There are two types of taxes, those the rich and powerful tolerate because they can be easily legally either avoided or substantially reduced and those that they dislike because avoidance and reduction are difficult to achieve, or impossible to achieve legally.
Corporation tax is one of the first group, for example Amazon paid just £6.3 million in corporation tax in the UK last year, despite making more than £13 billion in sales. Corporation tax is based on a company’s profits in a country , which Amazon does not reveal. Amazon maintains it pays the legal amount of corporation tax in the UK, which is based on profits as opposed to turnover. I have no reason to doubt this but with corporation tax at 19% it means Amazon’s taxable profit was approximately £33 million.
According to its filing with Companies House, Google UK Ltd posted revenue of £1.6bn for the year to 30 June 2019 and the corporation tax payment was £44.3m which was less than the £65.6m Google UK paid a year earlier, and meant the company paid the equivalent of 2.73% of its revenue in corporation tax, before losses and offsets were taken into account on the balance sheet, again I do not doubt that this was the amount they were legally liable for.
I have previously described corporation tax in Britain as an optional payment by multi nationals who pay tax on profit made in Britain but can have legal internal charges to overseas parts of the organisation and other methods that substantially reduce their corporation tax liability legally due in Britain.
Note that during the pandemic there has been no call by business for a reduction in corporation tax.
On income tax, if you are on PAYE then you can claim some allowances but generally your tax is taken at source with very little opportunity to minimise it except by earning less. If you form a company to receive your payment and the company pays you a dividend then you are taxed on the dividend not via income tax. This is a tax efficient (i.e. reduces tax to be paid) way to be paid as it reduces the amount you pay.
The very rich can, entirely legally, reduce their taxes by structuring their affairs to take their remuneration as capital gains and corporate dividends. These are forms of remuneration that attract a significantly lower tax rate than income tax.
Since April 2016, there is a dividend income allowance of £5,000. Dividend income above this allowance is taxed at 7.5% up to the basic-rate limit, 32.5% between the basic-rate and additional-rate limits, and 38.1% above that. When calculating which tax band different income sources fall into, dividend income is treated as the top slice of income, followed by savings income, followed by other income.
Turning to Busines rates and council tax they are both based upon property values.
Domestic residences are banded according to an assessment of their market value; individual local authorities then determine the overall level of council tax, the ratio between rates for different bands is set by the Welsh Government. The top band stretches from band A to band I In Wales, based on 1 April 2003 property values. All properties valued at above £424,000 are band I.
The value of a property having been assessed can be appealed but when the value is finally agreed the charge based upon the council, community council, (where applicable) and police authority levies is calculated and has to be paid, although there is a 30% reduction for single person households. Is it any surprise that many rich people owning expensive properties would like a local income tax rather than council tax?
National non-domestic rates, or business rates, are a tax levied on non-residential properties, including shops, offices, warehouses, and factories. Firms pay a proportion of the officially-estimated market rent which is known as the rateable value of the properties they occupy. Various reductions and exemptions exist, including for charities, small rural shops, agricultural land and buildings, and unoccupied buildings for a short period of time.
Again, it is a difficult tax to avoid, or reduce without reducing the floor space of the buildings or appealing the rateable value.
Business rate relief was the first demand of businesses at the start of the pandemic.
Four suggestions
1) Corporation tax is based upon turnover, not profit, with allowances as now available
2) Dividend income is taxed at the same rate and bands as income tax
3) Additional council tax bands are added at the top every £424,000 or council tax is a percentage of the value of a property
4) That the business rate system continues but rate relief is only available on properties up to a defined value.
Mike Hedges is the Member of the Senedd for Swansea East
