Large companies paying less tax despite big increase in profits

Starbucks is among companies criticised over their tax bill (AP)

Britain's biggest companies pay less tax now than they did 12 years ago, it was revealed today, while their profitability over that period has jumped.

With corporations such as Amazon, Starbucks and Google under fire for the amount of tax they pay in the UK, it emerged that large companies (defined as those with an annual profit of more than £1.5m) paid a total of £21bn of corporation tax in the year to 31 March, according to analysis by Reuters. This is £5bn less – a decline of just over a fifth – than in the year to 31 March 2001, HMRC data shows.

Meanwhile, the gross operating surplus for all companies in the UK – a key measure of profitability – has risen by 65 per cent to £329bn. The economy has grown by 55 per cent, and the amount of personal income and small company taxes has increased, according to the analysis.

HMRC and the Treasury denied the figures showed that there had been an increase in tax avoidance tactics. They said the decline was the result of recent economic weakness and a cut in the corporation tax rate, which has gradually come down from 30 per cent in 2007 to 26 per cent now.

Reuters found that the lower tax rate and the weak economy account for just under half the fall, leaving £2.6bn of the decline unaccounted for.

John Christensen of the Tax Justice Network campaigning group, said attempts to create a more business-friendly administration have encouraged companies to use tactics that reduce their tax bills. "These figures tell a more powerful story than I have seen so far," he said, adding that HMRC staff had told him in recent years that they were "alarmed" at the drop in payments from large companies.

Prem Sikka, a professor of accounting at Essex University, said that, even allowing for the tax cut, the figures were "paradoxical".

"How are they managing to reconcile higher profits with lower taxes? It can't be done … unless they are booking these profits somewhere else," Mr Sikka said. Companies reporting for tax purposes are increasingly diverting UK profits to lower-tax jurisdictions, he added.