Wednesday 23 November 2016

UK: the effect of incorporations on tax receipts

The Autumn Statement was delivered today by the Chancellor and was accompanied by the publication by the Office for Budget Responsibility of its Economic and Fiscal Outlook: see here (pdf). The Outlook contains some interesting analysis considering the impact of company incorporation - in particular companies with a single director - on the amount of tax receipts (see Box 4.1 at page 121).  The OBR says that its modelling has underestimated the impact of incorporation on tax receipts, although it recognises that not all decisions to incorporate are motivated by tax.  The OBR's work in this area was commented upon by the Chancellor in a letter sent to the Office of Tax Simplification and published today: see here (pdf). The Chancellor said:
There are also wider issues with the different tax treatment of different forms of labour, highlighted by the growth in self-employment and the number of single person incorporations. This not only causes complexity but also - as the OBR has highlighted (in relation to the growth in incorporations) – is resulting in increased fiscal costs to the Exchequer. The Government will therefore also look at how it can ensure that the taxation of different ways of working and different forms of employee remuneration is fair, sustainable and efficient."

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