Our empirical work has analysed the effects of several distortionary features of the UK company tax system, including unrelieved or surplus advance corporation tax (ACT), dividend taxation and temporary extensions to capital allowances. An important tool in our empirical work has been our company-level model of UK corporation tax, which applies actual and hypothetical tax rules to accounts data for a large sample of companies. This model has been updated and used to analyse developments in corporation tax revenues, the revenue cost of various policy proposals and the incidence of surplus ACT on individual companies. .
Policy analyses have addressed a number of actual and proposed reforms to company taxation. Our theoretical analysis of tax neutrality underpinned the proposal by the IFS Capital Taxes Group for a non-distortionary company tax based on an allowance for corporate equity, and we have estimated the revenue cost of this proposal and simulated its effects on company investment. (See Bond, S. et al. (1996) 'Tax reform to promote investment', Oxford Review of Economic Policy, vol. 12, no. 2.) More recently, we assisted the Institute for Public Policy Research's Commission on Public Policy and British Business to develop a modified version of this proposal. Contract research projects for HM Treasury on dividend taxation and the growth of institutional share ownership highlighted distortions in the taxation of company dividends that were addressed in the July 1997 Budget, and our work on surplus ACT highlighted distortions affecting UK-based multinational firms that were addressed in the March 1998 Budget. .
Analyses of the issues in company taxation in the run-up to the Budget of March 1999 are addressed in The IFS Green Budget: January 1999, and include a discussion of the UK's productivity gap, measures to increase R&D and investment, and the tax treatment of corporate venturing and employee share ownership schemes.