Top 100 companies’ total tax contribution rebounds

Now in its 18th year, PwC’s annual Total Tax Contribution (TTC) Survey gauges the tax and wider economic contribution of the UK’s largest listed companies (The 100 Group).

The TTC includes both taxes borne (those that are a direct cost to a company) and those they collect on the Government’s behalf such as income tax, employees’ national insurance contributions (NICs) and fuel duty. Representing nearly a tenth of total Government receipts (9.9%), the 100 Group’s 2021-22 TTC of £81.5 billion highlights how much these enterprises pay towards health, education and other vital public services.

Looking behind the headlines

There continues to be limited awareness of the total tax contribution made by large companies. Media headlines often focus on corporation tax. But this is only one of a number of the taxes these companies bear, such as business rates and employers’ national insurance contributions (NICs). 

In a sign of both the breadth of direct taxation and how its make-up has been evolving, corporation tax accounted for less than a third of taxes borne by large companies in 2021-22 (32.2%), compared to around a half when we began the survey in 2006. Employers’ NICs are also significant, at 25.1% of total taxes borne in 2021-22, as are business rates (17.0%) and irrecoverable VAT (13.8%).

Behind these averages are significant sectoral differences. For example, many retail groups operate with tight margins while employing sizeable workforces so that business rates and employer’s NICs are often much more significant than corporation tax.

In turn, public perceptions often fail to take account of the taxes collected by big businesses and then paid into The Exchequer (£55.5 billion in 2021-22). For every £1 of corporation tax borne by this group of companies, there is £6.65 of taxes collected.

The survey also shows how tax policy has had an uneven impact across industry sectors. Analysis of the sector profiles reveal considerable variance, with business rates being significant for retailers (on average 50.7% of taxes borne) and financial services particularly impacted by irrecoverable VAT (27.2% of taxes borne for FS companies), which arises when input VAT cannot be reclaimed by companies that provide services or products that are exempt from VAT, such as insurance policies.  

The significance of ‘sector taxes’ for the banking sector results in a TTC profile that is relatively equally split between taxes borne and collected. Our analysis of the banking sector for UK Finance reveals that UK banks paid £18.8 billion in taxes borne in 2021-22, almost as much as the £20 billion they collected. This significant direct contribution to the public purse reflects a series of ‘sector-specific’ taxes including the bank surcharge, bank levy and irrecoverable VAT (together accounting for 45.5% of overall taxes borne).

Engines of employment, prosperity and growth

Our TTC report also looks at large companies’ wider economic contribution in areas such as employment and investment in infrastructure and innovation. 

Capital investment contracted significantly in the first year of the pandemic (-21.1%), reflecting the uncertain environment and difficulty of developing large projects. But it bounced back in 2021-22, increasing by 38.6% to reach £25.8 billion. Conversely, research and development (R&D) expenditure continued to increase throughout the pandemic (rising by 15.4% in 2020-21 and 7.7% in 2021-22 to reach £10.9 billion). When also taking into account the 1.9 million people who are employed by 100 Group companies, with average pay 13% higher than the national average, these companies have a significant impact on the development of key skills and the associated growth in productivity.

The value of tax transparency

As the focus on the overall TTC measure has grown, so has the number of individual groups publishing their own TTC. The PwC report, Tax transparency in an ESG era shows that half of FTSE 100 groups now make TTC disclosures. We explore the latest developments in both voluntary and mandatory tax disclosures in this article. The clear conclusion is that tax transparency and public trust go hand-in-hand. 

For individual businesses, the TTC can also be factored in alongside the company’s social, financial and environmental impacts as part of PwC’s total impact management and measurement (TIMM) framework. TIMM allows businesses to evaluate the impacts of the strategic choices on society (positive and negative) and judge the trade-offs between them. These judgements are often far from clear-cut. For example, many businesses are moving production closer to home to reduce their carbon footprint. There could, however, be a significant social impact from the jobs and taxes lost in the locations they’re leaving.

Push and pull ahead

So where are we heading on TTC? The overall TTC has been climbing back up. But it was still below pre-pandemic levels in 2021-22. 

Where we arrive at the end of the 2022-23 financial year is hard to gauge, as the upward push from factors such as windfall taxes and the temporary increase in NICs comes up against the downward impacts of economic headwinds and pressure on profitability. 

Drilling down, it’s clear that the road ahead could vary by sector. Businesses with large workforces will see a significant impact from the reversal of NIC increases. It’s important to look at the international picture too. If we compare the total tax rate (TTR) for a typical model investment bank in London to other major financial centres, our projected 2024 TTR for London (45.7%) will be over 6 percentage points higher than Amsterdam and Frankfurt, and significantly higher than New York.

On top of your TTC

So what does all this mean for you and your tax team? As the taxes large corporations pay come under increasing scrutiny, communicating the full picture of all taxes paid is key. And it’s important to highlight the overall contribution being made by leading UK companies to the wider economy and communities around the UK.

The profile of both taxes borne and collected will continue to evolve, creating operational challenges for your team and underlining the importance of engagement with boards in building tax into strategic planning. 

A key part of this analysis and dialogue with your board is looking behind the headlines to determine how today’s complex patchwork of business taxes affects your particular sector, your business, its reputation and its strategic room for manoeuvre.

If you would like to know more about TTC and how it’s evolving, download our 2022 Total Tax Contribution Survey of the 100 Group report.