Total tax rate for UK’s largest companies highest since the financial crisis, study finds

Total tax rate for UK’s largest companies highest since the financial crisis, study finds

• Pandemic pushes average total tax rate to 54%
  

• 100 Group Total Tax Contribution of £77bn represents 11.4% of total government receipts

• 100 Group employment was sustained in 2020/21 despite the pandemic, at 1.9 million people

• Spending on research and development increased by 15% to £9.3bn

The UK’s biggest listed companies generated £77.1bn in tax during the pandemic-hit 2020/21 financial year, a study published today shows.

The 17th annual Total Tax Contribution of the 100 Group, produced by PwC, shows the companies contributed £24.7bn in taxes borne - those that are a direct cost to the company - and a further £52.4bn in taxes collected, such as income tax and employee National Insurance Contributions (NICs) deducted under PAYE, for the year ended 31 March 2021. 

With operating disruptions placed on many 100 Group businesses during the year due to Covid-19, the total tax contribution fell by 7.8%, to £77.1bn compared to £84.1bn contributed during 2019/20. However, the amount of tax contributed represents 11.4% of all Government tax receipts, a small increase on the previous year, indicating tax receipts from large businesses held up better than other sources of tax revenue for the Treasury.

While taxes borne by the 100 Group decreased in 2020/21, profits fell at a greater rate.  As a result, the total tax rate - taxes borne as a percentage of commercial profits - increased for the third successive year to reach 54%, up six percentage points from 2019/20 (48%) and the highest rate since the financial crisis. 

The data, collected from 95 of the largest companies in the UK, relates to the year March 2020 to March 2021, a period dominated by the Covid-19 crisis. The pandemic had an uneven impact across industry sectors. While some sectors such as supermarkets and pharmaceutical companies experienced heightened demand, the reverse was true for many businesses in the 100 Group, particularly those in transport and hospitality. Significant government support, including the furlough scheme, business rates relief and VAT deferrals, rolled out at speed early in the crisis helped to avoid a significantly more damaging economic impact in 2020/21. 

Falls in business rates, irrecoverable VAT and corporation tax drove a 7.8% reduction in taxes borne by the 100 Group. Corporation tax accounted for the greatest proportion of total taxes borne - 27%, compared to 25.5% in 2019/20, amounting to £6.3bn from the 95 participating companies. Employer NICs was the second largest tax borne, at 26.6% of total taxes borne (compared to 25.7% in 2019/20). The third largest was irrecoverable VAT, which made up 14.5% of taxes borne. Irrecoverable VAT is particularly significant for financial services (FS) companies as services are often exempt from VAT: survey participants paid a total of £3.4bn in irrecoverable VAT, and of this total, FS companies paid £3.0bn. 

For every £1 paid in corporation tax in 2020/21, businesses paid a further £2.68 in other business taxes, such as employer national insurance and business rates, and generated a further £7.81 in taxes collected. 

Taxes collected also decreased by 7.8% in 2020/21. While there was an increase in tobacco and alcohol duty collected over the year, it was not enough to offset the dramatic fall in fuel duties as people stayed at home. Employment taxes, at 31.1%, were the largest share of taxes collected, and consisted of income tax deducted under PAYE accounting for 23.4% and employee NIC accounting for 7.7%. The second largest share of taxes collected was fuel duties at 25.7%, compared to 30.3% last year.

Despite a period of weak economic output, research and development expenditure by the 100 Group increased by 15% to £9.3bn. Capital investment by 100 Group companies was £18.5bn, representing 9.4% of UK expenditure on business investment. On average, each company supported 5,393 UK suppliers. Together, the companies employ just under two million people - 5.9% of the UK workforce - and contribute 8% (£25bn) of total UK employment taxes. Employees of 100 Group members earn an average salary of £36,094 (compared to the average national wage of £31,859) and on average each contributes £12,580 in tax.

The 100 Group tax contribution can be put in the context of value distributed to stakeholders: to shareholders or retained for reinvestment (profits after tax), to employees (wages and salaries) and to the government in taxes borne and collected. The survey results show that over half of the value distributed by the 100 Group goes to the government in taxes borne and collected at 53% of the total. Employees’ wages and salaries represent the second largest share, at 37%. Profits after tax, which are available to reinvest in the company or distribute to shareholders as dividends, accounted for 2.9% of the total in 2020/21.

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

“The results of this year's survey demonstrate the important role of the 100 Group in responding to and contributing to the recovery from the pandemic. Working with the government, 100 Group companies provided essential services and sustained employment, whilst continuing to make a major contribution to the public finances. These companies will continue to play a vital role, particularly while we continue to feel the economic effects of the pandemic, and the role of taxation in the recovery from the pandemic needs to be carefully considered.”

Andrew Packman, tax partner at PwC, comments:

“Given the economy experienced the largest peacetime drop in output on record, tax receipts from the UK's largest companies have proved remarkably resilient. Despite the decrease in taxes borne and collected, the 100 Group total tax contribution as a share of total government receipts and total employment have both increased. This underlines both the success of the government’s business support plan, and also the stability the largest UK companies offer to the economy and wider society. 

“With the recovery underway, taxes are set to rise from 2022 to help to close the public spending deficit. As the international economy begins to recover, ways of working change and businesses adapt, the goal will be balancing the need of closing the government spending deficit created by the Covid-19 crisis while ensuring businesses continue to invest and evolve to sustain economic growth.”

Ends.

Andrew Packman, total tax contribution and tax transparency leader at PwC, is available for interview. Contact alice.bowdery@pwc.com

Notes to editors

About The 100 Group 

The 100 Group of Finance Directors represents the view of the finance directors of FTSE 100 and several large UK private companies. Our member companies represent the vast majority of the market capitalisation of the FTSE 100 Index. Our aim is to contribute positively to the development of UK and international policy and practice on matters that affect our business, including taxation, financial reporting, corporate governance and capital market regulation. We believe that good fiscal and tax policy is grounded upon long-term stability, simplicity and consistency. Our members collectively employ 5.9% of the UK workforce and, in 2021, paid or generated taxes equivalent to 11.4% of total UK government receipts.