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    B1011 – Corporation Tax Reform Bill 2016, TSR Labour Party

    Corporation Tax Reform Bill 2016
    An Act to introduce a progressive, bracketed system of corporation tax for non-ring fence profits to aid small business development.

    BE IT ENACTED by the Queen’s most Excellent Majesty, by and with the advice and consent of the Commons, in this present Parliament assembled, and by the authority of the same, as follows:—

    Preamble: The use of a bracketed system as used in income tax will give the government more freedom to target its fiscal policy to encourage small business growth and generate revenues. As with the current corporation and income taxes this bill does not legislate to establish specific tax bands or rates, instead leaving that for the government to propose in it's budget and for Parliament to ratify.

    1: AMENDMENTS
    (1) In the Corporation Tax Act 2010, Part 2, Chapter 3.1 shall be amended to read: Corporation tax is set under the methodology established in the Corporation Tax Reform Act 2016.

    2. CORPORATION TAX
    (1) The non-ring fence profits of companies shall be taxed at a rate corresponding to the profit band that the company is in.
    (2) Companies shall be allocated to profit bands each financial year based on their pre-tax profits for that year.
    (3) The profit bands are as follows--
    a) Band I
    b) Band II
    c) Band II
    (4) Of these, Band III shall include company's with yearly profits greater than those in Band II which, in turn, shall include those companies with greater profits than those in Band I.
    (3) Band I, II and III for a tax year are to be determined as such by Parliament for the tax year.
    (4) The Parliament for a tax year may vote to group all companies into a single Band, paying a single, universal rate of corporation tax.

    3: CORPORATION TAX RATES
    (1) Corporation tax will be charged at the following rates--
    a) Rate I (for Band I companies)
    b) Rate II (for Band II companies)
    c) Rate III (for Band III companies)
    (2) Of these, Rate III shall be a greater percentage of a company's profits than Rate II which, in turn, shall be a greater percentage of a company's profits than Rate I.
    (3) Rate I, II and III for a tax year are the rates determined as such by Parliament for the tax year.

    6: COMMENCEMENT, SHORT TITLE AND EXTENT
    (1) This Bill may be cited as the Corporation Tax Reform Act 2016;
    (2) This Bill shall extend to the United Kingdom; and
    (3) Shall come into force on the 1st April 2017

    Notes and Worked Example
    Spoiler:
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    The provisions of this bill allow for the Parliament of the day to take a more sophisticated approach to corporation taxation by moving to a progressive model. As such, expansionary fiscal policy can be pursued without inflicting so great a burden on the public finances. However section 2.4 creates flexibility, allowing for the Parliament of a particular tax year to still set a single 'main' rate of corporation tax when doing so would be prudent. Thus, this bill only expands the powers of Parliament, without establishing any burdensome limitations.



    Worked Example:
    (using figures for the 2013/4 financial year - source)

    Revenue generated from the companies in hypothetical 'Band I' (payable tax below £500,000): £18,995,000,000
    Revenue generated from the companies in hypothetical 'Band II' (payable tax above £500,000 and below £5,000,000): £7,580,000,000
    Revenue generated from the companies in hypothetical 'Band III' (payable tax above £5,000,000): £13,635,000,000

    Corporation Tax total revenue: £40,210,000,000 (with universal 20% tax rate)

    Adjust Tax Rates as follows:
    Rate I = 15%
    Rate II = 20%
    Rate III = 22%

    New Total Tax Revenue: £40,210,000,000 - 4,748,750,000 + 1,363,500,000 = £36,824,750,000

    The result is a relatively meagre reduction in government revenues but a sizeable tax cut for more than 1,000,000 businesses.
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    The idea is sensible, but does not tackle large companies' tax avoidance. *There should be a minimum level of corporation tax for large companies as a percentage of turnover.
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    A better reform would be to stop taxing net but gross earnings.
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    No, the bill will not work because the most common method of tax avoidance is accounting in a way that makes it appear the business is loss making, and the bill shows a lack of knowledge of what corporation tax is, corporation tax is a tax on profits from economic activities, it is not a tax on profits from transactions with customers. This bill needs to give a definition for what profit is before it can be taxed, why companies will not appear to be loss making which is the current case, and why a company that has made good strategic decisions to become large should be punished by paying more in tax.
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    For the worked example, is it based off the actual figures, or is it a true labour piece and the numbers are plucked out of thin air?

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    (Original post by Aph)
    A better reform would be to stop taxing net but gross earnings.
    In which case as a large business I would be buying via a third party I owned in a tax haven which sells the goods on at a break even or loss making rate for the main business, shifting the profits offshore.

    It's also worth noting that your proposal shouldn't change tax revenues much unless borrowing is from abroad.

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    (Original post by Aph)
    A better reform would be to stop taxing net but gross earnings.
    This isn't a good idea. Different industries have dramatically different profit margins per product, and this would wipe out some industries while leaving others much better off.
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    (Original post by Jammy Duel)
    In which case as a large business I would be buying via a third party I owned in a tax haven which sells the goods on at a break even or loss making rate for the main business, shifting the profits offshore.

    It's also worth noting that your proposal shouldn't change tax revenues much unless borrowing is from abroad.

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    Ummmm I'm saying tax income and not profits.... I don't see how that would change a thing.
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    (Original post by Aph)
    Ummmm I'm saying tax income and not profits.... I don't see how that would change a thing.
    Gross earnings and revenue are VERY different, and revenue is a dreadful idea, I thought about it, or some hybrid system, but it really is hard to make work.

    Perhaps a clear example of the problem with using revenue is the business I had an interview with today has a profit margin one tenth that of the agency i was going through.

    Further, we'd be looking at needing a revenue tax rate in the region of 5pc to cover current taxes, so we're looking at high levels of inflation while revenues are increased so the profit margin is positive again, same with sectors like construction. Even some of the better sectors would have very low profits after (Airbus would be down to break even, ignoring being French). Energy sector? Again, inflation.

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    (Original post by TheDefiniteArticle)
    This isn't a good idea. Different industries have dramatically different profit margins per product, and this would wipe out some industries while leaving others much better off.
    That's the one issue I had thought of. I guess I was thinking that TNCs pay on revenue and smaller companies pay on profits.
    (Original post by Jammy Duel)
    Gross earnings and revenue are VERY different, and revenue is a dreadful idea, I thought about it, or some hybrid system, but it really is hard to make work.

    Perhaps a clear example of the problem with using revenue is the business I had an interview with today has a profit margin one tenth that of the agency i was going through.

    Further, we'd be looking at needing a revenue tax rate in the region of 5pc to cover current taxes, so we're looking at high levels of inflation while revenues are increased so the profit margin is positive again, same with sectors like construction. Even some of the better sectors would have very low profits after (Airbus would be down to break even, ignoring being French). Energy sector? Again, inflation.

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    youre doing agency work? I thought you still had a year of uni left?

    Yes I do apreciate all of the issues. But other then a massive simplification of the tax code I can't see any other way.
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    (Original post by Aph)
    That's the one issue I had thought of. I guess I was thinking that TNCs pay on revenue and smaller companies pay on profits.
    You still get the same problem I'm afraid.
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    (Original post by Aph)
    That's the one issue I had thought of. I guess I was thinking that TNCs pay on revenue and smaller companies pay on profits.
    youre doing agency work? I thought you still had a year of uni left?

    Yes I do apreciate all of the issues. But other then a massive simplification of the tax code I can't see any other way.
    Just a recruitment agency

    That simplification is the hard bit, spent plenty of time trying to think of a simplification instead of doing my dissertation, but nowhere near as simple as with individuals because expenses are so variable

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    (Original post by TheDefiniteArticle)
    You still get the same problem I'm afraid.
    So stoping evasion is impossible?
    (Original post by Jammy Duel)
    Just a recruitment agency

    That simplification is the hard bit, spent plenty of time trying to think of a simplification instead of doing my dissertation, but nowhere near as simple as with individuals because expenses are so variable

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    Oh... So you do still have a year of uni left?

    Indeed. The main issue is that no matter how you look at it profits can be shifted in some way or another. It would be nice if we could add something about immorality to the law but that is too wishy washy to be law.
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    (Original post by Aph)
    So stoping evasion is impossible?
    You either need a 'spirit of the rules' rule (which is arguably undesirable due to lack of certainty), or someone much cleverer than you or me to design a scheme
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    (Original post by Aph)
    So stoping evasion is impossible?

    Oh... So you do still have a year of uni left?

    Indeed. The main issue is that no matter how you look at it profits can be shifted in some way or another. It would be nice if we could add something about immorality to the law but that is too wishy washy to be law.
    Since when did people have another year after their dissertation unless doing a masters, and who doing a masters is going to for worry via an agency just for summer?

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    (Original post by TheDefiniteArticle)
    You either need a 'spirit of the rules' rule (which is arguably undesirable due to lack of certainty), or someone much cleverer than you or me to design a scheme
    yes. I completely agree.

    (Original post by Jammy Duel)
    Since when did people have another year after their dissertation unless doing a masters, and who doing a masters is going to for worry via an agency just for summer?

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    I remember you saying about a year ago that you were looking to transfer over to the masters, just curious.
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    Aye.
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    (Original post by Nigel Farage MEP)
    No, the bill will not work because the most common method of tax avoidance is accounting in a way that makes it appear the business is loss making, and the bill shows a lack of knowledge of what corporation tax is, corporation tax is a tax on profits from economic activities, it is not a tax on profits from transactions with customers. This bill needs to give a definition for what profit is before it can be taxed, why companies will not appear to be loss making which is the current case, and why a company that has made good strategic decisions to become large should be punished by paying more in tax.
    This will be addressed in second reading (though we'll simply state that the definitions are the same as the original bill this will latch onto).
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    This bill is in cessation.
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    This bill has gone to a second reading.
 
 
 
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