Editor's view: Tax and reputation

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Until recently, tax has rarely been tabloid fodder. Apart from the occasional scandal, tax is just not particularly sexy or newsworthy. Or at least it wasn’t. If you’ve turned on the TV or looked at a newspaper recently, you will have noticed that while it still may lack something in the sex department, austerity has placed tax at the top of the business, political and news agendas

Governments everywhere are keen to chase every potential pound of revenue and most are equally keen to reinforce the idea that this means everyone bearing an equal share of the burden. The chorus in the UK (and elsewhere) remains that we are “all in it together”. This in turn has led to a sharper focus on fairness and more scrutiny of the contribution made by wealthy individuals and big business.

Even though the vast majority of tax revenue comes from these sources (large firms contribute the bulk of corporation tax and the wealthiest few contribute more income tax than anyone else), there is still a feeling that those wealthy enough to be able to invest in legal means of minimising tax are not contributing as much as they should.

In such an atmosphere, it has been easy to find support for campaigns to “expose” those playing by the rules but not perhaps the spirit of all being in it together. The problem is that such schemes jar with prevailing public notions of the impacts of austerity, fairness and morality. Popular campaign groups, the press and even several senior politicians (most surprisingly including the business secretary) have weighed in to the debate with a wave of naming and shaming businesses in the same way that wealthy individuals were picked out for attention by the Times earlier in the year.

This approach led to the Public Accounts Committee summoning companies such as Starbucks, Amazon and Google to face tough questions about alleged tax avoidance with the result that all potentially face reputational damage. The potential for financial harm through subsequent lost sales has apparently been enough to push Starbucks to make the extremely unusual announcement of a voluntary £10m contribution this year with another £10m next year. This will be seen by some commentators as a capitulation to blackmail and by others as a poor attempt to buy back public favour. Conor Delaney, tax lawyer at Milestone International Tax Partners says the coffee giant has been “publicly embarrassed and blackmailed” into the payments.

So it is into this lively arena that PwC has launched a new report into the total tax contribution made by businesses at the smaller end of the spectrum. Produced on behalf of Prelude Group, an entrepreneurial support and training business that has been described as a “do tank rather than a think tank”, it uses PwC’s Total Tax Contribution methodology to work out the long-term contribution of seven fast-growth businesses.

The unsung heroes of business: entrepreneurs and their total tax contribution, highlights just how much these businesses contribute to the UK economy, through a combination of direct and indirect tax payments. Importantly it also dismisses the increasingly popular notion that all businesses and all entrepreneurs are obsessed with avoiding tax. As Alex Cheatle, co-founder of lifestyle management business Ten Group, and one of the entrepreneurs who opened his books for the report, says, “Like most entrepreneurs I am obsessed with creating high quality products and services and building a team; I am not obsessed with reducing the rate of corporation tax”.

He claims that £34 of every £120 he gets from a customer goes in tax. According to calculations in the report, over the last five years his business has made a tax contribution of equivalent to 789 entry-level nurses, while Instant Offices (another business featured) has contributed the equivalent of 920, and (appropriately enough) Health Management has contributed the equivalent of 1,170. All together the seven businesses analysed in this report have generated a total tax contribution of £104.2m over the last five years.

This report represents a laudable attempt to place a more positive spin on the contribution made by business. And it is essential that the message gets out that just as the vast majority of individual taxpayers at all income levels are paying their way, so most businesses make a huge contribution to the wealth of the economy.

But there is a darker, unspoken story here. None of the entrepreneurs mention it, but surely they must baulk at the fact that they are not operating on a level playing field when it comes to tax. Those with the international operations and the resources to do so can apparently avail themselves of systematic, informal tax breaks, those that don’t have the wherewithal can’t. While many business owners appreciate the government’s efforts to reduce the UK’s corporation tax rate to one of the lowest in Europe, many more would appreciate greater resource being given to HMRC and greater emphasis on closing loopholes.

The Starbucks case shows the importance of business reputation, but what it really highlights is the need for greater tax transparency.

 


Richard CreeRichard Cree is editor of economia


 

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  • Comment by Tax Adviser

    I watched the PAC session with three alleged sellers of tax avoidance schemes with horror. The interviewees could be described as: One admitted distributor of tax avoidance schemes (whose cupboard was bare at present) One reformed originator of tax avoidance schemes, now operating an investment business One operator of Film Partnerships Ingenious The conduct of Margaret Hodge was a disgrace. In particular her treatment of the respectable representative of Ingenious. She acted as judge jury and self publicist. She was not interested in listening but in sneering, snide,self promoting comments. She brought shame upon her committee. The members of that committee should ask themselves whether their chairman is serving them, parliament and the country or simply serving herself.

  • Comment by vectafrank

    Perhaps it is now time for Ministers and UK Trade & Investment to stop courting the companies that aggressively avoid UK taxes.

  • Comment by Anonymous

    It is a mockery. If Starbucks was doing something illegal then they would have subject to the due process of law. By "blackmailing" them will it not result in UK companies being similarly blackmailed in the USA - i.e. tit for tat? How was the figure determined? Irrespective of the amount it is not likely to cost Starbucks anything as I would imagine ( although I am not a tax expert) that whatever they pay in the UK will undoubtedly be a deductible expense in the USA under the double tax treaty?

  • Comment by Kerry Stephens

    Starbucks is not paying any tax it is making a gift to the UK, for which as taxpayers we are supposed to grateful I suppose, and doing so as a PR exercise (a small dent I supect in its total advertising/PR budget). This is nonesense, "taxation" by public outcry. Either we have laws by which tax is raised or the populace decides, without knowing the facts, what each of us should pay. Not sure I like the idea of "mob rule" for taxation. The press do not help by referencing tax to revenues, but I suppose the individual in the street is taxed on gross income and the concept of profit is hard to explain. HMRC have a rotten job in this with their hands tied by international practice as well as existing domestic law, but perhaps the real villians in the piece are those territories that allow "designer" tax deals to wash through generally income attributable to intangibles with low effective rates (in my experience the Dutch are serial offenders here - feeds a professional services business)

  • Comment by Jeremy Manson

    There is an argument that business should not be taxed at all! No corporation tax and no employers' national insurance. This would create a 'level playing field', encourage inward investment, keep businesses focused on business rather than distorting their behaviour to minimize tax. However there would need to be a withholding tax on all payments to shareholders, owners and related parties. Only those who could prove an arms-length purely commercial reason for the payment would be entitled to receive a refund.