Richard says:
July 30 2022 at 12:44 pm
Spot on. Having run a small business myself I believe that raising corporation tax will not discourage companies from operating or investing in the uk (the argument that is commonly trotted out by those who oppose any increase in corporation tax). On the contrary it forces companies to focus on reinvesting cash surpluses because the alternative is to give it to the government.Reply
Richard Murphy says:
July 30 2022 at 3:03 pm
Agreed
And hasn’t Spud been complaining bitterly as Amazon does exactly that for three decades?
Most people own shares so *they* can make money. That means companies that don’t make a profit to pay out as dividends will lose value.
No issue until someone else thinks — I can buy this out cheap and start making money.
Unless the reinvestment is to make *extra* future profit, then its not worth doing. And we are back where we started. What are they going to do with that extra profit now?
In the end extra tax will mean less profitable companies. It simply has to.
He appears very ignorant of accounting.
Does he not understand the difference between trading income and capital expenditure?
A company that reinvests its cash income can end up with a corporation tax bill upon that income and no cash to pay it, because the cash has been reinvested.
Only a small part of capex can be set against profit before tax.
Or perhaps he is advocating 100% capital allowances, for all companies of all sizes?
Does he even understand what he is saying…
Tim the coder
I’m theorising his twin passed the accounting exams for him.
He has no understanding of Finance, Tax, economics or accounting (among many other topics) and has evidenced that on too many occasions to mention.
Having run a small business myself I believe that raising corporation tax will not discourage companies from operating or investing in the uk (the argument that is commonly trotted out by those who oppose any increase in corporation tax). On the contrary it forces companies to focus on reinvesting cash surpluses because the alternative is to give it to the government.
The assumption being that the existing management can make better more efficient use of the capital that shareholders.
These people are insane. They think running a big PLC is the same as running a small company, they have no clue whatsoever. (Similarly, people who’ve run big PLCs have no idea how to run a small company, I’ve had first hand experience of that disastrous situation.)
30 years ago 100+4=104. But that was 30 years ago, it is staggering to think that is still the case.
@ChesterDraws: “That means companies that don’t make a profit to pay out as dividends will lose value.”
Not necessarily. The model used by tech companies like Amazon (and to a much smaller extent, the software house I founded) is to never pay out dividends, but to increase shareholder value by increasing the share price.
It’s not going to attract much inward investment, is it?
The model used by tech companies like Amazon (and to a much smaller extent, the software house I founded) is to never pay out dividends, but to increase shareholder value by increasing the share price.
But all share prices reflect anticipated future earnings. So these companies are only deferring paying a dividend. The rising share price is assumed to contain that deferred dividend. Yeah, there have been investment vehicles built asset value without distribution. But there has to be a way for investors to extract their profit other than selling to other investors or no one would invest. It’d be a Ponzi.
Having run a small business myself I believe that raising corporation tax will not discourage companies from operating or investing in the uk (the argument that is commonly trotted out by those who oppose any increase in corporation tax). On the contrary it forces companies to focus on reinvesting cash surpluses because the alternative is to give it to the government.
So, in Murphy’s world the idea that companies being forced (Murphy’s word, not mine) by tax law to reinvest profits – irrespective of ownership/management’s needs or desires – would have absolutely no impact on whether a company would choose to operate in the UK, or investors would choose to invest in companies in the UK.
Huh.
A rather bizarre assertion.
On the contrary it forces companies to focus on reinvesting cash surpluses because the alternative is to give it to the government.
Murphy endorsing TAX AVOIDANCE.
I thought tax avoidance was a BAD THING.
Does Amazon book deferred tax as a liability, then it can trade it away in tax equity markets?