THE effective tax rate paid by Britain’s biggest companies has dropped by almost a third over the last two years, but many are still considering moving their headquarters abroad.

In 2009, FTSE 100 companies on average paid tax equivalent to 35.8 per cent of their annual profits.

But new research by UHY Hacker Young, a national group of accounting firms, shows that figure has fallen to just 26 per cent in 2011, even though profits are higher.

The figure for the current year is based on annual reports published up to 31 August. The effective tax rate in 2010 was 30.1 per cent, according to the study, published today.

The drop since 2009 is partly a result of a fall in the headline corporate tax rate from 28 per cent to 26 per cent over the last two years.

Some top companies also carried forward losses made during the recession to gain tax relief in later years. More than a third of FTSE 100 companies paid no corporation tax at all last year.

Aileen Scott, tax partner at Campbell Dallas, the only Scottish member of the UHY Hacker Young group, said the steep decrease was also related to some British companies moving their headquarters overseas.

FTSE 100 companies are also generating a higher percentage of their revenues overseas than was previously the case. This means they are able to take advantage of lower tax rates in those overseas jurisdictions.

Scott said the firms were not doing anything wrong.

“Companies have a duty to their shareholders to keep the tax they pay under control,” she said. “With more of their operations now based overseas it is only sensible for them to ensure that their business is structured properly so that they are paying tax at the best rate.

“That doesn’t mean they are doing anything that is illegal or pushing the boundaries of acceptable tax planning. They may simply be reducing their activities in high tax overseas jurisdictions or controlling their non-allowable expenditure more effectively.”

A number of British companies have moved to countries with lower tax rates in order to reduce their tax burden in recent years.

Pharmaceutical company Shire, advertising firm WPP and United Business Media all chose Dublin for their new headquarters. The Republic of Ireland’s corporation tax rate is 12.5 per cent, against the UK’s 28 per cent.

There are mixed signals as to whether this trend will continue, with WPP confirming it will return to the UK.

Research carried out this summer for HM Revenue & Customs showed 26 per cent of large companies are considering relocating part or all of their business abroad. Of those, more than half said that tax is the main factor pushing them to move.

Scott said a drive by HMRC to close loopholes and increase the tax take in recent years may have been counterproductive.

“By squeezing companies too hard, it risks driving them offshore,” she said, adding that uncertainty over taxes due to successive governments’ “relentless tinkering” made the UK less attractive to business.

She said: “While the government has made efforts to make the UK tax regime more attractive, will it be enough to stymie the tide of British companies still thinking about the exit?”