Treasury considers shifting tax burden for mid-sized companies

Move could lower avoidance rates if done well.

The Telegraph's Roland Gribben reports:

Two key proposals designed to simplify taxation of their businesses and shareholders by replacing the current set-up with a single layer and align tax treatment with commercial reality have been submitted to the Treasury.

One involves giving medium-sized companies the opportunity to elect to be taxed as if they were partnerships or sole proprietors to produce a single tax level for business profits.

The second would extend the real estate investment trust regime to include all privately owned businesses, freeing them of corporation tax but paying taxable dividends to shareholders.

It's a scary experience, pre-empting the treasury. As I wrote last month, such a move could be remarkably effective at tackling tax avoidance. It is a lot harder for individuals to avoid tax than it is for businesses to, if for no other reason than that individuals have an actual corporeal existence and find it significantly harder to be "headquartered" in a country they've never actually been to.

The Telegraph quotes the senior tax partner of the consultancy which drew up the reforms as suggesting that the changes as described would not reduce the tax take. That seems doubtful – especially the former suggestion, since allowing companies to elect to change their taxation rate all-but-guarantees that the only companies which take up the offer are those which would lower their taxable income by doing so. Realistically, such a move would have to be combined with an increase in the dividend tax rate to keep the tax take level. That increase would then probably require an increase in the marginal tax rate – at least at the top –  to retain the incentives to investment in the current tax system… which means that it's a policy move which no politician would touch with a ten-foot pole.

Still, we can but dream. If the Treasury does take up the policy, expect it to focus more on the "making companies pay less tax" aspect of it, which is far more in line with previous moves.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Ukip's Nigel Farage and Paul Nuttall. Photo: Getty
Show Hide image

Is the general election 2017 the end of Ukip?

Ukip led the way to Brexit, but now the party is on less than 10 per cent in the polls. 

Ukip could be finished. Ukip has only ever had two MPs, but it held an outside influence on politics: without it, we’d probably never have had the EU referendum. But Brexit has turned Ukip into a single-issue party without an issue. Ukip’s sole remaining MP, Douglas Carswell, left the party in March 2017, and told Sky News’ Adam Boulton that there was “no point” to the party anymore. 

Not everyone in Ukip has given up, though: Nigel Farage told Peston on Sunday that Ukip “will survive”, and current leader Paul Nuttall will be contesting a seat this year. But Ukip is standing in fewer constituencies than last time thanks to a shortage of both money and people. Who benefits if Ukip is finished? It’s likely to be the Tories. 

Is Ukip finished? 

What are Ukip's poll ratings?

Ukip’s poll ratings peaked in June 2016 at 16 per cent. Since the leave campaign’s success, that has steadily declined so that Ukip is going into the 2017 general election on 4 per cent, according to the latest polls. If the polls can be trusted, that’s a serious collapse.

Can Ukip get anymore MPs?

In the 2015 general election Ukip contested nearly every seat and got 13 per cent of the vote, making it the third biggest party (although is only returned one MP). Now Ukip is reportedly struggling to find candidates and could stand in as few as 100 seats. Ukip leader Paul Nuttall will stand in Boston and Skegness, but both ex-leader Nigel Farage and donor Arron Banks have ruled themselves out of running this time.

How many members does Ukip have?

Ukip’s membership declined from 45,994 at the 2015 general election to 39,000 in 2016. That’s a worrying sign for any political party, which relies on grassroots memberships to put in the campaigning legwork.

What does Ukip's decline mean for Labour and the Conservatives? 

The rise of Ukip took votes from both the Conservatives and Labour, with a nationalist message that appealed to disaffected voters from both right and left. But the decline of Ukip only seems to be helping the Conservatives. Stephen Bush has written about how in Wales voting Ukip seems to have been a gateway drug for traditional Labour voters who are now backing the mainstream right; so the voters Ukip took from the Conservatives are reverting to the Conservatives, and the ones they took from Labour are transferring to the Conservatives too.

Ukip might be finished as an electoral force, but its influence on the rest of British politics will be felt for many years yet. 

0800 7318496