Corporation tax - another cut to campaign against

[Paul88]

I have been getting wound up for months about the fact that nobody is campaigning against the corporation tax cut.

Why are they not campaigning? Newspapers are corporations. Even the BBC is a corporation. So nobody wants to pass on how regressive this tax cut is.

So how to spread the word - join mums net of course!

Corporation tax is a tax on business profits. It is not like income tax. Business income, or turnover, is not taxed. All business expenses can be deducted - including all costs of employing staff. Once all these expenses are deducted what is left is business profit. What happens to business profit? It is given out to shareholders in the form of dividends.

The idea that cutting corporation tax helps the private sector increase jobs is a lie: as above, no tax is payable on any employment costs. The banks can even set off the vast monies they give out in bonuses against corporation tax - so by paying out these bonuses they actually reduce their corporation tax bill.

All the big banks and many other companies are going to get a 3% cut in this tax. Who will benefit from this? The company directors and other shareholders who will get increased dividend payouts.

To add insult to injury many of the big shareholders won't even pay income tax on the dividends as they are 'domiciled' abroad like Philip Green (Top shop boss)'s wife.

Please help get this message out there.
If any any doubt about whether corporation tax cuts are good for a country look at the country with lowest corporation tax rates in Europe... Ireland. Many people who invested in Irish businesses in the boom time got very rich. They are still very rich.

Paul

We run a small business. We are grateful for the cut. Without it, we might have to shut down, and then about 10 people would lose their jobs.

There are two sides to everything. We are not all Philip Green and his missus.

And there is a huge cost to employing people, thank you.

I think if a 4% difference in retained profit is going to make your business nonviable then you have very serious financial problems in the business that need sorting regardless of corporation tax rate.

HOWEVER, Paul88 it is worth noting that for every previous instance of a corporation tax cut in the UK the corporation tax take has actually gone up overall...

I think if a 4% difference in retained profit is going to make your business nonviable then you have very serious financial problems in the business that need sorting

Businesses are the wealth generators in the country. The argument is that you don't over-burden them with tax, and then they can expand and generate more wealth. I would argue that this could be taken to the extreme, and businesses should pay no tax, and individuals should pay it all.

You can't get money out of a business without paying income tax in any event.

Most PLCs are almost wholly owned by pension funds, life assurance companies and savings companies, so if you have a pension or savings of any sort, this is where a lot of it will be invested. So taxing businesses is STILL taxing you, just less directly.

"Me thinks you have no clue how many small businesses survive on the breadline. They're not all fat cat companies clearing billions each year"

No, and I'm not claiming to either. However, I do run a small business employing approx 5 staff - I make a few K in profit most years but have had bad years. But 4% of profit on my lowest profit year would have been about £5 - which really wouldn't have saved or bankrupted the business...

Maybe I'm missing something but a small % change in corp. tax only makes a difference if you're making large profits - if you're making no/little profit its irrelevant how much corp. tax you pay.

I suppose if you had a very profitable year one year (100's of K profit) and then an awful year the next (only just breaking even) 4% less corp. tax on the good year would help, but how many small businesses does that scenario apply to?

Hmm.

@coatgate - yes there is a huge cost to employing people - all that cost is deductible from your income before you pay corporation tax. You only pay corporation tax on your profits; if you are making a profit you shouldn't have to close down. I just think you shouldn't get to keep MORE of your profits when everybody else is taking real terms pay cuts; increases in VAT (which businesses are completely unaffected by) etc.

@butterbur - you can get money out of a business without paying income tax and many company directors do it. Instead of a salary you award yourself dividends; you can take £37000 (plus any money you want to pay into a pension) without paying a penny in tax or national insurance. On any dividends you award yourself above that you pay a mere 22.5% income tax and still no national insurance.

As for the pension / savings argument: yes it is true these are the biggest shareholders. This is why it is so regressive - the poor get a VAT increase hitting them disproportionately; the rich with savings and pensions get a boost from a corporation tax cut coming trhough as increased dividends.

But 4% of profit on my lowest profit year would have been about £5 - which really wouldn't have saved or bankrupted the business...

Instead of a salary you award yourself dividends; you can take £37000 (plus any money you want to pay into a pension) without paying a penny in tax or national insurance.

The company pays corporation tax - which is being cut from 28% to 25% for big businesses (turnover greater than £300000). Smaller businesses get a 1% cut.

The first £37000 pounds an individual receives in dividends attracts no income tax. Yes 0%. And there is no national insurance on any dividend payment however big. This is a tax loophole particularly used by company directors of small companies to avoid income tax and the 1% cut for them will increase the value of this avoidance.

More to the point why are banks and other big companies being given a 3% tax cut when that money could protect at least some of our public services? It is not to protect jobs: I repeat, any costs of employing people are deducted before dorporation tax is charged.

I'd agree with you that its very inappropriate to make a cut like this right now - especially a larger cut for big businesses (though not overwhelmingly surprising - its what I'd expect the Conservatives to do).

The one thing I would say is that - in a different economic climate - might be a positive point I guess is that lower rates of corporation tax are likely to encourage companies to retain more profit for future investment. But of course there are other ways of encouraging investment through capital allowances etc. which I would have thought would be more relevant.

The Government is cutting corporation tax as it will encourage investment which has obvious benefits for the economy.

Interesting article on radio four this morning about an area in India where following a natural disaster, the government declared it tax free.

Investment has come rushing in and the local people ahve more work than they have ever had before.

Obviously this is an extreme example, but the premise remains good, no?

But Paul88, you are missing the point. Dividend payments are paid to shareholders. Ie. people who own the company. The company pays tax at whatever the prevailing rate is then given to the shareholder.

Now chances are if you are getting < £37k then you are an individual rather than a huge pension/investment firm.

Like many moons ago when I was a one man band. I found the work, I did the work...i got paid for the work. I paid corporation tax. It would be grossly unfair to then tax the same pot of money again. Either I would have had to raise my rates to compensate (and therefore be very uncompetitive) or get taxed twice and have less money than if I'd have simply been employed. (ie. why bother)

Small businesses are the lifeblood of any economy. Do you think John Caudwell was born a billionare? Alan Sugar? Richard Branson? No. They all started their own businesses and grew them. If you keep taxing them to death, the next entrepreneur may not bother. Then who will you work for?

There is some evidence (though hardly scientific fact) that lowering corporation tax rates actually raises revenues since it encourages new companies to invest, and brings revenues onshore.

Ireland recent problems aren't associated with low corporation tax rates. Ireland was a poor country in the 80's but by lowering corporation tax they brought in huge investment, generating wealth and jobs. The problem was that this boom couldn't be controlled because Ireland has no control over monetary policy or the exchange rate. Credit growth got out of control leading to a debt-fueled property price boom . The export economy remains in very good shape which is why they are keen to keep corporation rates low.

Companies also act as unpaid tax collectors for HMRC, don't forget. How much would the government have to pay to collect all those taxes if companies didn't work out PAYE and NI contributions?

Hello Mr NiceGuy ...

I don't think I am missing the point.

The 'one man band scenario' you describe is pure tax avoidance - a legal way to pay the lower corporation tax rates instead of income tax and NI. I am not saying tax should be paid twice - just that it seems unfair to decrease corporation tax at the same time as increasing VAT and cuting public spending.

The corporation tax cut is finanically benefiting shareholders small and large - if individuals own shares they are the 'haves' not the 'have nots'. Pension funds etc doing better benefits those with big private pensions most.

This tax cut is regressive and should be opposed.

As for Ireland: a small number of people will have done very well out of the short term boom there but the majority will do very badly and will pay for it for years to come. No thank you.

I understand what you are saying. Your argument all boils down to one thing really. The haves should pay instead of the have nots.

But the point you either don't or won't accept is that in the real world, it is not you or I who creates the jobs and by extension the wealth in the country.

It's companies. And having higher taxes puts them off recruiting more people and will force some to lay people off.

This is a simple fact that even (the bankrupt in all but name only) Ireland understands and hence they have raised all measures of taxes.....but not corporation tax.

Your ideology is simplistic and flawed in the real world.

Paul88

I think you need to move out of the 20th century and into the 21st.

One of the corollary impacts of globalization is that corporates have become mobile. You cannot simply tax them at a higher rate and expect them to stay - another country will come along as offer them a better deal. There is a competitive market for tax revenue.

This country has to compete against much cheaper emerging economies, with much lower wages. High corporation taxes aren't going to help.

And if you think "it doesn't work like that", let me tell you it will and does.

I work in the outsourcing industry. My current project involves taking approx 500 jobs offshore. Why? Well aside from a massive pool of degree educated bi-lingual workforce whom will work for longer hours at a third of UK wages, the govt has also offered a barrage of subsidies for the first 3 years including money for IT costs, staff training and even transport to get staff to/from work.

Compare that in UK if we decide to put taxes up? As the boss of a firm with profits to make and a service to deliver, where would you go?

We have a large call centre in the UK. Do you know how many deals we've won there in the last two years? None.

I'm really sorry but we tried 'trickle down' under Thatcher - it didn't work then and it won't work now.

There is no reason higher taxes will force a company to lay people off when those taxes are on profit - not on the costs of employing people. That argument just does not wash.

The issue about companies moving offshore is very real and it has already happened. But they aren't going to come back for tax purposes unless we drop corporation tax to really low levels - so this 3% won't have that effect.

There is a better solution: name and shame them as the ukuncut people are doing. If people stop using businesses that are avoiding tax, there is a real incentive to be based and paying tax in this country.

The cut will give companies more of their profits which will encourage them to invest in the economy. The cut will also help SMEs who have had a very bad time of it in the last few years who may be rebuilding.

OK confession time.

I am sole shareholder of a small company and have followed my accountant's advice by taking remuneration as dividends and avoiding income tax and national insurance. It is very hard to resist. I will be personally better off as a result of this tax cut.

I still strongly believe that a corporation tax cut is regressive and wrong in this economic climate.

Those of you who have replied so far, and anyone else who wants to get involved: please be honest and let us know whether you personally stand to gain by the corporation tax cut.

Sorry nothing to gain.

We own shares in companies but pay 42.5% tax on any dividends since DH is 50% taxpayer. We also have a pension which is invested in shares (though not really in UK).

I have nothing to gain either. I am not rich, not poor. In the middle.

I want to support the poor but understand the best way is not to bite the hand that feeds.

And Paul, if you are a small trader then fair play to you. Its people like yourself who take the risks which create the jobs. If you can get advantages back from having taken the risks then just enjoy.

I have nothing to gain from cutting corporation tax.

I think the country has a lot to lose from raising it though, at a time when there's already a massive flow of business from Europe to the Far East.

If you want a country where there are jobs to do, you have to make it an attractive place for businesses to be. A government that gives in to the populist temptation to 'punish big business' will end up taking flak for high unemployment as companies simply move elsewher.e