysis of the corporate tax paid by the 700 largest companies handled by HMRC was reported widely in the media. According to the NAO, 220 of these companies paid no corporate tax in the 2005/6 tax year, while a further 210 paid less than GBP10 million.

The figures have prompted an outcry from trade unions, with Unite, the UK's largest trade union, demanding that the government "urgently" address the "inequality when those at the top are not shouldering their share of the burden".

However, tax experts and business representatives, while critical of the complexity of UK business tax legislation, have sided with the government by noting that these large companies paid a multitude of other taxes, such as VAT, National Insurance contributions and local business rates. Many of the companies may be investing heavily in research and development projects, which also reduces corporate tax liability, they argue. Furthermore, UK-based multinationals are generating much of their profit internationally, they have pointed out.

According to the Confederation of British Industry, UK companies paid GBP42 billion in corporate tax in 2005/6, but this represented only half of the total taxes paid by UK businesses.

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