Britain’s big companies aren’t paying tax

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The Times has reported this morning that:

Some of Britain's biggest listed companies, including several that have threatened to redomicile abroad, paid little or no corporation tax in Britain in 2007.

Research by The Times shows that FTSE-100 companies - Cadbury, Standard Chartered and British American Tobacco, which have a combined market capitalisation of £75 billion, employed almost 11,000 UK staff and generated more than £6 billion in global profits, - paid zero corporation tax in Britain last year.

As the report goes on to note:

Richard Murphy, an accountant with Tax Research UK, who contributed to the research, believes that the system is in urgent need of reform. He said: "Why does the UK have a tax structure where you can have significant operations in the UK but pay all your tax overseas? We have an extremely generous corporate regime, which needs to be reexamined if this is the case."


Mr Murphy cited Rolls-Royce, the jet-engine maker, which employs 22,900 of its 38,600-strong global workforce in the UK but paid only £13 million in British taxes last year because the majority of its £733 million pretax profit was earned from overseas sales. Rolls-Royce, which says that it has no plans to relocate overseas, pointed out that its UK manufacturing and research operation was costly.

However, Mr Murphy said: "This cost structure is inevitable, but international rules for pricing within a group of companies allow for this and should usually result in tax being paid where the profit is generated. I'd usually expect that to be where most of its people are, especially in an R&D-based company."

This analysis was all undertaken by the Times using data in the companies' own accounts.

The analysis of Rolls Royce simply applies a unitary overview to what then seems an odd result.

But the strangest comment was by BAT, which paid no tax in the UK in 2007:

A spokeswoman for BAT, the twelfth-biggest company in the UK by market value and the owner of the cigarette brands Lucky Strike and Pall Mall, said that its head office operated at a loss and that 99 per cent of its profits were earned overseas.

There is only one commercial response to this. If a head office loses money it cannot add value. In that case the group is not worthwhile mainatining and should be broken up on commercial grounds. Shareholder value must be increased in this case if it were.

I await BAT's response.