Risk & Economy » Tax » Tax costs to UK businesses jumped 27% in the last year to £13.1bn

Tax costs to UK businesses jumped 27% in the last year to £13.1bn

Businesses have paid £78.5bn in new taxes over the last decade as the complexity of UK tax regime creates compliance challenges for multinationals

Two-thirds of UK business taxes (13 out of 19 business taxes) were introduced in the past decade, shows research by global content and technology company Thomson Reuters. The cost of those new taxes to businesses jumped to £13.1bn in the last year, up 27% from £10.3bn in 2022/23.

The number of new business taxes that have been introduced show how the UK’s tax regime is becoming increasingly complex for multinational businesses to navigate.

At the same time, companies are now responsible for collecting an ever-growing number of taxes from consumers on behalf of HMRC. These range from complex and far-reaching taxes like VAT through to more targeted taxes such as the new ‘Vape Tax’, announced in the UK Spring Budget 2024, which will come into effect in 2026. The responsibility for collecting these taxes poses a risk to businesses, who are exposed to compliance investigations if they fail to collect or pay these taxes correctly.

‘Regulatory compliance’ has become a top five priority for a quarter of C-suite leaders, according to the 2024 Future of Professionals C-Suite Survey by Thomson Reuters. Additionally, the report shows that 44% also ranked digital transformation as their highest priority in the next 18 months.

“Amid mounting regulatory changes, tax compliance is the next big challenge for multinationals. It is the overall level of complexity that these new UK taxes add that concerns businesses,” says Ray Grove, Head of Corporate Tax and Trade at Thomson Reuters.

“Collecting the right taxes is essential to help governments fund public services and healthcare, and a lot of these UK taxes have been introduced for very good reason. But the net effect is they are making compliance more challenging for businesses, especially those that are under-resourced in talent and technology.”

New taxes introduced that are particularly affecting multinational companies include:

  • The Digital Services Tax, which targets the revenues generated from certain digital services provided by multinational companies has cost £947m since its introduction in 2020.
  • The Diverted Profits Tax, a tax applying to multinational companies that artificially shift profits out of the UK has cost businesses £776m since its introduction in 2016.
  • The Plastic Packaging Tax, which applies to businesses that use plastic packaging either manufactured or imported into the UK that contains less than 30% recycled plastic. Businesses have paid a total £406m since this tax was introduced in April 2022.

“There is no question that taxation has an important role to play in society, but the introduction of new taxes creates added complexity and costs for corporates in addition to the actual tax liabilities,” Grove adds.

“Investing in resources to ensure they are compliant with changing policy will be crucial in helping corporates navigate changing tax requirements. Corporates are also increasingly relying on tax technology solutions to reduce the risk of potentially costly compliance errors.”

New taxes announced by the Government in the past year will substantially increase tax revenues sharply for the Treasury in future years. These include:

  • The Energy Profits Levy, which applies at a rate of 35% on profits from extracting UK oil and gas and is expected by the Treasury to raise £40bn over six years.
  • The Electricity Generator Levy – a temporary tax of 45% applied to ‘extraordinary returns’ on low-carbon UK power generation – is expected to net £14bn over six years.
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