Help me out here

The London arm of the great vampire squid paid only £4.1m in corporation tax to the Treasury last year. Despite pocketing £1.9bn in pre-tax profits.

Lord Blankfein’s investment bank received a tax bill of £422.3m for 2011 but has put off paying 99pc of it until next year.

Umm, isn\’t corporation tax always paid in arrears?

You know, you\’ve got to get to the end of the tax year before you can calculate what the bill is?

I can imagine that there\’s some form of pre-payment scheme, HMRC insisting that they get a chunk earlier, based upon perhaps an assumption that this year\’s profits will be similar to last year\’s. You know, like with self-assessment.

But you might think that a bank could have losses to carry forward after the worst financial crisis for nigh on a century?

So, help me out here. Is this just some journo not understanding the basics of the tax system or is the Vampire Squid actually doing something nefarious?

12 thoughts on “Help me out here”

  1. I’m presuming they’re looking at the UK accounts here. In the accounts you show a tax charge against the profits which is split between “current tax” and “deferred tax”. Current tax represents the tax on items in your P&L which will also appear on your tax return this year. Deferred tax represents the tax on items in your P&L which will appear on a future tax return.
    So I presume that GSUK has a small CT component and a large DT component. That’s not because it’s doing anything dodgy, but merely that its profits aren’t chargeable to tax this year.
    To describe deferred tax as a “tax bill” is fuckwittery of the highest order. What’s your source, so we can go take the piss out of them?

  2. Actually, I’m more incensed with the next story.

    Unlike its competitors, Everything Everywhere has miles of pipes lying about the place which could be upgraded from 3G to 4G if the Government will allow it.

    Does she not realise that 4G is a radio data standard not a fibre one? Mobile operators links from the towers might indeed need to be upgraded to take account of increased data usage but that’s got very little to do with the over-the-air protocol.

  3. Hi Tim,

    I am not a tax expert, but Goldman Sachs have not been let off anything. Accounting standards require them to acknowledge a future tax liability in their accounts, just like any other liability. The reason it is deferred is because, according to tax rules, it is not due now.

    As Wiki puts it: “Deferred tax is an accounting concept, […] meaning a future tax liability or asset, resulting from temporary differences or timing differences between the accounting value of assets and liabilities and their value for tax purposes”.

    It is not because HMRC has “let them off” anything. If HMRC had merely allowed them to pay their Corporation Tax late (and why would the do that?) then the Corporation Tax charge would be recorded in the normal way, and recorded as a liability in the balance sheet.

    And surely, Blankfein hasn’t been ennobled, has he? I think it should read Lloyd Balnkfein, not Lord Blankfein!!

  4. Most companies pay 9 months in arrears, but large companies (profits > £1.5m) do, as Tim surmised, have to pay in instalments:
    6.5 months
    9.5 months
    12.5 months
    15.5 months
    So half of it during the year.

    But unlike self-assessment, the instalments are not based on the previous year’s profits but are meant to be an estimate of the current year’s tax.

    And yes, they charge interest if your estimates end up being lower than the actual, but at 1.5% rather than the higher rates for other late payments.

  5. Goldman Sachs Group Holdings UK has not yet filed its 2011 accounts with Companies House.
    The GS global group accounts show that EMEA (which includes UK) made pre-tax $1.226bn or about £750m (rather less than £1.9bn). Now GS may have made losses in Greece etc but total non-US taxes were $223m (less than £140m) and losses in, say, Greece would not reduce total tax liabilities so if GS had made £1.9bn the its UK tax would have been *more than twice* the *total* non-US tax for the group. Deferred tax for EMEA was $19m (less than 3% of £422m mentioned in the Indy).

  6. Richard

    When did thqt change in the tax dates comeinto play? I assume it must be related to Brown’s abolition of ACT.

  7. diogenes, I think it was in one of the early Brown Budgets, although not particularly related to abolishing ACT.

    But he copied the principle from John Major, who brought in payments on account for income tax (so collecting two years worth of tax in one from the self-employed).

    Of course the Brown twist was to make companies estimate their profits in advance, rather than basing the payments on account on the previous year’s profits.

  8. As other commenters have said, large corporates pay tax in installments based on estimates of their liability for the year. I seem to remember Jack Straw was the Chancellor when it happened, but my memory may be playing tricks. The government made a big show of a small drop in the tax rate, but this was paid for by bringing forward the time at which tax was paid so economically the two cancelled each other out.

    The issue that the Telegraph article does not explain is why the delay arises. The basic premise is that a company is taxed on its accounting profits, but the tax statutes contain hundreds of pages listing reasons why this is not the case in practice.

  9. Alex,
    Your mind is indeed playing tricks. Jack Straw has never been Chancellor.

    And there is no “delay”. It is merely the company recognising a future tax liability, arising from timing differences between accounting treatment and taxation treatment of profits.

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