The cant of that patriotic capitalist class

The effective tax rate paid by Britain’s biggest companies has dropped by almost a third over the last two years.

In 2009, FTSE 100 companies on average paid tax equivalent to 35.8 per cent of their annual profits but research by UHY Hacker Young, a national group of accounting firms, shows that figure has fallen to just 26 per cent in 2011, even though profits are higher.

The drop since 2009 is partly a result of a fall in the headline corporate tax rate from 28 per cent to 26 per cent over the last two years. Some top companies also carried forward losses made during the recession to gain tax relief in later years. More than a third of FTSE 100 companies paid no corporation tax at all last year. FTSE 100 companies are also generating a higher percentage of their revenues overseas than was previously the case. This means they are able to take advantage of lower tax rates in those overseas jurisdictions. Aileen Scott, tax partner at Campbell Dallas, said the steep decrease was also related to some British companies moving their headquarters overseas.

Scott said the firms were not doing anything wrong.“Companies have a duty to their shareholders to keep the tax they pay under control,” she said. “With more of their operations now based overseas it is only sensible for them to ensure that their business is structured properly so that they are paying tax at the best rate.That doesn’t mean they are doing anything that is illegal or pushing the boundaries of acceptable tax planning. They may simply be reducing their activities in high tax overseas jurisdictions..."

A number of British companies have moved to countries with lower tax rates in order to reduce their tax burden in recent years. Research carried out this summer for HM Revenue & Customs showed 26 per cent of large companies are considering relocating part or all of their business abroad.