The Guardian has begun its Tax Gap series.
And those who spend their whole lives seeking to be negative are already pointing out that in its 2008 accounts the Guardian Media Group actually reported a tiny tax refund on its profit and loss account on profits exceeding £300 million.
As a result I have looked at the issues, and have prepared a report on the Guardian's own tax gap, here.
My conclusion with regard to its tax gap:
The Guardian Media Group was on average during this period the persistent highest payer of tax in its sector, declaring a rate over the period that was almost exactly that expected of it in the UK, and settling a liability only a little less than that.
It does have a tax gap, but it is not significant, its prior year adjustments to its declared tax are lower than average, and it does therefore appear to indicate a high rate of tax compliance within its accounts when compared to the sector and other companies I have researched, for example in the report 'The Missing Billions' for the TUC which showed average tax rates of the largest UK based corporations in this period were significantly below the rates declared and paid by the Guardian Media Group plc.
As for the 2008 exceptional result:
The tax credit on the exceptional part sale of the Auto Trader group was almost entirely deferred tax, and as such is ignored in the comparative analysis noted above. As stated there: such deferred tax liabilities are rarely paid, and they were not in this case, giving rise to their credit to the profit and loss account. Any criticism needs to be of accounting rules that so significantly distort the proper reporting of real taxation liabilities.
No complicated planning was needed to produce the low tax charge on the sale of this interest: the government has since 2002 provided that Substantial Shareholdings Relief is due when an asset of this sort is sold and no tax is due. The Guardian was, therefore, being tax compliant: the company is doing what the government wants, and for which it provides a relief. It would appropriate to criticise the government for introducing a tax relief of this sort: the Guardian cannot be criticised for using it when the law required that it be applied.
Disclosure: Tax Research LLP has advised the Guardian Newspaper on taxation issues. It has not advised the Guardian Media Group plc.
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Is it that simple? What about the offshore companies in the Guardian’s structure?
“…the low tax charge on the sale of this interest: the government has since 2002 provided that Substantial Shareholdings Relief is due when an asset of this sort is sold and no tax is due. The Guardian was, therefore, being tax compliant: the company is doing what the government wants, and for which it provides a relief. It would appropriate to criticise the government for introducing a tax relief of this sort: the Guardian cannot be criticised for using it when the law required that it be applied.”
Richard,
But as I understand it, it is the use of reliefs, allowances and exemptions laid down by Parliament such as the SSE which partly or perhaps mainly account for what you describe as the “tax gap”, where the tax gap is defined as ((corporate profits x % headline rate) less cash received by HMRC). It cannot be OK for the GMG to use these exemptions but not other companies. This, to me, is the fatal flaw of your “Missing Billions” report, and as far as I am aware you haven’t addressed it.
Peter
Peter
That is untrue
First, note the report as a whole: the Guardian has been declaring the expected rate of tax for most of the period under review. That is exceptional. Most do not.
Second, not I can offer an explanation. That is almost impossible in most cases.
That is because I think other mechanisms are in use.
That is the point I make. This is the tax gap. Mysteriously everyone, accountants, tax inspectors and journalists can see it. You can’t. Why the wilful blindness?
Richard
“That is because I think other mechanisms are in use.”
That may well be the case, like the offshore vehicles in the Cayman Islands GMG used to avoid stamp duty. If that is so, it’s rank hypocrisy from GMG.
Peter
You guys are like a worn record
The Guardian has answered these points
I have addressed these points
I make clear: it was unwise to use a stamp duty structure and it is clear its own journalists agree
Now, shall we stop the pedantry and deal with the issues?
Richard
Peter is correct, the methodology you have employed is so crude it is worthless.
A company disposing of a subsidiary eligible for SSE would show a large ‘tax gap’ under your thinking. Another company doing exactly the same except not making any disposal would not.
It would be unusual for a company to have tax charge equal to the headline rate because of these and other adjustments. The fact that a company has a tax charge equal to headline rate is either coincidence or due to the fact that there were few unusual happenings during that year. e.g. no investments in assets qualifying for enhanced capital allowances, no disposals or acquisitions etc.
The use of the corporate tax alone is also a flawed methodology given the huge range of taxes paid and collected by businesses.
Isambard
Are you saying accounts provide no meaningful information on tax?
If so, shouldn’t we be changing accounts?
That is the only possible inference of your comment
Richard
>Are you saying accounts provide no meaningful information on tax?
No. I’m saying the methodology you have employed is crude and bordering on worthless.
Just because there is a 28% headline tax rate in the UK, doesn’t mean that companies would have an effective tax rate of 28% tax for the reasons in my previous post e.g. disposal qualifying for SSE will distort the effective tax rate.
A difference between ETR and headline rate does not automatically equate to short-changing the exchequer.
Isambard
That is nonsense. Whilst I accept that there may be some issues with regard to particular companies were anomalies arise the overall trend data that comes out of these accounts should be meaningful, or it is absolutely true that data provided by our quality companies on the taxation liabilities that they have to settle is utterly meaningless.
this is why I actually did the tax gap data on 50 companies, not individual cases. The overall trend was telling, relevant, and a clear indication of an increasing gap. That is not meaningless. That is a cause for massive concern. It is also an entirely statistically valid technique. Curiously, I never hear anyone telling those who analyse similar accounting data to argue for the alternative case that they cannot use accounts for their purposes, even though I frequently discover that those people do not understand issues like deferred tax, which I took into account.
and, if you argue that my methodology is wrong, what would you do instead?
Richard
I guess I am making two related assertions:
1. Just because there is a 28% headline tax rate in the UK, doesn’t mean that companies would have an effective tax rate of 28%.
2. A difference between ETR and headline rate does not automatically equate to short-changing the exchequer.
If you believe either of those two assertions are ‘nonsense’ then I would be open to hearing your arguments (if any) against these assertions.
As I understand it, you are saying that companies should be paying 28% tax and anything less than this is a ‘tax gap’ due to tax avoidance. If this is not correct, please let me know what your ‘tax gap’ issue actually is.
To make sure I understand your methodology, could you please let me have your figures for Vodafone (first FTSE 100 I could think of) so that I can check I get to the same numbers as you. You can find their financial info here:
http://www.vodafone.com/static/annual_report/financials/cons_fin_statements/index.html
Leaving aside the debate on methodology (until I get your response to the above) for now. A ‘tax gap’ under your methodology could arise as a result of many different factors which need not have anything to do with tax avoidance.
Just off the top of my head, this could include: additional investment during the recent boom years and greater share of profits being earned overseas due to globalisation.
Please read The Missing Billions and all support data on the TUC site
See also my earlier report ‘Mind the Tax Gap’ in which all was explained and figures given
Richard