How much tax do companies pay in the UK?

This paper uses the full population of UK corporate tax returns from Her Majestyís Revenue and Customs (HMRC) to explore the question of how much tax companies pay in the UK. In particular, I compare taxable proÖts of companies in the UK di§erentiating by their ownership type. I show that multinational companies pay the majority, 55%, of UK corporation tax, in spite of constituting only 3% of the population of companies in the UK. However, the fraction of tax revenues collected from multinationals has declined over time. Further, multinational companies pay very little tax relative to their size in comparison to domestic companies. I Önd that di§erences between size and sectoral distributions and leverage partially explain the large gap in the ratio of taxable proÖts to total assets between multinationals and domestic Örms. In contrast, di§erences in investment rates and productivity between these types of companies do not. 

How much tax do different types of company pay in the UK?

This pair of papers explores the question of how much corporation tax different types of company pay in the UK. It uses the population of confidential UK corporate tax returns made available by HMRC in its Datalab. The main results are as follows.

• Multinational companies pay 55% of UK corporation tax, despite constituting only 3% of the population of companies in the UK. However, on average multinationals pay considerably less tax relative to their size compared to domestic companies. The fraction of tax revenues collected from multinationals has declined over time.

• Differences between size, sector and leverage partially explain the large gap in the ratio of taxable profits to total assets between multinationals and domestic companies.

• The paper uses the technique of propensity score matching to compare foreign-owned multinationals and domestic companies matched by size. For this set of comparable companies, the ratio of taxable profits to total assets reported by foreign multinational subsidiaries is on average 12.8 percentage points lower than that of comparable domestic companies, which report an average ratio of 25.2 percent. The difference is almost entirely attributable to the fact that a higher proportion of the subsidiaries of foreign multinationals report zero taxable profits (59 percent) than domestic companies (28 percent). 

• Comparison of propensity score matching results using data from financial accounts indicate much smaller differences than using data from tax returns.

• The propensity score matching is able to analyse only the smaller subsidiaries of foreign-owned multinationals. Larger multinational subsidiaries tend to have a lower ratio of taxable profit to total assets.

Katarzyna has been a CBT researcher and an Oxford DPhil student in economics, supported by CBT. These papers formed part of her DPhil thesis, which she successfully defended in June 2017. She is currently a post-doctoral fellow at the National Bureau of Economic Research in Cambridge, Massachusetts.

Katarzyna Habu, CBT Working Papers 17/13 and 17/14