Altfish wrote: Nick wrote: thundril wrote:
Perhaps we might agree on THIS
As someone with some professional experience of personal and corporate taxation, let me assure you that the whole thrust of this article is complete twaddle, and reveals a worrying ignorance of the topic under discussion.
It was Private Eye for heavens sake.
But rather than asserting can you please explain the errors for us less well informed.
First of all, yes, it was Private Eye. And as such, should perhaps be treated as satire. Sadly, the appalling comments on Facebook, it is treated as gospel, and furthermore, misunderstood. In my defence, I have not always been ...ahem.. thanked for shedding light on such matters, and when I replied, it was already nearly midnight.
But I've had a sleep, and as I have been requested, I'll comment further.
Private Eye's contention is that tax is not being paid, when somehow, it should be. Let's examine that proposition.
So, Sir Peter received a whole bundle. On which tax is paid. Income tax, mainly at 45%, National Insurance at 12.% on 41,000 or so, plus 2% on the rest, Employers NI at 13.8% on the whole lot.
If it had not been paid, then corporation tax at around 20% would have been paid instead. If profits were distributed by dividend (which they were not, NI would not be due.
No need for tax credits; no tax credits received.
The Corporation Tax charge, per this article, is £179,000 on profits of £722,000. Which is above the Corporation Tax rate. This may well be true, as various expenses are stripped out of a set of accounts to arrive at taxable profits, but are added back by capital allowances and such like. All according to strict rules. Likewise, as there are difference between when a tax charge has to be recognised, and when it has to be paid, these are reflected in "timing differences". Most of the time, such calculations mean that tax is not paid, merely to be claimed back. The objective is that the correct amount of tax should be paid over the medium term. There is no "loss" of revenue because of timing differences.
And the idea that capital allowances are in some way just a tax wheeze is preposterous. It is merely the way the tax authorities allocate the expense of a capital item over its useful life. Corporation tax is a tax on profits, and the cost of capital items directly affects profits overall.
Similarly, tax law specifically allows losses in one tax year to be carried forward to be set against profits in later years. It is the overall profits of the corporation which are being taxed, not the amount of apparent profit in any 12 month period. An example: suppose it takes a year to design, print and distribute a new range of wallpaper. In year one, there would be a stonking loss, as there is no revenue. In year 2, they manage to sell all their sock at market value, and make a profit. Should Corporation tax be based on overall sales revenue, less overall costs? Or should costs be arbitrarily be disallowed, just because of the calendar?
They then go on to quote the amount of turnover the company has achieved over the past 7 years. So what? There are plenty of companies with larger turnovers who have made losses. Corporation tax is not payable on turnover.
But what is payable on turnover is VAT. Which will be charged at 20% of the value added by Osborne and Little. But that is not part of a set of accounts, as it is handled separately, in VAT returns, which have different rules to Corporation Tax. To conflate the two is either an attempt to mislead (which seems to have been successful) or sheer ignorance, which seems as equally likely.
We learn that Osborne & Little have receive a Corporation Tax credit of £12,000. In other words, either they have paid too much tax in previous years, (hardly tax avoidance, is it?) or they have complied with tax rules which allow losses to be carried back in certain limited circumstances. Why? To try to help the company keep afloat and maintain jobs, at a time of difficulty. But it is not giveaway; either it truly reflects the non-profitability of a dying company, or subsequent profits with reflect the carry-back when calculating CT.
So, you see, (or at least I hope you do) that the whole article is nonsense.