The Sunday Times Tax List and the argument for corporation tax

by | Jan 28, 2020

The Sunday Times published their second annual tax list over the weekend. The list, which uses publicly available data to showcase the “individuals and families who contribute most to the public purse” is pitched as a celebration of the contribution that the wealthy make to the Treasury.

Coming at the end of a week that saw the release of a letter from the Millionaires Against Pitch Forks, a call for higher taxes on the wealthy coming from a group of millionaires and billionaires, it is important to remember that there are many wealthy people who value the contribution they make to public services and do not just slip off to Monaco at the first whiff of fortune. The Sunday Times list contains a number of such people, such as Denise Coates, owner of Bet 365, who chooses to put her extraordinary £276.6m salary through the payroll, and J.K. Rowling, who The Sunday Times reports puts her £100m+ in royalties on her self-assessment form.

However, the list also contains people, such as Philip and Tina Green, and Stelios Haji-Ionnou, who have moved to Monaco, as well as the Perkins family (owners of Specsavers) of Guernsey. Although these individuals could have moved for reasons unconnected with tax – for example, Douglas and Dame Mary Perkins said they’d moved to Guernsey some 40 years ago to be closer to Dame Mary’s parents – it remains important to ask how people resident in such well known tax havens made it onto the list of top UK taxpayers? That is because The Sunday Times ranking probably tells us more about the effectiveness of wealth taxation in the UK rather than giving us an indication of the ethical conduct of taxpayers, and explains why corporation tax is such an important tax for capturing income arising from wealth.

Calculating the Tax List

Unlike some Scandinavian countries, where individuals’ tax payments are a matter of public record, the tax affairs of individuals in the UK are subject to strict secrecy laws. As a result, rather than looking at the tax paid by people, in most cases the Sunday Times has looked at taxes paid by the the businesses they own where records are available via Companies House. Primarily the ranking looks at Employers National Insurance Contributions and Corporation Tax apportioning these taxes to individuals based on their stake in the company. The list also looks at dividends paid by these companies and then assumes that UK resident individuals will pay income tax on these payments at the higher rate. As a result, the list favours people who own large UK businesses employing staff in the UK.

Who pays corporation tax?

There is a large, lively and important debate as to who really ends up paying corporation tax, a tax on the profits of companies. A number of people, particularly those who argue for cutting corporate taxes, assert that corporation tax is in the end paid for by the workers of a company. They argue that lower corporation tax will lead to higher wages for employees.

The Sunday Times entirely rejects that view, explicitly, and assumes that 100% of corporation tax is borne by the shareholders. The paper argues that this is because shareholders could choose to move operations overseas if they wanted to, but instead choose to locate their business in the UK and therefore make it liable to UK corporation tax.

Another argument of course is that if corporation tax is reduced, this leaves more profit in the company available for distribution to shareholders. Some empirical analysis has shown that any excess distributable profits overwhelmingly goes to shareholders.

Corporation tax – A withholding tax on wealth?

This debate is important for how, why, and how much we tax profits arising from business activity. If a shareholder is a UK resident, then the money they receive from corporate profits goes though two tax gateways. Corporate profits are first taxed at the corporate level through the corporation tax, and then again as income once the profits have been paid out as a dividend and are in the hands of the shareholder.

The income tax rate that individuals pay on dividends is lower than the amount paid on income from work, partly to account for the fact that corporation tax has already been paid on the distribution. If a UK resident were to move offshore to a place like Monaco, which does not charge income tax, then that corporate profit would only be subject to corporation tax, and not income tax.

Now consider what would happen if corporation tax were to be cut, as some argue it should be. If we are to accept the argument of The Sunday Times, then 100% of that benefit would accrue to the shareholder. If that shareholder was a UK resident then the impact on government revenue would be limited because the government would recoup some additional tax from the shareholder via increases in income taxes on the dividends they receive. If the shareholder was offshore, or tax exempt (e.g. a pension fund), then the UK government would lose all of the amount of the cut.

If we assume that the corporation tax primarily falls on shareholders, then The Sunday Times Tax List demonstrates its importance in ensuring that when companies generate profits in the UK at least some of that profit is taxed in the UK even if the shareholders live in Monaco, Guernsey, Bermuda or anywhere else. Following the same argument, cuts to corporation tax would disproportionately benefit those who choose to move to tax havens, as it allows them to move more profit generated from UK activities offshore and outside of the UK tax net.

A letter from our Director to the Editor of The Sunday Times was published on the issue.

Photo by Colin Watts on Unsplash

Related stories

Press contacts

For all media enquiries about TaxWatch or to be added to our media email list, please contact:

Claire Ralph, TaxWatch Director

+44 7494 922661


Enter your email address to subscribe to our newsletter.

Please wait...

Thank you - please click on the link in the email we've just sent to confirm your subscription.