When is a cost a cost in accounting?

Taxation, a share of profits rightly attributable to the governments where the profits are earned, given their invaluable role in providing business infrastructure, has become subverted completely. In Finance it is seen as a cost to operations, and one which should be minimised in order to maximise profits.

As far as I can tell tax is a cost to companies. Anyone care to differ?

And how can an accountant say different?

44 comments on “When is a cost a cost in accounting?

  1. Taxation, a share of profits rightly attributable to the governments where the profits are earned, given their invaluable role in providing business infrastructure, has become subverted completely.

    Rightly? How does that follow? Attributable? What if you are Honda and the government forbids you to make cars? How is any small part of Honda’s success due to the government?

  2. Speaking as someone who once was a reasonable authority on a particular specialist branch of tax, yes – it’s solely regarded as a cost to be factored into decision making. Anything the government provides such as security, policing, property rights, infrastructure etc. is regarded as a micro-economic externality as the taxes aren’t hypothecated

  3. What if you don’t make a profit, a company still pays lots of different taxes eg employers national insurance. Doesn’t really work does it

  4. Even if he were correct that the government has an “invaluable role in providing business infrastructure”, that still doesn’t make tax a profit share, because all other payments for business infrastructure are regarded as costs.

    Unless he’s saying that rent paid on business premises, for example, should be regarded as a dividend in the accounts?

  5. Taking your incidence argument, it would be a mixture – employee and shareholder. But in accounting terms it is a debit to the p&l, which is always a cost.

  6. A tramp living on a pavement under a bridge should be paying tax because of the government’s invaluable role in providing infrastructure.

  7. IIRC a UK-domiciled individual/company pays tax at the difference between UK and country X tax rates on profits earned in country X and remitted to the UK.
    So what business infrastructure does the UK provide in, say, Belize?

  8. This is the Elizabeth Warren/Barrack Obama meme: “You didn’t build that.”

    Tax: “a charge usually of money imposed by authority on persons or property”

    Government, the “authority,” doesn’t need a reason, except that in democratic governments the people have to accept it. Warren/Obama/Murphy try to give a special life to taxes and governments’ role.

    Indeed, it is people paying taxes that provides the infrastructure. Unless you are in Murphylago where they print money to build infrastructure.

  9. And how can an accountant say different?

    You wogs gave him his charter. That’s your fault. I wouldn’t let him inventory my office supplies.

    Anyway, he isn’t speaking as an accountant, he’s speaking as a philosopher-king. Which is what he fancies himself to be.

  10. The Smurf has been playing this particular trumpet for so long the off-key threnody has rotted his brain. In Smurfland the taxman is a valuable enabler of business, and if it weren’t illegal, the CEO would invite his local tax inspector for drinkies every Christmas.

  11. Ritchie was once wandering across the Scottish Highlands when he chanced to meet the Fool Killer. At first the Fool Killer was overjoyed, seeing Ritchie as another trophy on the mantel. But the more Ritchie talked, the more Fool Killer realized that he was going to need a much bigger club. Finally, the Fool Killer shook his head, turned away and let Ritchie – still talking – continue on his stroll. The Fool Killer had realized the essential truth of the matter: He’d never find a big enough club to damage that foot-thick skull. And that is why Richard Murphy is still alive today.

    True story.

  12. This might be a good time to insist that RM publish his last, say, five tax returns. I would expect to see that he has arranged his finances to maximise his tax liability. In days of yore it was considered a privilege and an honour to tithe to one’s liege lord. Surely such a dedicated servant of the State would not pass up such an opportunity to earn kudos.

  13. If the government is entitled to a share of the profits then they should also be entitled to a share of the loses.

    And can we please get it right, the government provides fuck all. The infrastructure was provided by past tax payers and ongoing stuff by current tax payers.

  14. If the government is entitled to a share of the profits then they should also be entitled to a share of the loses.

    In ‘Merica they are. It’s called a loss carryback/carryforward.

    I don’t know if wog tax codes have anything like it, though. Maybe Ritchie can help us out on that one… Ritchie knows everything.

  15. @ Dennis
    In the UK one can carry forward losses to offset against future tax liability on profits but you don’t actually get any cash back if you make losses.

  16. Even if you value the government’s services and choose to think of it in that manner, it is still only one of any number of service providers whom a company pays and records as costs.

  17. It may be him speaking as a philosopher-king but as he holds a professional designation and reminds people of that regularly then surely he has a professional duty regarding statements that relate to accounting even in a tangential manner.
    Though he’d most probably love to be told off by a professional body so he can play the misunderstood persecuted martyr ahead of his time card

  18. Paying tax is akin to paying a un-itemised utility bill. Or, for the more cynical, paying protection money.
    Either way, it’s definitely a cost.

  19. @ NDreader
    An un-itemised utility bill is a fixed overhead whereas profits tax (which is what Murphy is pretending to discuss) is a variable overhead. Business rates are a fixed overhead and do relate (in theory) to the provision of business services (rubbish collection) so would meet Murphy’s criterion until you get to the point where he says that companies think that they should be minimised.
    Taxes are *much* more like protection money. Let’s face it – they should be because they are/have been for most of the time since William II died to protect us from invasion by the French.

  20. in a serious company, all costs are incurred because they add value. You pay people because they help you generate revenues, you buy materials because they help you create products, etc…

  21. SE – in the case of VAT, most businesses are just collecting it on behalf of HMRC. It is not a charge against profit but rather a debtor/creditor. Only if you cannot pass on VAT to your customers, such as banks or other suppliers of VAT exempt services, does it become a cost.

  22. HANG ON…

    I’ve got it! Like many people with autism, Spud doesn’t have a theory of mind. He literally can’t see tax from any viewpoint except that of the state.

    Suddenly it all makes sense.

  23. @ Jonathan Abbott
    Wash your mouth out with soap! I have never met anyone with Autism or on the spectrum who behaves like Murphy.

  24. BiND, spot on, I think this could be brilliant actually. Government targets, say, 2% growth. If actual growth is less, tax bills are slashed proportionally. No tax if no growth, go home if you can’t do the job. If we can stop them fiddling the growth figures, it’ll do wonders to focus minds.

  25. “I’m Richard Murphy and I’m here to help you”

    Perhaps the most terrifying sentence imaginable.

    With the possible exception of “Honey, a woman named Amanda Marcotte is at the door, and she’d like to speak to you.”

  26. John77

    You are right, let me re-phrase that

    Any expense that a serious company VOLUNTARILY incurs us incurred because it adds value. If (a big if) paying tax adds value, it is therefore normal that it is a cost

    Or put differently, no one has said that all costs by definition are a waste or destroy value

  27. john77 said:
    “Business rates are a fixed overhead and do relate (in theory) to the provision of business services (rubbish collection)”

    Not any more; businesses have to pay for their own rubbish collection; have for years.

  28. Imagine if Snippa ever became a film producer or casting director. It could be an episode of the Twilight Zone

  29. @ Emil
    Yeah!
    But there are tens, probably hundreds, of thousands of companies subjected to irrational taxes like FSCS. we should not ignore them.

  30. But there is a legal precedent that it is entirely reasonable and rational to arrange your affairs so as to minimise tax legally due so what’s he complaining about, surely to do otherwise would be a breach of fiduciary duty

  31. Dennis the Peasant – “Perhaps the most terrifying sentence imaginable. With the possible exception of “Honey, a woman named Amanda Marcotte is at the door, and she’d like to speak to you.””

    I don’t know. Imagine being woken up after a drunken hook up by the girl’s mother and she says “Hi, I’m Amanda’s mother”

  32. “given their invaluable role in providing business infrastructure”

    Well then, that’s all right.

    I mean, an organization that has chased out all competing providers and, literally, shoots anyone who comes in to provide ‘business infrastructure’ is perfectly justified to charge whatever the hell they want for the services they see fit to provide and shoot anyone who doesn’t pay up.

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