Tax rate of FTSE100 companies drops for fourth year

by Calum Fuller

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14 Jan 2013

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View of the London Stock Exchange from above

THE AVERAGE EFFECTIVE TAX RATE for FTSE100 companies has fallen for the fourth straight year, according to research from UHY Hacker Young.

The average effective rate is now 24.5%, having fallen nearly a third since 2009, when the rate was 35.8%. Last year, the rate stood at 26%.

The fall, according to Hacker Young, is due to companies "generating greater profits overseas, allowing them to take advantage of lower prevailing tax rates in those jurisdictions".

Reductions in corporation tax around the world – including the UK – have also contributed towards the lower effective rates.

The coalition government has brought the corporate tax rate down from 28% to 24%, and will drop it further to 21% by 2014, while other countries such as Canada and Italy have made similar moves.

Multinational companies including Amazon, Google and Starbucks have recently been challenged by MPs over the amount of tax they pay in the UK.

Hacker Young head of tax Roy Maugham said multinational companies are "in a difficult position over their level of tax payments" due to "a lot of confusion in public discussions about the ‘right' level of tax".

He added: "It can be perfectly legitimate for UK companies to pay parts of their tax bill in overseas jurisdictions with lower tax rates. The rules on the taxation of multinationals are very clear though, and if companies did cross the line with the movement of profits overseas, HM Revenue & Customs would be on them like a flash."

Take part in this week's Accoutancy Age debate on tax avoidance by clicking here.

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