There is, however, one very perverse dimension to the report. Deloitte say:
We have reviewed attempts to quantify the UK “tax gap” relating to CT. There have been a number of studies in this area, but few deal with the loss of tax to the UK specifically, and none of those we have identified directly addresses the contribution of the CDs and OTs to the UK corporate “tax gap”. For our assessment, we have built on the approach adopted in the TUC’s 2008 pamphlet “The Missing Billions: the UK tax gap”
Let me be honest, my brief review suggests that they have got this analysis wrong – and I will explore this further, soon. But let me reflect just for a moment on the use by Deloitte of my methodology. When The Missing Billions was published Bill Dodwell, head of tax at Deloitte described it as ‘just rubbish’. Now Deloitte have used it as the basis for their own methodology.
Still rubbish Bill? Or time for a fulsome apology?
Oh, so what actually does the Deloitte report say?
The “Missing Billions” pamphlet produced by the TUC (2008) compares the average reported
percentage current tax charge in the FTSE top 50 companies’ financial statements to the UK
statutory rate, and finds that the account charge is about 5% lower on average across the
years under review. It asserts that this is due to tax avoidance by UK corporates, and
extrapolates the extent of this perceived avoidance across the large corporate sector.
The study puts the total tax “expectation gap” (and the UK tax avoided by companies) at
The report adjusts book profits for goodwill in an attempt to estimate taxable profits. No other
tax adjustments are considered, such the introduction of tax incentives like Research and
Development (“R&D”) relief or the Substantial Shareholdings Exemption (which exempts from
the charge to tax capital gains made on most subsidiary companies) whereby amounts
recognised in the accounts as expenditure or gains may differ from the amounts for which tax
relief is available or on which taxable gains are taxed (either absolutely, or at a particular point
And what did Timmy say?
Thus his estimate of £12 billion for tax avoidance fails, for he has, by his own admission, lumped in the entirely, even from his point of view, legal, legitimate and morally acceptable practice of tax planning with tax avoidance.
That is my argument with his numbers. That he’s used a logically flawed method to get to his final number.
That\’s the basic flaw in The Missing Billions report. It failes to note that governments specifically and deliberately put tax breaks into law. Thus you cannot simply look at headline rates and paid rates in order to estimate the tax gap. You have to, also, adjust for those tax breaks. Which the Missing billions report does not do.
QED. It\’s flawed.