It is I think quite fair to say that a great many people who callled me yesterday afternoon were stunned by the news that Barclays paid just £113 million in tax in the UK in 2009.
Barclays made £11.6 billion in 2009 - £4.6 billion on ordinary activities and the rest from selling Barclays Global Investors.
It's total tax bill on this (and I'm ignoring deferred tax because there is no evidence it will be paid) was about £1.3 billion - of which just £200 million or so related to Barclays Global Investors' sale due to the absurdly generous rules on capital gains by corporates introduced by Gordon Brown, and the rest realted to the ordinary activities. I'm going to leave aside Brown's absurd generosity - but note that this error needs to be corrected - and concentrate on the current tax situation.
First note that Barclays does not pay tax at the expected rate of 28%. It pays tax at 23% - by its own admission. All its tax planning activity delivers some benefit.
But second, note from its accounts that its biggest retail operation is in the UK. Admittedly its biggest commercial loan book is in the US, but also note that 78% of its profits (or thereabouts) come from Barclays Capital which, if publicly available information is to be believed is largely located in London and New York. And yet, just 10% of Barclays worldwide corporate tax is paid in the UK.
So here we have a UK bank, seemingly able to offset all its head office costs, all its losses on Barclays Corporate, and maybe (i'm guessing here) some of its losses in Europe (after all, relocating losses isn't hard for a bank) into the UK to offset what profits it does make here, and even so seeming to pay a disproportionately low amount of tax in this country. A staggeringly low anount of tax in fact.
The corporate tax affairs of an organisation with the global footprint of Barclays are complex and not reducible to simplistic comparisons. Any link between Barclays Group profits and the amount of tax paid to the UK government is inappropriate - there is no direct correlation between the two.
Well, let me be candid. I don't believe them. Oh yes there is a link - a very real and very obvious link, and they've chosen, in my opinion, to engineer that link to ensure that they pay the least possible in the UK, exploiting on the way I suspect our lax attitude to offshore, our lax rules on the offset of interest costs, our lax rules on losses and the lax rules we have on head office operations.
Two things are needed. The first is not territorial taxation as the Tories propose - that will make Barclays tax even lower than it is now - but a rigorous review to make sure that the profit really arising in the Uk is actually taxed here, which by Barlcays' own admission is far from the case now.
Second, we need the information to hold banks to account for what they do. This is, of course. country-by-country reporting. We must have banks report on were they operate, without exception, what profit they declare in each such location and how much tax they pay there as a result. It's really very basic information. And yet we do not have it.
If Barclays want to say paying tax is a measure of their social contribution, that's fine. But unless they tell us where they pay tax it's meaningless. And the abuse of the UK will go on.
Open the books Barclays. That's the message. And Lloyds, RBS, HSBC and every other major corporate too.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Appalling yet not surprising. My immediate response? Closing my account Monday.
Interesting points Richard – we came to a slightly different conclusion (http://bit.ly/f3FFQJ).
While Barclays and the other banks have such significant brought forward losses, isn’t it time to introduce partial restriction on brought forward loss utilisation? In Germany companies can only use brought forward losses to offset 60% of their profits in a given year. This would ensure some tax is paid by profitable companies while allowing relief over time for genuine commercial losses.
This would be relatively simple to implement whereas we fear even if we further restricted the territorial taxation proposals, banks would just plan to use their losses to offset any CFC tax.
It’s good to see that this is getting some serious coverage in the mainstream press. Well done BBC, New Statesman, etc.
this seems to me to be a failure on the part of the IASB to force transparency on these companies.
transparency is a key theme for Francis Maude in the reform of the public sector – this is a good thing for everyone. Surely this applies to private as well.
is there any public website which sets out the effective tax rates for public companies? It would be interesting to differentiate between major corporations and see their true colours on corporate social responsibility.
@Progressive Tax Blog
I have also argued this on restricting losses – search ‘Tax Research’ and Taxing Banks
I think the TUC also adopted the idea as a result
It’s glaringly obviously needed
Richard
You make a number of misleading statements in this post.
(1) You say “I’m ignoring deferred tax because there is no evidence it will be paid”.
As you probably know, “deferred tax” is an accounting term used to describe timing differences between the financial accounts and the cash tax paid. It is purely accounting speak – it does not represent “real” cash tax. If instead of being called “deferred tax”, it was called “timing difference tax”, perhaps this would be more obvious and you would not be able to mislead your readers about this.
So it is entirely wrong to imply that “deferred tax” is an actual amount of tax owing – it’s not!
(2) “First note that Barclays does not pay tax at the expected rate of 28%. It pays tax at 23%”
Few companies pay the headline rate of corporation tax because of the system of reliefs in the corporation tax regime – the most obvious being capital allowances but there are obviously others, including brought forward loss relief.
These reliefs create a difference between the headline rate and the actual rate paid by any business when calculated as a percentage of the profits number. As you know, this isn’t even tax “planning” – it’s how corporation tax regimes work around the world.
So the fact Barclays might have an effective rate of 23% against a UK headline rate of 28% doesn’t really tell us much, other than that Barclays probably have some brought forward loss relief and capital allowances, like so many other businesses (particularly in the wake of the recession).
(3) “Two things are needed. The first is not territorial taxation as the Tories propose”
I’m sure you know full well that CFC reform was proposed by the previous Labour government and it is simply being carried on by the Conservative-Lib Dem government.
Remember, we’re all in this together!
A 23% average tax rate on 2009 pre-tax profits of £4.6bn when Barclays had tax loss related deferred tax assets at January 2009 of £1.7bn (equivalent to around £6bn losses carried forward) isn’t really all that staggering.
As to the UK/non-UK split, if the bulk of Barclays 2009 profits came from its Barclays Capital business, headed up by the ex-Lehmans operations in the US, and with pre-takeover Lehmans financial crisis losses presumably not offsettable as a result of the change of ownership, then this doesn’t seem to be all that surprising either.
On the other hand, I guess if the answer was that simple Barclays would have come out with it by now.
@disinterested party
We subsidized those deferred tax losses – we guaranteed their deposits. They should not get double relief
And BarCap London makes nothing, eh? How likely is that? As likely as Lehman failing because it was oh so profitable
Please engage brain before commenting
@Ken
Deferred tax is not real tax. That’s precisely why I ignored it. So your point is?
And of course 300 subsidiaries in Cayman had not impact on the tax rate. None at all. Silly me.
And yes Labour did begin the CFC reform. Did I say they got it right
Another person who needs to engage brain before commenting. Every single pont made is irrelevant and / or wrong in the context of what I wrote
So Barclays paid £113m in tax in 2009 rather than the £2bn they claimed to have paid which turns out to have consisted of payroll tax. I presume that’s the stuff that comes direct from the employees’ wages (PAYE) that most of us never get to see. However I was unaware that banks feel that they pay this on behalf of their employees. I naively thought it was a tax levied on employees’ earnings rather than one on the employer. Silly me. So for the last 30 years I haven’t actually paid any tax at all apart form council tax and VAT as my generous employer has always paid my taxes for me.
What a grand contribution the bankers make to the common good. On that basis by my rough and ready calculations the NHS contributed £11.3bn of taxes into the economy in 2009 — and perhaps even saved a life or two into the bargain.
Please note all comments saying Barclays has done nothing wrong and seeking to justify its actions or saying it has had not subsidy have been deleted
I’m not saying it has done anything wrong
I am saying it has spun wholly misleadingly
I am saying it is not being transparent
It has glaringly obviously been subsidised
It has an obligation to pay tax in return for the benefit it has secured
I am saying there is no evidence it accepts that
And I and many people think that wrong – even an old Barclays manager of my acquaintance has said so today
and I have had enough of those self interested people who deny this
It’s time we swept corproate behaviour into the 21st centtury – nothing less will do
Bit confused why anyone is comparing the profits made in 2009 with the tax paid in 2009 – which I would have thought relate to the profits made in 2008.
@Mark Lee
Bob Diamond did…..
So we followed suit believing that’s what he intends we do
But it may be he does not understand – which would be worrying!
There must be a good chance he does not understand if he thinks that payroll taxes are a company charge. Must be worth all that money in bonuses to have such a grasp of elementary cash flow in the bank.
On the point of payroll taxes, my understanding is that large corporations actually benefit from the PAYE system as they have nineteen days every month to hold onto the cash deducted from the employees.
Here is a short post outlining some of the issues behind Barclays pathetic corporate tax payment:
http://t.co/gt2aUCT
“Two things are needed. The first is not territorial taxation…but a rigorous review to make sure that the profit really arising in the Uk is actually taxed here”
Er….that sounds like territorial taxation to me.
@Howard Brocklehurst
Far from it
It includes residence based tax ion profits remitted here too
The UK can’t have it both ways. If you want the UK to tax profits made here, then surely you have to accept that if a UK company is resident in the UK but trades in say Germany, then you’d just be depriving Germany of taxes on profits made there.
Surely its EITHER territorial or residency-based. I can’t see how it can be both. One has to be sacrificed for the other.
@Gerald
So that’s why we have a residence base for individuals recognising tax paid at source, is it?
Of course we recognise source based tax – and encourage it
But we need residence and source to make sure tax does not fall through the net – something territorial is designed to permit
That’s the ugliness of territorial tax
Richard
You over look the fact that a company can be all over the place…for example incorporated in jurisdiction A, branches of it in jurisdiction B, subsidiaries of it in jurisdiction C, and head office/management and control in jurisdiction D.
An individual is in a completely different situation. You can’t have “management and control” of an individuals, nor can an individual be a branch or have a subsidiary or be incorporated. So of course there are different tests for individuals and companies.
I think you are digging a deep hole for yourself when trying to apply both source and management and control for companies. You seem to be only looking at the UK’s position and are overlooking the tax collection interests of the country with which a UK company is trading. I maintain that the UK cannot have it both ways. If it wants a source-based test then fine, but then management and control as a residency test goes out of the window. Or vice-versa. But not both.
@Gerald
Another accountant who can”t handle complexity?
What a shame
Who says I’m an accountant?
But its nothing to do with complexity. It’s not actually that complex. It’s just unworkable and impractical to have the two systems operating alongside each other.
@Gerald
Nonsense – it’s been done, and worked
Has it? Where?
@Gerald
Residence, respecting source, with control of significance?
Seemed to work here
It did work until UK corporates shifted their domicile and management and control control away from the UK, which means that what did work now doesn’t work.
@Gerald
Tiny numbers have left
serious tax payers have all stayed
Deal in facts – not your fantasies
Richard,
I don’t know if you read responses to old blog entries, but I thought you might like this suggestion.
Barclays claim that because their employees pay £2b tax, the company really pays it. It might be worth turning that argument on its head.
Our son is a school teacher and standard rate tax payer, earning about £40k a year. He pays income tax, but as well as that he pays national insurance, his employer pays national insurance, he contributes to the Teacher’s Pension Scheme, his employer contributes to the Pension Scheme. You know about tax and could do the calculations better than I can. My calculation is that if he receives an extra £1 in salary, 49.25p goes straight back to the Treasury, 32.23p as tax, and 17.02p as an interest-free loan. Even putting in tax allowances, the overall rates are 44.03%, 27.01% and 17.02%. (Of course his chances of seeing an extra £1 of salary are not great, or indeed of seeing a fair pension in return for his contributions)
If the argument is accepted that tax paid by employees of banks should be taken into account, then the tax paid by public sector employees should be deducted from the cost of the public sector, making the true cost not much more than half of what is claimed.
@Michael Green
You are so right in many ways – and this is also one reason why the cost of creating government sector employment to solve our current crisis is so low
It’s a point I have made often when it comes to hitting the tax gap – when a person on £25,000 actually saves Most of their pay in beenfits not paid and tax the real cost of employing people is very small indeed
Thanks for the comment