The contribution of retailers to the UK public financesTotal Tax Contribution

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May 2013: The contribution of the retail sector tothe UK economy is broad and significant

Overview

The UK retail industry continues to face significant pressure. Consumers continue to tighten their belts while the economic recovery in the UK remains fragile.

Multi-channel retailing is increasing as technology continues to change the way consumers shop, while rising commodity costs coupled with environmental and ethical issues affecting the supply chain put further pressure on profit margins. Many retailers are fighting for survival on our high streets and in our shopping centres.

Against this backdrop, the focus and attention paid by Government, the media, campaign organisations and the general public to the tax payments made by companies and their tax strategies has reached unprecedented levels, and this at a time when the UK Government has also clearly stated that its fiscal objective is to make the UK the most competitive tax system in the G20.

Whilst the Government is also clear in its strategy to stamp out unacceptable tax avoidance, there is still a great deal of misunderstanding in this area and companies find themselves needing to explain such things as the impact of losses brought forward, and the deductions taken in respect of capital investment.

The contribution of the retail sector to the UK economy is broad and significant. This report which is based on data supplied by the retail sector participants in The Hundred Group Total Tax Contribution survey, supplemented by some high level economic analysis of the sector as a whole, goes some way to showing this.

Retail in the UK not only gives domestic employment, but also stimulates consumer confidence and makes a significant contribution to the public purse.

59%The Total Tax Rate1 for major UK retailers is 59%

For every £1 of corporation tax paid, large UK retailers are now paying £2.40 in other taxes from their profits which reflects various changes made by successive Governments to fiscal policy

Large UK retailers employ over a third of The Hundred Group work force distributing 40% of the value they create in wages

Figures for the retail sector as a whole support these findings – business rates have increased by over 30% between 2008 and 2010 while corporation tax payments have increased by over 6%

The tax burden on retailers in The Hundred Group has increased by 65% since 2005. Payments of corporation tax have increased by 11% while other taxes borne including business rates and employers’ national insurance contributions have increased by almost 80%

Key findings

1 The total tax rate is a measure of the cost of all taxes borne in relation to UK profitability. It is calculated by taking total tax borne (those that hit companies’ profits) as a percentage of profit before total taxes borne.

£2.40£1

2005

180%

160%

140%

120%

100%

2012

+80%+65%+11%

Other taxes borne

Total taxes borne

Corporation tax

Corporation tax Other taxes borne

30%Business rates

£6%Corporation tax

The Total Tax Contribution for The Hundred Group Survey is designed to gather quantative information from companies to inform the debate about the UK fiscal landscape. The 2012 publication was the eigth annual survey carried out by PwC on behalf of The Hundred Group. The methodology looks at the total taxes contributed in the UK, clearly distinguishing between those born by each company, and those collected on behalf of HMRC.

Total Tax Contribution

PwC’s annual survey of the Total Tax Contribution for The Hundred Group indicates that Britain’s largest retailers now have a total tax rate of 59%, compared with 39% for other companies across all industries in The Hundred Group. Figure 1 shows that for every £1 of corporation tax paid by the large retailers participating in the survey, almost another £2.40 is borne in other taxes. Of this, £1.44 relates to business rates and £0.64 relates to employers’ national insurance contributions. In a changing tax system, which is moving from direct to indirect taxes, the impact on the retail sector is significant.

A further £3.64 of tax is generated by the retailers’ business activities and collected by the companies. These include net VAT, duties and employee income tax and national insurance contributions.

Corporation tax while important is not the whole picture as regards the taxes paid by business. Companies contribute many other taxes to the Exchequer from their profits, all of which are used by Government in the provision of public services.

In recent months, much commentary has been focussed on the contribution made by companies in terms of corporation tax. However, the contribution made is far wider than just tax on profits, and other taxes have proved to be a less volatile source of funding for public services. Our Total Tax Contribution methodology identifies 24 business taxes across the profit, people, property, product and planet (environmental) tax categories. The pie charts below show the profile of the taxes borne and taxes collected by the retailers in The Hundred Group (Figure 2,3).

The retailers in The Hundred Group bore £3.99bn tax in 2012 (£3.86bn in 2011). Adding the taxes these companies collect such as PAYE, net VAT and employees’ NIC, the full tax contribution totals £8.28bn (£8.17bn in 2011).

Irrecoverable VAT 1.4%

Employers NIC 18.7%

Business rates 42.2%

Corporation tax 29.5%

Planet taxes 1.0%

Other 7.2%

Product taxes 1.0%

Net VAT 18.8%

PAYE 33.6%

Alcohol duty 32.5%

Tax deducted at source 0.6%

Employers NIC 13.5%

Figure 1: Retailers’ Total Tax Contribution

Figure 2: Retailers’ taxes borne Figure 3: Retailers’ taxes collected

Source: Total Tax Contribution of The Hundred Group 2012 survey dataSource: Total Tax Contribution of The Hundred Group 2012 survey data

Source: Total Tax Contribution of The Hundred Group 2012 survey data

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The results of the

2012 survey for

The Hundred Group:

a changing tax system

January 2013

Total Tax ContributionSurveying The Hundred Group

£0.32 £3.64£0.64£1.44

Taxes borne Taxes collected

£1.00

Corporation tax

Business rates

Employers’ national

insurance

Other taxes borne

Value distributed

Retailers also make a wider contribution to the economy. The total value distributed in taxes, wages, profits and financing costs by the retail sector companies in the 2012 The Hundred Group survey was £22.4bn.

Figure 4 shows that 40% of the value was distributed to the employees in net wages and 37% to government in taxes borne and collected. Just 20% of value is accounted for as profits made by the retail companies. This was either distributed to shareholders (which includes institutional investors such as pension funds), or retained by the companies for reinvestment and growth.

The retail sector accounts for more than one third of the workforce employed by The Hundred Group. Retail companies participating in the 2012 survey saw an increase of 1.4% in the number of employees since 2011; the only industry apart from oil & gas that increased its staffing levels.

Growth in the tax contribution

Our survey shows the corporation tax contribution made by the retailers which participated in The Hundred Group survey has suffered more volatility than that of the group as a whole. The sector has been particularly susceptible to changes in the wider economy. Overall though the retailers’ growth in corporation tax from 2005 to 2012 of 11% has exceeded that of The Hundred Group average (Figure 5).

The taxes borne by the retailers in The Hundred Group, that is corporation tax plus all of the other taxes that they fund from profits (including business rates and employers’ national insurance contributions) have increased by 65% since 2005 (Figure 6). The taxes borne other than corporation tax have increased by almost 80%, driven by increases in business rates due to large property portfolios and employers national insurance contributions for the significant workforce. Again, this increase is faster than The Hundred Group average. Retailers are feeling the impact of the shift in business tax towards indirect taxes and business rates.

Corporation tax for retailers Corporation tax for The Hundred Group

2005 2006 2007 2008 2009 2010 2011 2012

150%

100%

50%

0

Taxes borne other than corporation tax for retailers Taxes borne other than corporation tax for The Hundred Group

2005 2006 2007 2008 2009 2010 2011 2012

180%

160%

140%

120%

100%

80%

60%

40%

20%

0

Total taxes borne for retailers

Net interest (financing) 2.7%

Taxes collected (Government) 19.2%

Wages and salaries net of employment taxes

(employees) 39.9%

Profit after tax (shareholders/reinvest)

20.4%

Taxes borne (Government) 17.8%

Figure 4: Retailers’ value distributed

Figure 5: Trend in corporation tax

Figure 6: Trend in taxes borne and other taxes borne

Source: Total Tax Contribution of The Hundred Group 2012 survey data

Source: Total Tax Contribution of The Hundred Group 2012 survey data

Economic data for the retail sector as a whole

Figure 7 shows that profit margins and volume of UK retail sales have stagnated since the onset of the financial crisis, after a period of sustained growth. Sales in March 2013 were only 2.0% higher than in March 2008.

Despite this, government receipts from the retail sector have increased over the most recent periods for which data is available. The sector’s business rates contribution to the Exchequer increased over 30% from 2008 to 2010 (Figure 8).

And whilst the sector’s corporation tax contribution dropped by 14% during the early days of the financial crisis, overall retailers contributed 6% more to the UK Exchequer from 2008/2009 to 2011/2012. (Source; HMRC)

Figure 7: UK retail sales volume Figure 8: Retail sector business rates contribution (£m)

Mar03 Mar04 Mar05 Mar06 Mar07 Mar08 Mar09 Mar10 Mar11 Mar12 Mar13

105%

100%

95%

90%

85%

80%2006 2007 2008 2009 2010

7,000

6,000

5,000

4,000

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Design Services 28207 (05/13).

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Source: Office of National StatisticsSource: Office of National Statistics

To find out more, please contact:

Christine CrossE: chris@christinecross.comT: +44 (0) 20 7804 1257

Mary MonfriesE: mary.c.monfries@uk.pwc.comT: +44 (0) 20 7212 7927

Andrew PackmanE: andrew.packman@uk.pwc.comT: +44 (0) 1895 522 104

Neville HowlettE: neville.p.howlett@uk.pwc.comT: +44 (0) 20 7212 7964

Janet KerrE: janet.kerr@uk.pwc.comT: +44 (0)20 7804 7134

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