The burden of UK taxation on corporations and individuals

In this article we attempt to provide an insight into the contentious question of who should bear the burden of UK Taxation: corporations or individuals?

The Institute of Fiscal Studies (IFS) briefing note for the 2017 General Election entitled “Tax revenues: where does the money come from and what are the next government’s challenges?” predicted that by 2019–20 the share of national income raised in taxes is set to reach its highest level since the early 1980s with almost two-thirds of revenues coming from income tax, National Insurance contributions (NICs) and VAT.

The IFS estimated that tax receipts in 2017–18 were expected to reach £690 billion and this was anticipated to rise slightly between then and 2019–20 before remaining relatively flat until the end of 2019–20.

The IFS forecast for 2017 to 2022 shows the greatest divergence between personal income tax and corporation tax. The IFS time series is based on data sourced from the OBR and adjusted to remove revenues forecast raised from the proposed, but now scrapped, increase in Class 4 NICs. ‘Indirect taxes’ includes VAT, fuel duties, and other indirect taxes. The data includes forecasts for periods after 2015-16.

The above chart shows receipts Corporation tax are expected to decrease sharply by 2021-22 while the decline in income tax receipts are expected to be reversed. However, the burden of taxes on the individual is forecast to increase by 2021-22 through a combination of personal income and capital taxes.

The IFS believes capital taxes are “set to become more important; by 2021–22, the share of revenue they account for will have almost doubled relative to 2010. The increase since 2012–13 largely reflects increases in the underlying value of assets (including residential property). It also reflects an increase in stamp duty land tax as a result of a 3% surcharge on buy-to-let investments and second homes introduced in April 2016.

Receipts from property taxes which consists of council tax and business rates are expected to change very little between 2020 and 2022.

Other taxes show a significant decline by 2022. The IFS defined Other Taxes as “a residual measure, including devolved taxes and environmental levies, which are generally part of government schemes that translate higher revenues directly into higher spending.” The apprenticeship levy shown in the OBR chart below is one such tax.

Why should corporations pay more tax?

There are mixed opinions on why corporations should pay more tax. The IFS briefing note to the 2017 General Election entitled “What’s been happening to corporation tax?” explores the political dimensions of this issue. In 2011, The Guardian published an article in which outlined 10 reasons why we should tax corporations.

In The Guardian article above, the dymanics between income and corporation tax is highlighted in point #2: “Corporation taxes are an essential backstop to personal income tax. Cut them to zero, and wealthy individuals will increasingly reclassify their earnings as corporate income, typically using offshore corporate structures, and escape tax. Gauke’s arguments about employees footing the corporate tax bill are irrelevant.”

The issue of how to balance the burden of UK taxation on corporations and individuals is the perennial question that tests central bank leaders globally. Hopefully, with the assistance of big data and artificial intelligence technology, this question should become easier to solve equitably for all in time.

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