A Happy New Year, everyone, and I hope you had a nice Christmas – unlike those lovely people at The Mail on Sunday, who were terribly upset about ‘Britain’s worst tax Scrooges’ (bit.ly/2T4ckzv). Apparently, ‘almost one in five of the biggest firms paid nothing last year’ – how dreadful!
A closer reading of the article may lead to a strong ‘Bah! Humbug!’ from many tax advisers. First, there are the UK oil majors BP and Centrica, which received tax credits for decommissioning oil and gas rigs. Oil exploration is costly, and the terms of licences provide that the rig must be decommissioned at the end of the project. That expenditure is only allowed for tax when it is actually spent – and by that time, of course, there is no income flowing in. So naturally a tax credit arises.
Then there are some mining firms, ‘prominent among the 13 companies which pay no tax’. Several said that their operations are overseas and their profits are generated there. In that case, surely you would expect the tax to be paid where the profits are made – and that’s not in the UK. If the UK wants to tax profits which arise here, it must accept that companies without UK profits should not be paying tax in the UK. Alex Cobham, of the Tax Justice Network, makes the valid point that if a mining company with overseas mines does have a ‘significant management’ presence here, then it should pay some UK tax – but the chief executive of Randgold Resources has specifically confirmed that the company has no substantial UK presence or operations. So why would anyone expect it to have a UK tax bill?
There are two real estate investment trusts (REITs), British Land and Segro, which paid no tax last year. As The Mail on Sunday does acknowledge, the whole point of a REIT is that if it meets certain conditions, it doesn’t pay tax – because that tax is paid at investor level, rather than within the REIT itself.
Surely there must be some companies on the list which have done some ‘tax-dodging’? Oh look, AstraZeneca has claimed R&D tax credits. What a surprise; a global leader in the pharmaceutical industry is claiming a relief available to those who do the R&D that the government wants to encourage. Using the law for its intended purpose is surely reasonable behaviour.
And then there’s Ocado, which didn’t pay any tax because it has made losses – which, I have to say, seems pretty reasonable to me.
Whilst all of this detail is available in the article, the overall tone is one of ‘Shock! Horror!’ The article accepts that none of the companies is accused of acting illegally, but says that ‘most have used UK tax laws to reduce their tax payments’. It then goes on to say that these rules ‘allow firms to use opaque schemes and loans to move money from one jurisdiction to another’. Margaret Hodge MP chimes in to say that: ‘Tax avoidance by large companies is a blight on this country’.
Let me be clear. I am not condoning artificial tax avoidance, and I accept that some large companies may still have ‘opaque schemes’ which reduce their tax bill. But this article provides very little evidence that any such behaviour is going on here. By conflating straightforward behaviour (such as claiming allowances, relief for losses or paying tax where the profit is made) with artificial avoidance, The Mail on Sunday is doing absolutely nothing to improve its readers’ understanding of how the tax system actually works.
As if one poorly-written article was not enough, there was then a second, published by The Mail on Sunday on 12 January 2019 (see bit.ly/2R3415t). This time, the chancellor is being labelled as a ‘hypocrite’ since a company in which he holds an interest has paid ‘virtually no tax’ despite making £1.6m in profits.
The article explains that the company was established in 2010 and made profits in five of the years since then, totalling £1.6m. However, in the other three years, it made losses of an amount not stated in the article. So the overall profit, over the life of the company, is a number much less than £1.6m – and it may well not have had a profit at all over its lifetime. The Mail on Sunday notes that in 2017 the company made a profit of £788,633 but did not pay any tax. It took me less than five minutes to access the accounts filed at Companies House for that period, which clearly state that the main reason for this is the ‘utilisation of tax losses’. So a company which has made losses uses those losses to shelter profits in subsequent years. Is there really a story here? I think not.
The UK corporate tax system is far from perfect. It is too complex, and it has not kept pace with the increasing globalisation of business and the growth of the digital economy. But silly stories, by lazy journalists, are not going to improve things. What should The Mail on Sunday’s New Year’s resolution be? In my view, it should be a promise to talk to a tax expert to make sure you are not writing nonsense.
A Happy New Year, everyone, and I hope you had a nice Christmas – unlike those lovely people at The Mail on Sunday, who were terribly upset about ‘Britain’s worst tax Scrooges’ (bit.ly/2T4ckzv). Apparently, ‘almost one in five of the biggest firms paid nothing last year’ – how dreadful!
A closer reading of the article may lead to a strong ‘Bah! Humbug!’ from many tax advisers. First, there are the UK oil majors BP and Centrica, which received tax credits for decommissioning oil and gas rigs. Oil exploration is costly, and the terms of licences provide that the rig must be decommissioned at the end of the project. That expenditure is only allowed for tax when it is actually spent – and by that time, of course, there is no income flowing in. So naturally a tax credit arises.
Then there are some mining firms, ‘prominent among the 13 companies which pay no tax’. Several said that their operations are overseas and their profits are generated there. In that case, surely you would expect the tax to be paid where the profits are made – and that’s not in the UK. If the UK wants to tax profits which arise here, it must accept that companies without UK profits should not be paying tax in the UK. Alex Cobham, of the Tax Justice Network, makes the valid point that if a mining company with overseas mines does have a ‘significant management’ presence here, then it should pay some UK tax – but the chief executive of Randgold Resources has specifically confirmed that the company has no substantial UK presence or operations. So why would anyone expect it to have a UK tax bill?
There are two real estate investment trusts (REITs), British Land and Segro, which paid no tax last year. As The Mail on Sunday does acknowledge, the whole point of a REIT is that if it meets certain conditions, it doesn’t pay tax – because that tax is paid at investor level, rather than within the REIT itself.
Surely there must be some companies on the list which have done some ‘tax-dodging’? Oh look, AstraZeneca has claimed R&D tax credits. What a surprise; a global leader in the pharmaceutical industry is claiming a relief available to those who do the R&D that the government wants to encourage. Using the law for its intended purpose is surely reasonable behaviour.
And then there’s Ocado, which didn’t pay any tax because it has made losses – which, I have to say, seems pretty reasonable to me.
Whilst all of this detail is available in the article, the overall tone is one of ‘Shock! Horror!’ The article accepts that none of the companies is accused of acting illegally, but says that ‘most have used UK tax laws to reduce their tax payments’. It then goes on to say that these rules ‘allow firms to use opaque schemes and loans to move money from one jurisdiction to another’. Margaret Hodge MP chimes in to say that: ‘Tax avoidance by large companies is a blight on this country’.
Let me be clear. I am not condoning artificial tax avoidance, and I accept that some large companies may still have ‘opaque schemes’ which reduce their tax bill. But this article provides very little evidence that any such behaviour is going on here. By conflating straightforward behaviour (such as claiming allowances, relief for losses or paying tax where the profit is made) with artificial avoidance, The Mail on Sunday is doing absolutely nothing to improve its readers’ understanding of how the tax system actually works.
As if one poorly-written article was not enough, there was then a second, published by The Mail on Sunday on 12 January 2019 (see bit.ly/2R3415t). This time, the chancellor is being labelled as a ‘hypocrite’ since a company in which he holds an interest has paid ‘virtually no tax’ despite making £1.6m in profits.
The article explains that the company was established in 2010 and made profits in five of the years since then, totalling £1.6m. However, in the other three years, it made losses of an amount not stated in the article. So the overall profit, over the life of the company, is a number much less than £1.6m – and it may well not have had a profit at all over its lifetime. The Mail on Sunday notes that in 2017 the company made a profit of £788,633 but did not pay any tax. It took me less than five minutes to access the accounts filed at Companies House for that period, which clearly state that the main reason for this is the ‘utilisation of tax losses’. So a company which has made losses uses those losses to shelter profits in subsequent years. Is there really a story here? I think not.
The UK corporate tax system is far from perfect. It is too complex, and it has not kept pace with the increasing globalisation of business and the growth of the digital economy. But silly stories, by lazy journalists, are not going to improve things. What should The Mail on Sunday’s New Year’s resolution be? In my view, it should be a promise to talk to a tax expert to make sure you are not writing nonsense.
