This note discusses the possibility of replacing UK corporation tax with a tax on business turnover in the UK.

Instead of being taxed on their profits, all businesses in the UK would face a small ad valorem tax on their UK turnover. To ensure that this tax would be at the lowest possible rate, all reliefs would be abolished. Lower rates could be applied to small or medium-sized businesses. To prevent an unfair cascade of tax on vertically-integrated business groups, the tax would apply only to sales at arm’s length outside the group.

Benefits of this system

• Greater ease of collection and certainty of revenue. It is far harder for businesses to reduce or conceal their UK turnover than their profits. In particular the new system would attack tax evasion by multi-national companies
• Fairness. Businesses benefit from public services whether they make a profit or not – they should all make a contribution. (All businesses make a contribution to local services, through uniform business rate, whether or not they are profitable).
• Fairness. The more simple the tax system the fairer it is for all taxpayers. Complexity rewards taxpayers who are rich enough to employ high-priced advisors and organize their affairs to achieve “tax efficiency”
• Economic efficiency – the new system would not penalize companies for being profitable
• Economic efficiency – the new system would eliminate the encouragement for businesses to make decisions for tax reasons
• Economic efficiency – being collected in arrear, the effective tax burden is reduced for expanding businesses
• The new system would encourage exports