Family Businesses: a Vital Partner for the Public Finances

By Guilherme Luis Pereira (PwC), Andy Wiggins (PwC), and Martin Kemp (Family Business Research Foundation)

16th January 2024

Family businesses are a major force in the UK economy. They employ millions of people, support local communities, and contribute more than a quarter of UK tax receipts.[1] But do we fully appreciate their impact on the public finances? A new report by the Family Business Research Foundation (FBRF) and PwC reveals for the first time the full extent and breakdown of the taxes generated by family firms in 2021.

The report is based on a survey of 44 UK family businesses across a range of sizes and sectors, as well as an extrapolation estimate using publicly available data on the whole family business sector. It shows that in 2021, the family-business sector is estimated to have contributed £225 billion to the UK Exchequer, representing 27% of all UK tax receipts. Out of this £225 billion, £74 billion was contributed in taxes borne, which are a direct cost to the company, and £151 billion in taxes collected, such as income tax and employee National Insurance Contributions (NICs).

The report also provides a detailed analysis of the profile of taxes generated by family firms, using the Total Tax Contribution (TTC) framework developed by PwC. The TTC framework captures all the taxes that a business pays and collects, not just corporation tax, which often receives the most attention. The 44 participating firms provided data for, on average, 10 taxes, 6.7 taxes borne, and 3.3 taxes collected. Taxes paid by study participants covered five tax bases, people, product, profit, property and planet taxes (Figure 1).

Figure 1: Composition of the taxes generated by UK family firms that participated in the survey

As Figure 1 shows, the largest proportion of taxes generated by family firms were people taxes (42.6%), which include employers' NICs, income tax deducted under PAYE, and the apprenticeship levy. Product taxes were next highest (37.4%), followed by profit taxes (12.6%), property taxes (5.8%) and planet taxes (1.6%).

 The report shows that family businesses are investing in their employees and their communities. For every employee in the study, an average of £11,468 was generated in employment taxes, and many family firms also provided training and mentoring to apprentices. The largest element of value distributed by family firms in the study was to employees in wages (41%), followed by amounts generated in taxes (34%).

The report highlights the importance of tax transparency and communication for family businesses, especially in the context of increasing public scrutiny and stakeholder expectations.

It shows how family businesses can use TTC data to engage with tax authorities, policymakers, investors, customers, employees and the wider public to demonstrate their economic and social value. Finally, the report provides insights and recommendations for policymakers and tax administrators on how to better support and recognise the family business sector, and to model the impact of any tax changes on this vital part of the UK economy.

As family businesses look ahead to the challenges and opportunities of the post-pandemic recovery, they should also be aware of the changing regulatory landscape for sustainability reporting and taxation, especially for those with European operations. The EU's Corporate Sustainability Reporting Directive[2] will introduce greater disclosure requirements for environmental, social and governance information and, for very large groups (with revenues above €750 million), public country-by-country reporting will be a reality in the EU and Australia. These measures aim to enhance transparency and accountability, and to align business practices with the EU's green and social goals. Family businesses should prepare for these changes and consider how they can communicate their sustainability performance and tax contribution to their stakeholders and the public.

Family businesses are the backbone of the UK economy and the bedrock of our communities. They play a key role in building a prosperous and sustainable future for the UK. The 2023 Family Business TTC report is a testament to their resilience, responsibility and relevance, and a call to action for all stakeholders to recognise and appreciate their role in the public finances and beyond.

You can read the full report here. For more information about the Family Business Research Foundation, please visit their website by clicking here.

NOTES

[1] See the Family Business Research Foundation’s most recent Family Business Sector Report (2021-22) for a detailed analysis of the contribution the sector makes to the UK economy, and the challenges and opportunities faced by family businesses in the UK.

[2] Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting. Available here.