The charts below show onshore corporation tax receipts in both cash terms and as a share of national income (GDP), along with our October 2021 Economic and fiscal outlook (EFO) central forecast.
Receipts measured in cash terms are a simple metric for analysing trends over time. But without putting the cash amount into context – by asking how much national income is available to be taxed – interpreting changes in cash receipts is difficult, particularly over long time periods.
Trends in receipts as a share of GDP are useful to understand how they move in line with the underlying economic activity that is being taxed. In cash terms, both receipts and GDP will tend to rise over time because of economic growth and inflation. Receipts as a share of GDP is the most relevant metric when considering the sustainability of the public finances. Movements in this ratio can be thought of in two parts – movements in the tax base relative to national income (i.e. whether asset prices have grown faster or slower than the whole economy) and changes in the effective tax rate (i.e. the amount of tax raised per unit of the tax base).
Onshore CT receipts rose steadily as a share of GDP from 2011-12, but fell in 2019-20. This upward trend was driven by a rising tax base as well as a rising effective tax rate. The tax base reflects strong growth in commercial and industrial company profits from the depressed level they reached in the 2007-08 recession. The headline rate of CT had been successively cut from 28 per cent in 2010-11 to 20 per cent in 2015-16. It was cut again to 19 per cent in 2017-18. Box 3.2 of our December 2018 Forecast evaluation report sets out why the effective tax rate rose despite cuts to the headline rate, reflecting falling use of a number of deductions and reliefs.
The path of receipts over the forecast period reflects the temporary capital allowances super-deduction in place in 2021-22 and 2022-23 and then the rise in the main rate of corporation tax from 19 per cent to 25 per cent in April 2023. This lifts onshore CT receipts to 3.2 per cent of GDP in 2025-26, its highest level since 1989-90. Box 3.2 in the March 2021 EFO looks at CT in an historical and international context.
Onshore CT receipts are recorded in the public finances using a methodology that time-shifts cash payments backwards to align them more closely in time with the economic activity that created the CT liabilities. This produces a relatively smooth profile for measured receipts through the year, but also means that recent months’ data rely heavily on forecasts pending cash CT payments that relate to activity in those months. We would expect this to result in significant revisions to monthly data over time as forecasts are replaced with outturns.
The need to use forecasts in the time-shifting methodology relates to the lags in CT payments, which are relatively long for smaller companies. Up until 2018-19, the majority of onshore CT cash payments were received in the months of July, October, January and April. This is because larger companies – those with taxable profits of over £1.5 million – were required to pay in quarterly instalments, usually corresponding to these months. From 1 April 2019 onwards, ‘very large’ companies (those with taxable profits of more than £20 million) are now required to pay their instalments with a shorter lag (see Box 4.2 of our November 2016 EFO). Smaller companies pay CT in arrears (9 months and a day after the end of their accounting period), with higher payments by such companies in September / October and December / January. In addition, as a result of the effects of coronavirus and the measures taken to control it, the monthly profile of receipts in 2020-21 in particular will be very different to that seen in previous years.
CT receipts: ONS (ID: CPRN, includes offshore CT and the Bank surcharge)
More detail can be found in paragraphs 3.31 to 3.33 of our October EFO.
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