So, this Thames Water tax row

There seems to be a slight difference as to how much profit the company has made:

The UK\’s largest water company is accused of \”ripping off the taxpayer\” after revealing it paid no corporation tax and pocketed a £5m credit from the Treasury in a year when it made £550m in profits.

That\’s The Guardian. The Telegraph has:

In the year to March 2013 Thames’s pre-tax profits fell 35pc to £144.9m owing to bad weather, unpaid customer bills and rising energy costs. The company booked a £5.1m tax credit and said that although it paid no corporation tax it paid business rates and other taxes which amounted to about £150m.

So which is the correct profit figure? My suspicion would be that the G has given is the gross profit figure.

As to why there\’s no corporation tax:

A spokesman for Thames Water said: \”We have not paid much corporation tax in recent years because the government\’s tax system allows us to delay, not avoid, payment of tax based on how much we invest. Because we are investing £1bn a year from 2010 to 2015, more than any water firm in the UK\’s history, we are able to defer a lot of tax payments to future years.\”

So, capital allowances then. This appears to be causing outrage:

Simon Hughes, deputy leader of the Liberal Democrats, as well as the MP for Bermondsey and Old Southwark, described Thames Water\’s annual accounts as \”another extraordinary chapter\” in their recent history. \”With Thames Water ratepayers facing a huge and permanent hike in their annual bills to pay for the Thames tunnel, escaping tax liability is not ethically or financially acceptable.\”

Dave Prentis, general secretary of the public sector union Unison, said it was time for the government to think again about who owns the water industry. \”This is a disgrace. Since privatisation, water companies have been ripping off consumers, pushing bills up much higher than inflation,\” he said. \”Now we know they are ripping off the taxpayer too.\”

Can anyone, perhaps we might ask Mssrs. Hughes and Prentice this, think of a feasible tax system that did not have a method of allowing for capital expenditure?

And in the Mail:

Thames Water made profits of £549million last year after sales rose six per cent to £1.8billion.

Don\’t people have a feel for these sorts of numbers? A price regulated business just isn\’t going to be making net profits of 30% or so of sales. Gross profits before financing and or capital costs perhaps.

13 thoughts on “So, this Thames Water tax row”

  1. That airhead kate burley at sky news obviously did not know much about accounting, but it did not stop her from saying that there was a loophole and it was immoral that Thames water was not paying any tax. Not forgetting to mention the bonuses paid, as in “why doesn’t the company pay tax when its executives get those huge bonuses”.

    Personally, I think it would be the moral thing to punch her in the face.

    The other thing that amuses me is that no one seems to realise that whatever tax TW would be paying would be coming from our bills. So demonstrating that firms dont really pay tax.

  2. Many are complaining that salaries at Thames Water are rising at 5.9% whilst it isn’t paying corporation tax.

    Surely salaries generate higher tax revenues (income tax and NI) than paying out similar sums as profits and paying corporation tax ?

  3. I understand from numerous reports that the UK water system leaks like a sieve. During the relatively recent but now-forgotten drought, that was a big issue.
    How, other than through large capital investment, might water companies remedy this problem? Perhaps fewer economic illiterates writing about tax avoidance might help, at least at the margins.

  4. Being able to make the laws of the land as you see fit is a great privilege.

    It also brings with it another great privilege.

    If you create a law, vote for it to be enacted and don’t know or care what you’ve done, like Mr Hughes, then you can look like the most stupid cretin in the known universe by bleating about how appallingly wrong it is.

  5. London MP opportunistically attacks company which supplies water to London.

    Also, what is moral about taking money from customers in higher bills and part if that being skimmed off to the State?

  6. Raised this issue of that “investment” word creeping off the economics textbook pages in a recent thread. Now Thames Water’s stupid enough to use it.
    To the ordinary punter”investment” is confusing because it comes in at least 3 flavours. There’s the structural spending Thames is doing. There’s that whole world of City finance where investment is placing money where it can extract a profit. Where Thames may be getting the financing for its capital projects. And, of course, there’s the tendency of politicians to use the word to justify most any spending they want to look virtuous. Is it any wonder they don’t understand it? Can’t see that profit is what is left after the spending is done.
    Saw a bit of Thames’ “investment” going on outside my London Flat a few years back. They replaces the main had a tar & sacking bandage slapped on it in ’42 when a bomb leveled the street corner. Been leaking ever since judging by the cave system it had cut in the clay. In everyday terms, you don’t call ripping the old leaking plumbing out of the house “investing in your infrastructure” do you? The cost’s a a bloody great repair bill you may have to get a loan to pay. A cost of continuing to get water out of the tap rather than the bedroom ceiling.

  7. @bis: repairing leaky water mains may not be investment, but it sure as hell is a cost of business, when your business is delivering water to peoples homes and businesses, and thus is an allowable expense. Sadly living in your house is not considered a “business” by HMRC, so any costs incurred in doing so (replacing the roof/wiring/plumbing) have to come out of your taxed income.

    I think this is where the disconnect amongst the public comes – they have to pay for “infrastructure” work out of taxed income but see a company allowed to put it against tax. Notwithstanding a “company” doesn’t really exist and is just a legal fiction hiding a group of people, this is becoming to be seen as unfair – company allowed to do X, but I am not.

    I’m not sure what the solution is, but I know that there is going to be more and more of this as certain elements stir up this type of thinking, for their own nefarious ends. The “right” (for want of a better term) had better come up with some sort of solution that is seem to be “fairer” without causing massive economic destruction.

    If course the main issue being that everyone is taxed to the hilt already, and that is why such politics of envy tactics work. If the average man paid no income tax at all ( as he didn’t until what, 50 years ago?) then there would be no mileage in stirring up stuff about companies “avoiding” tax.

  8. One reason why Thames Water has had to spend a small fortune on “investment” in the last few years is that when it was owned by RWE it abysmally failed to spend the amount mandated by OfWat on repairing leaks so RWE made/reported excessive profits and sold it to MacQuarie for more than it was really worth.
    Now, who was in charge while RWE owned Thames Water? Someone beginning with B?

  9. “Now we know they are ripping off the taxpayer too.”

    At least Thames Water gets the correct liquid to come out my taps every day without fail, more than can be said for the people who Mr Prentis’ represents, hardly a champion on efficiency and service when it comes to spending taxpayer money.

  10. And the so called ‘5m credit from the treasury’ was not a cash credit it was a deferred tax credit of 6m reduced by current tax of 1m – nothing to do with a credit from the treasury.

    Very sloppy reporting all round.

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