I Don\’t Understand

This looks like yet more of Richard Murphy\’s work. And I simply don\’t understand what is being said I\’m afraid.

The Guardian\’s analysis of Tesco\’s accounts over the past five years also shows that the company has paid an effective tax rate of just over 20% on the rest of its profits, at a time when the UK corporation tax rate is 30%.

It might be because I\’m dim, might be because I\’m missing something.

But I\’m reasonably certain that there are various allowances, credits and so on, that you can use in corporate accounting. The tax treatment of depreciation is rather different from the profit calculations. I\’m sure you out there more knowledgable on the subject can provid more examples.

But their argument seems to be that if the tax rate is 30% then 30% of profits should be paid: which would only be true if there were no such allowances or credits. And given that the tax code is stuffed full of such things, that the rate paid is not the same as the headline rate really shouldn\’t come as any surprise.

So what is it that Murphy is really saying?



8 thoughts on “I Don\’t Understand”

  1. Quite so. Depending on the business, capital allowances on plant, machinery and vehicles purchased can make quite a difference.

    Tesco has a lot of each, and I am impressed that their effective tax rate is as high as 20%.

  2. oh good gravy, there are Lord knows how many measure of cash-flow ‘profit’ and P&L profit, and also cash flow tax payments as opposed to P&L tax charges, questions of timing, if you are just saying that the percentage tax paid on one measure is less than that paid on the other, you have said nothing at all.

    and anyway, news just in – large company attempts to minimize tax bill!

    also, it’s a bit silly to portray the gross receipts from a sale-and-leaseback as a ‘one-off gain’ – isn’t the gain (something like) the sale proceeds minus the discounted present value of future rent payments?

    (I may be embarrassing myself here, corporate finance is not really my area)

  3. First thing you learn in Accountancy – actual cashflow tax paid NEVER equates to booked P&L tax – it the net tax payment of all corporation, employer, etc taxes, with the appropriate deductions for capital allowances and depreciation, brought forward CGT losses etc.

    I would have though at least one subeditor at the Guardian might have thought to check their own accounts.

    GMG 2007: Taxation per P&L £32.3m (36% of PBT)
    GMG 2007: Tax paid: £15.4m (17% of PBT)

    OMG, the Guardian Media Group has an effective tax rate of only 17% – WTF!?


  4. The main point of their article is that Tesco is avoiding tax by offshoring their property portfolio. Quirkily enough, this is just the sort of arrangement entered into by HM Revenue and Customs themselves a few years back, when they flogged their properties to an offshore company (Mapeley) and leased them back.

  5. The main point of their article is that Tesco is avoiding tax by offshoring their property portfolio.

    The thing is though, unless they actually move the domicile of the parent company to Bermuda or somewhere, the amount of tax they can avoid in the long run by doing this is pretty minimal – the ultimate goal of all these transactions is to generate profit for the parent company, which will be taxed at the standard UK rate.

    Privately held and foreign-domiciled companies have a lot more scope to do fun things with tax than UK plcs, since they’re not obliged to funnel the ultimate profits into the UK parent company.

  6. This sort of thing is my day job. What John said, with the observation that if, after six months, the two journalists appear to still believe that a limited partnership is a company, then that should really set alarm bells ringing about their level of understanding.

    Given that the other half of the JV is British Land, there’s shouldn’t even be any net tax loss…

  7. John/Richard

    Completely agree. On further reading the whole piece is essentially a bait-and-switch con.

    Suggest impropriety with some GCSE-level accountancy backed up with inappropriate statistics regarding CT, before making a completely unconnected allegation about a property transfer.

    I pulled exactly the same deal on my flat in London a couple of years ago. My brother is resident in the Caymans, so moved ownership to LLP there with me as beneficial owner. Payed CGT on gains to date, but shielded from future gains and some IHT cover.

    Oddly enough, I still have to pay income tax on my salary in this country; council tax and the rest. It doesn’t even make me an offshore company, which I feel would be a great surprise to these two.

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