Large companies in the UK now pay less corporate income tax than a decade ago even though profits have ‘risen sharply’, according to an analysis by Reuters of figures provided by HMRC and the Office for National Statistics. The analysis was based on gross profit, while tax liabilities are based on net profits as adjusted for tax purposes, but campaigners said the analysis showed that tax avoidance ‘is on the rise’.
‘Overall annual corporate profit has risen 65% since 2000 to £329bn last year,’ Reuters reported on 27 December.
A graphic indicated that the measure of profit used was the ‘corporate gross operating surplus’. Corporation tax liabilities are based on a company’s net profit – after deduction of expenses charged to the profit and loss account – adjusted as required by law to arrive at the profit chargeable to corporation tax. However, this information is not published.
Reuters’ analysis did not take account of capital allowances or statutory reliefs for losses incurred during the recession triggered by the 2008 financial crisis. Losses carried forward by a company are set against future taxable profits.
Profits booked ‘somewhere else’
‘In the same span, the amount of corporation tax paid by large companies fell, to £21bn, down 21% or £5bn since 2000/01,’ Reuters reported. Prem Sikka, professor of accounting at Essex University, said: ‘How are they managing to reconcile higher profits with lower taxes? It can't be done ... unless (firms) are booking these profits somewhere else.’
The main rate of corporation tax was 30% until 2008. It was reduced to 28% from April 2008 and 26% from April 2011.
An HMRC spokesperson said today: ‘HMRC ensures that multinationals pay the tax due in accordance with UK tax law.
‘We have been very successful in reducing tax avoidance by large businesses in recent years. We relentlessly challenge those that persist in avoiding tax and have recovered £29bn additional revenues from large businesses in the last six years, including £4.1bn in the last four years from transfer pricing enquiries alone. These figures speak for themselves.
‘Corporation tax receipts are dependent on the wider economy and the corporation tax rate set by Parliament, which was reduced by two percentage points for 2011/12.’
‘Too close’
Reuters said tax campaigners argued ‘that the discrepancy shows big business and Britain's tax inspectors have grown too close, and that tax avoidance is on the rise’. But the report added: ‘The tax authority and the finance ministry said there is no reason to believe the revenue drop is due to tax avoidance by large corporations.’
Reuters added: ‘When shown the calculations, an HMRC spokesman said the 2000/01 figures may have been artificially boosted by "elements of double counting" due to a change in the way taxes were paid, but declined to quantify the impact of this.’
The report was cited by several national newspapers in the UK, including The Sun, The Independent and the Daily Telegraph. ‘Giant firms’ profits SOAR as tax bills take a DIVE,’ The Sun reported.
New mood
In The Guardian, financial editor Nils Pratley noted that ‘just as Starbucks was ill-prepared for the new mood towards tax avoidance, so too is the government’. MPs are set to debate corporate tax avoidance next Monday, 7 January.
Pratley said in a review of 2012: ‘The tax system, by treating multinationals so favourably, is the real villain. The public accounts committee told the government to "get a grip" on large corporations which generate significant income in the UK but pay little or no tax.’
He continued: ‘Does the government have a plan? The chancellor's autumn statement was full of warm words about clamping down on tax avoidance but it hardly amounted to a promise that the likes of Google and Amazon will pay more. The coalition's headache on this issue will intensify – anger over amoral corporations could easily be replaced by fury at government inaction.’
Executives from Starbucks, Google and Amazon defended their companies’ tax arrangements during a recent public accounts committee hearing. But Starbucks has vowed to pay more tax than required by law, in a move that failed to appease tax campaigners and was criticised by tax professionals.
Caudwell backs consumer boycott
John Caudwell, the founder of Phones 4u and the charity Caudwell Children, has said he would encourage people to ‘boycott organisations that aren’t behaving in a fiscally responsible way’.
In a ‘Relative Values’ item for the Sunday Times magazine, Caudwell said: ‘As a businessman, I’ll admit that, in the early days, I did things I probably wouldn't do now. I needed my business to grow and that involved tax planning. But there came a point when that didn’t feel right. How can you preach about doing what’s right for society and then not pay your whack to the chancellor?
‘Paying tax has been in the news a lot, and personally I think it’s up to individuals and individual companies how they manage their tax affairs. But the public also has every right to know what’s going on. I’m not going to criticise those companies, but I would encourage people to boycott organisations — and I would also apply this to my own companies — that aren’t behaving in a fiscally responsible way.’
Large companies in the UK now pay less corporate income tax than a decade ago even though profits have ‘risen sharply’, according to an analysis by Reuters of figures provided by HMRC and the Office for National Statistics. The analysis was based on gross profit, while tax liabilities are based on net profits as adjusted for tax purposes, but campaigners said the analysis showed that tax avoidance ‘is on the rise’.
‘Overall annual corporate profit has risen 65% since 2000 to £329bn last year,’ Reuters reported on 27 December.
A graphic indicated that the measure of profit used was the ‘corporate gross operating surplus’. Corporation tax liabilities are based on a company’s net profit – after deduction of expenses charged to the profit and loss account – adjusted as required by law to arrive at the profit chargeable to corporation tax. However, this information is not published.
Reuters’ analysis did not take account of capital allowances or statutory reliefs for losses incurred during the recession triggered by the 2008 financial crisis. Losses carried forward by a company are set against future taxable profits.
Profits booked ‘somewhere else’
‘In the same span, the amount of corporation tax paid by large companies fell, to £21bn, down 21% or £5bn since 2000/01,’ Reuters reported. Prem Sikka, professor of accounting at Essex University, said: ‘How are they managing to reconcile higher profits with lower taxes? It can't be done ... unless (firms) are booking these profits somewhere else.’
The main rate of corporation tax was 30% until 2008. It was reduced to 28% from April 2008 and 26% from April 2011.
An HMRC spokesperson said today: ‘HMRC ensures that multinationals pay the tax due in accordance with UK tax law.
‘We have been very successful in reducing tax avoidance by large businesses in recent years. We relentlessly challenge those that persist in avoiding tax and have recovered £29bn additional revenues from large businesses in the last six years, including £4.1bn in the last four years from transfer pricing enquiries alone. These figures speak for themselves.
‘Corporation tax receipts are dependent on the wider economy and the corporation tax rate set by Parliament, which was reduced by two percentage points for 2011/12.’
‘Too close’
Reuters said tax campaigners argued ‘that the discrepancy shows big business and Britain's tax inspectors have grown too close, and that tax avoidance is on the rise’. But the report added: ‘The tax authority and the finance ministry said there is no reason to believe the revenue drop is due to tax avoidance by large corporations.’
Reuters added: ‘When shown the calculations, an HMRC spokesman said the 2000/01 figures may have been artificially boosted by "elements of double counting" due to a change in the way taxes were paid, but declined to quantify the impact of this.’
The report was cited by several national newspapers in the UK, including The Sun, The Independent and the Daily Telegraph. ‘Giant firms’ profits SOAR as tax bills take a DIVE,’ The Sun reported.
New mood
In The Guardian, financial editor Nils Pratley noted that ‘just as Starbucks was ill-prepared for the new mood towards tax avoidance, so too is the government’. MPs are set to debate corporate tax avoidance next Monday, 7 January.
Pratley said in a review of 2012: ‘The tax system, by treating multinationals so favourably, is the real villain. The public accounts committee told the government to "get a grip" on large corporations which generate significant income in the UK but pay little or no tax.’
He continued: ‘Does the government have a plan? The chancellor's autumn statement was full of warm words about clamping down on tax avoidance but it hardly amounted to a promise that the likes of Google and Amazon will pay more. The coalition's headache on this issue will intensify – anger over amoral corporations could easily be replaced by fury at government inaction.’
Executives from Starbucks, Google and Amazon defended their companies’ tax arrangements during a recent public accounts committee hearing. But Starbucks has vowed to pay more tax than required by law, in a move that failed to appease tax campaigners and was criticised by tax professionals.
Caudwell backs consumer boycott
John Caudwell, the founder of Phones 4u and the charity Caudwell Children, has said he would encourage people to ‘boycott organisations that aren’t behaving in a fiscally responsible way’.
In a ‘Relative Values’ item for the Sunday Times magazine, Caudwell said: ‘As a businessman, I’ll admit that, in the early days, I did things I probably wouldn't do now. I needed my business to grow and that involved tax planning. But there came a point when that didn’t feel right. How can you preach about doing what’s right for society and then not pay your whack to the chancellor?
‘Paying tax has been in the news a lot, and personally I think it’s up to individuals and individual companies how they manage their tax affairs. But the public also has every right to know what’s going on. I’m not going to criticise those companies, but I would encourage people to boycott organisations — and I would also apply this to my own companies — that aren’t behaving in a fiscally responsible way.’
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