Posts tagged ‘corporation tax’

The Business Journalist and her tax muddle

My timeline was, on Thursday evening, chuckling about the fact that Margaret Hodge had run into a little difficulty when being asked by Krishnan Guru-Murthy of Channel 4 News about her own tax arrangements.

Whilst it was certainly quite amusing to watch her use the same answer about her affairs that she has publicly derided the likes of Google, Amazon and Starbucks for, my attention was caught by the clip which proceeded it.

I am not an accountant nor an economist – let alone a business reporter – but so far as I can see Siobhan Kennedy made two glaring errors in that piece.

The first is one same one which everybody seems to make these days: confusing sales with profits. Whether this is deliberate or due to ignorance I leave up to you, dear reader, and your personal prejudices.

It was the second one though which had me, to use the modern parlance, facepalming. Indeed I even went back and listened to it again just to make sure I was hearing correctly:

…making sales which could be subject to income tax under UK law.

Frankly, I’d expect better from a business journalist.

Harsh Lessons and Pyrrhic Victories

So Starbucks has, as we now know, given into the pack of rabid dogs which have been assailing it by agreeing to review its tax position in the UK.

Whilst personally I’d like to hope that the result of the review will be them paying even less money to the UK Treasury, I doubt this wish will come true. Nor, I guess, will my second choice of the company sending a cheque for a single penny to UK Uncut and telling them to spend it wisely.

The hypocrites at The Guardian reported on Monday that in order to finance this change of heart Starbucks have begun withdrawing employee benefits. Predictably this lesson in practical economics hasn’t gone down too well with the idiots below the line. It’s almost as if they expected Starbucks to use the magic money tree to have obtain this extra dough without any of the laws of physics economics being broken…

If I were a shareholder* I would at this point be fairly livid. No, not over the changes to employee benefits, but at the thought that a company I part own is giving more of it to the wastrels in government to piss up the wall in pointless ventures, be they foreign or domestic.

I hope that the shareholders of Starbucks request answers as to why the policy has been changed and ask to see what the, if any, financial rationale for this decision was. If no decent answers are forthcoming then I suggest that they should demand that the heads of those responsible be delivered to them on platters as they don’t seem to be aware of their duty.

For myself I shall now be boycotting Starbucks. As someone who doesn’t drink coffee this isn’t a major hardship for me but I have, in the past, been known to pick up a hot chocolate on very cold days. Not any more.

* I might be one indirectly but I’d have to check the full holdings of those funds my pension contributions pay into to be sure.

Some common sense on Corporation Tax?

It seems that there are some encouraging signs of common sense amongst UK politicians on the subject of Corporation Tax:

David Cameron will be challenged to grant Northern Ireland special status on lower corporation tax during his visit to the province on Tuesday.

[…]

Northern Ireland’s power-sharing government has been arguing for a low corporation tax similar to the regime in the Irish Republic where it is 12.5% and regarded as a key factor in attracting foreign direct investment. The UK’s corporation tax rate is currently 24%.

The Stormont executive claims the province is a special case in the UK because it shares a land border with a state which has such a low corporation tax system against which the north cannot compete.

Ok, it’s only Northern Ireland and they acting out of self-interest but at least they are prepared to take a reasonable position on the subject. Not that I expect that the present or (likely immediate) future occupants of Downing Street listen though.

Is the HMRC boss a fool?

Last week the CEO of HMRC appeared in front of the Public Accounts Committee and, if The Telegraph is quoting her correctly, suggested that companies could be forced into paying more tax by consumers changing their behaviour.

Whilst I have no doubt that companies will react to changes in customer behaviour (it’s either that or die), do the vast majority really care about the tax arrangements of the company they are buying goods and services from?

It might well be a good thing if the public did so but Lin Homer’s belief that it should be used to shame companies into paying more tax is, I think, misguided and shows a shocking lack of basic knowledge by the person in charge of gathering taxpayers money.

I missed this story at the time but @PrincessOfVP brought it to my attention by inviting me to read her blog post on the subject of Death and Taxes. I left the following comment on her blog but felt that what passes for my readership would appreciate it as well.

Whilst, like yourself, I’m not an accountant or economist my considered opinion is that Lin Homer is a fool.

The CEO of HMRC should be well aware that companies are legal constructs and do not pay tax. As Allister Heath put it in the Telegraph on Wednesday:

Your car doesn’t pay road tax, your house does not pay council tax and your television doesn’t pay the licence fee. You do. Obvious, right?

This is what is known as Tax Incidence and this knowledge has been with us for several centuries. In general terms it means that burden of the tax ultimately falls on those who have to pay it.

For companies (who have to deal with Corporation Tax and Employer’s NI) tax incidence tells us that these taxes will fall on three groups: their employees in the form of lower wages; their shareholders via lower returns (dividends) and consumers by higher prices. The exact breakdown varies by company, economy etc but each group will bear a percentage of the burden.

In avoiding as much tax as possible companies are reducing the amount in indirect taxes that those groups pay and, given that the biggest investors in listed companies tend to be pension funds, helping fund the retirements of many millions.

If we boycotted these companies and thus reduced their revenues they would be likely to reduce their headcount which means fewer people in employment, less money collected in payroll taxes and a reduction in investor returns.

Which is why I think Lin Homer is a fool.

Obviously, if you think I’m wrong, you are welcome to tell me so in the comments. :)

A quick thought on Corporation Tax ‘avoidance’

There is a (largely constructed by people ignorant of the very basics of tax laws) furore building up around the fact that various (usually American) multinational companies have been ‘dodging’ UK Corporation Tax (CT). Firms such as eBay, Google, Amazon, Facebook and Starbucks have, amongst others, all been ‘outed’ as part of this wave of silliness.

Leaving aside the convenient fiction that companies pay tax, the reason why the UK government has seen (thankfully – they’d only waste it) little money in CT is because these companies do not have their EU headquarters in this country. Under the Single Market (one of the few things about the EU which is actually sensible) only one HQ is necessary to do business in the EU and so any CT on profits made in the EU is paid to the national government in country where it resides.

Why do firms have their EU HQ in other countries? Simple: because CT rates are lower.

How could we get those companies to place their HQ in the UK? Simple: cut CT. Whilst ideally I’d say scrap it, anything in the 10% – 15% range would make the UK more competitive.

The problem (of course) is that those currently foaming at the mouth about so-called CT ‘avoidance’ are those who hate the idea of lower CT rates.

As Spock would say, ‘Illogical, Captain’.