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Tax experts defend Tui Travel as BBC journalist claims offsetting trade losses is ‘controversial’

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Tax experts defended Tui Travel today after a BBC journalist suggested that setting earlier years’ losses against the company’s profits for corporation tax purposes was ‘pretty controversial’.

Business correspondent Simon Jack said on this morning’s Today programme, an hour after interviewing Tui Travel chief executive Peter Long, that it had emerged that ‘despite record profits [the company] paid no corporation tax at all in the UK last year’.

Jack said: ‘They were able to offset losses in previous years against profits in this year … All perfectly legal, but all still pretty controversial.’

The carry forward of unused trading losses is a well-established feature of tax law, and applies to sole traders as well as companies. The intention behind the legislation is that over the lifetime of the business tax should only be paid on the net profits after deducting losses.

‘Oh dear,’ David O’Keeffe, a former KPMG partner who runs Aiglon Consulting, wrote on his blog. He noted the BBC News website carried the story later in the day, under the headline ‘Tui Travel admits it did not pay any corporation tax’.

O’Keeffe wrote: ‘Er, that's right, because it had brought forward losses. This type of loss relief is a basic part of the UK's CT regime. Unfortunately, using the word "admits" in this way makes it sound as though the company has been caught out doing something wrong.’

Ben Saunders, a tax writer at LexisNexis, the publishers of Tax Journal, asked: ‘Are trade losses now considered avoidance or something?’

Replying on Twitter, Jack initially said that he knew the relief was not controversial ‘in business circles’ but said it would ‘strike many as odd/bad’.

He accepted later that his broadcast ‘came across wrong’. He added: ‘Practice normal/automatic but not well known by all. My misuse of tone.’

The BBC News website quoted Long as saying: ‘We do pay our fair share and we obviously comply with all the laws of the lands within which we operate. So this is just a normal situation. It is not clever tax planning, it's the fact that we've had a major integration of two businesses in the UK over the last two years.’

A Tui spokesman was quoted as saying: ‘We have no profits chargeable to UK corporation tax because they are all eliminated due to capital allowances, losses brought forward from prior years as a result of restructuring, and cost incurred as a result of the ash cloud in 2010.

‘This offsets our UK taxable profits in full and is fully compliant with UK tax law, perfectly legitimate and normal practice. We expect to pay small amounts of UK corporation tax in 2013/14 with significantly larger amounts in later years as our brought forward losses are eliminated.’