The Telegraph has an article out that is deeply misleading this morning. Written by Ian McVeigh of Jupiter Asset Management it begins:
It has become fashionable of late to accuse companies of not paying their fair share of tax.
Richard Murphy, the political economist credited with creating Corbynomics, is very much at the forefront of this movement. In his book The Joy of Tax* he calls for a fairer contribution from the corporate sector.
We are told that the likes of Facebook, Google and Starbucks are denying the state its rightful dues. Whatever may or may not be true for them, it certainly does not apply to Wetherspoon's.
I think it's important to consider the detail of the claim. This is that:
In the 2015 financial year, the accounts record £632m of tax paid on sales of £1.5bn. This enormous figure represents 42pc of sales. Profits after tax make up a mere 3.8pc of sales.
Each pub pays on average tax of £673,000.
The breakdown shows that the £632m was made up of £294m in VAT, £161m in alcohol duty, £85m in pay-as-you-earn (PAYE) and national insurance contributions (NIC) , £49m in business rates and £15m in corporation tax. Other items include machine duty, climate levy, carbon tax and fuel: in other words, the full range of the modern tax take.
Now let's be clear about this. Wetherspoon's did not pay the VAT and alcohol duty: their customers did. So that's £455 million of the claim that is not true.
Nor did Wetherspoon's pay any of the PAYE: their staff did. And before you say some was employer's national insurance in economic terms that works by simply reducing the gross pay staff are paid: the tax payment is always picked up by the employee in that case, simply be getting a lower apparent pay rate as a result. So that's another £85 million the business did not pay. Or a total of £540 million now with £92 million left. Some of that is also paid by customers, such as machine duty (which, I suspect is quite significant). So even that number is overstated.
And as for the rest? Well, why should Wetherspoon's not pay for the roads that are used to supply its products, and get its customers to its door? And why should it have free landfill? And what is wrong with it paying the full cost, including climate degradation, of the fuel it uses? The rest of us do, Why should Wetherspoon's want an opt out?
I could go on. But the fact is that the only tax we can be sure is really paid by Wetherspoon's without a service being supplied in exchange is corporation tax. And when we get to this level the article goes in for another pile of misrepresentation when saying:
Shareholders own a company's profit stream and it is taxed not once, not twice, but three times.
First comes corporation tax, usually at just over 20pc. Savers should note that this applies to shares held in “tax free” Isas. Second comes income tax on dividends paid according to the marginal tax rate and soon to be 32.5pc for higher rate taxpayers after the changes in the 2015 Budget.
Third comes capital gains tax (CGT). The amount available after corporation tax and distributed dividends is called the company's retained earnings. Over a period of time, this money that stays in the business equates to the growth in the value of the business.
When the investor is ready to sell his shares in the business, he is then usually taxed again at 28pc for the higher rate payer, 18pc for the basic rate tax payer.
These three different tranches of tax add up to a composite rate on company profits of 30pc for the basic rate tax payer, 44pc for higher rate tax payers and 46pc for top rate payers.
First, many companies do not pay full rate corporation tax, but I accept some do. And we collect it from companies for all the reasons I note here. It would be, in many cases, administratively and technically nigh on impossible not to tax companies if we wanted a fair tax system.
And let's also be clear, basic rate taxpayers and ISA holders pay no more income tax on top of that: that's a pretty good deal. Higher rate taxpayers do. That's for one good reason: they are higher rate taxpayers. So they pay an additional sum calculated in a pretty bizarre way that approximates to the tax due if this was interest. There is no discrimination here. And it is not a second tax: it is a tax top up.
And capital gains tax? That charges something else altogether: this is the increase in value of the shares. This may, of course, be the consequence of undistributed profits that contribute to the corporate savings glut: it could be because the right to future earnings are being sold. In either case the person making the gain has not been already charged to tax on this sum. So it is not the case that this is a third tax, it is an entirely new and different tax on a transaction that would otherwise be wholly untaxed.
So what to conclude? Ian McVeigh says:
The Joy of Tax is a sometimes overt, but mostly covert, call for higher taxes.
Not at all! It is just what Mr McVeigh suggests it says it is, which is a call for fair taxes.
And asking companies need to pay the right amount of tax in the right place, at the right rate and at the right time, and expecting their shareholders to do the same is just a part of that. I think Mr McVeigh doth protest too much and mostly about the wrong things, using the wrong data. That's not confidence inducing in him, his company or the Telegraph. I treat Wetherspoon's as an innocent party.
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Richard, you are of course absolutely right that when I buy a pint at Wetherspoons, a slice of the price pays for the VAT and alcohol duty. Another slice pays for the heat and light in the pub, and hence I pay the climate change levy too. But how can I be sure that the shareholders are the ones that pay the corporation tax? I fear that they will just regard that as “a cost of doing business”, and pass that in to me as well.
So you think Westherspoons is a monopoly which is the condition for that happening?
I admit that in this case I know it is not: there is competition in this market. I do not think they are passing that cost on
If they are, have you noticed their price cuts marked ‘because of a reduction in corporation tax rates?’ No, neither have I
Hey Richard any views on PM Turnbull’s wealth and allegations of tax evasion:
http://www.theguardian.com/australia-news/2015/oct/15/malcolm-turnbull-flays-labor-shabby-smear-campaign-personal-wealth
Doesn’t the report speak for itself?
I like the bullshit phraseology they come out with to disguise rentier activities:
“The prime minister said he and his wife, Lucy, had been very fortunate in their lives and had “more wealth than most Australians”
Fortunate: This is an appeal a mythical god-rather than an objective description of consciously used financialisation methods, very typical.
““This country is built upon hard work, people having a go and enterprise,”
Yet in a surprising statement he admits:
““I don’t believe that my wealth, or frankly most people’s wealth, is entirely a function of hard work. Of course hard work is important but, you know, there are taxi drivers that work harder than I ever have and they don’t have much money. There are cleaners that work harder than I ever have, or you ever have, and they don’t have much money.”
Of course there’s no real analysis of why that is the case or why Australia’s real estate market is blessed by the god Fortuna in some cases.
Then he ends with more bollocks containing an appeal to mystical forces called ‘luck’:
“Some of us will be more successful than others, some of us are fortunate in the turn of business, some of us are fortunate in the intellect we inherit from our parents.
“There is lot of luck in life and that’s why all of us should say, when we see somebody less fortunate then ourselves, ‘There but for the grace of God goes me’. ”
Turnbull’s intellect is clearly absent here in has appeal to mythical gods and vague notions of inheritance of intellectual capacity which has clearly bypassed him with regard to analysing wealth inequality in Australia.
Sound’s like Labour in Australia is as good at missing open goals as our lot!
Au contraire,
You may be confusing cause and effect
Turnbull’s speech about “Lucy and I” was in response to a sustained series of parliamentary questions about his dodgy tax dodge in the Cayman Islands.
Since then, the Cayman Islands tag has stuck and caught on among the public.
There’s more to the story but that was the interesting part.
No offence intended, but another inaccuracy in the piece is that you are described as an ‘economist’ when you are a chartered accountant.
Respectfully, I am Professor of Practice in International Political Economy at City University, London
they really hate it when you expose their lies, as if your actual status determines whether their lies are or are not lies
Oh come on ‘Santiago’ – get over yourself.
Honestly.
Richard, I feel you have been both unfair to Tim McVeigh and at the same time overly fair to him. You unfairly do not mention that he wrote the following paragraph as part of his piece just after claiming that each Wetherspoons pub pays on average 630,000 pounds a year tax;
”Of course, the customer is the one who really pays the VAT and the duty on alcohol; the employee who makes the PAYE and NIC contributions and the shareholder who pays the corporation tax and the business rates, acting as they do as a levy on profits.”
You are equally overly fair to him by omitting this as he essentially refutes his own article and points out the stupidity of it himself.
beyond the smoke and mirrors of who pays which tax it seems to me there are a couple of important points
First all taxes paid to the exchequer by the business its shareholders, its employees and its customers find their way into the price paid by the customer as there is no other source of income.
Second the systems of collecting these taxes are hugely complex and inefficient so the cost of collection is high and not all taxes due are collected.
It follows that to raise more in tax you would ideally address the problems of complexity and efficiency first and then if necessary increase the rate.
It’s for these reasons that I would abolish corporation tax and compensate with increased taxation of dividends on payment, with if necessary, reductions in the plethora of business tax reliefs so that the overall effect was neutral.
Sorry Neil, but tgat’s nonsense
In a market economy your argument on incidence is wrong
And since we have no clue where most shareholders are or who they are taxing them is an absurd idea and ripe for massive abuse
Well I suppose you could bring back ACT as a way of ‘taxing’ the dividends 🙂
I often regret that we lost it
Would be helpful to understand which bits of my post you think are nonsense
That the companiy’s only source of income (and thus the tax it and others pay) are its customers
That the systems which quantify and collect, for example corporation tax, are complex and inefficient distorting behaviour and wasting resources
That substutting complex, inefficient taxes for example corporation tax with all its attendant reliefs with simpler easier to enforce taxes such as a flat withholding tax on dividends would lift the tax take and reduce the diversion of resources to tax planning. Lowering costs for all.
I made it clear what is nonsense
“I would abolish corporation tax and compensate with increased taxation of dividends on payment”
So what do you do with the (many) corporations that don’t pay dividends?
Or where the owners are other companies and then trusts with unknown beneficiaries
McVeigh contradicts himself.
He calculates a composite rate of 46pc for top rate payers. But that’s the same as the top rate of income tax. He implies that composite rate is unusually high, when it’s actually the same as the normal income tax, 45pc.
What’s his problem?
He should be challenged to explain why he thinks rich people should have to pay less money on share income than on “labour” income.
If we accept that “employer’s national insurance in economic terms that works by simply reducing the gross pay staff are paid”, we must also accept the converse that any increase in the rate of employer’s National Insurance is a compulsory increase in the gross pay of staff (at least in the short term).
That’s a mighty perverse logic
But if you wish to claim it, I agree