Ignorance about the UK’s taxation system, fuelled by inaccurate and often sensational media reporting on companies’ tax liability, is preventing sensible debate, claims a leading UK corporate tax expert.
Responding to the latest tax furore over online retail giant Amazon’s recent accounts for its UK-based businesses, tax consultant Pete Miller of The Miller Partnership said many news headlines were either accidentally or deliberately misleading.
Amazon UK Services tax liability fell to £4.6m from £7.4m 12 months ago. The company also saw its tax liability reduced due to a £17.5 million adjustment relating to share-based compensation for its full-time employees.
And, while Amazon argues that it has paid all the tax it is required to by UK law, critics believe the company should be paying much more tax, given that its pre-tax profits have trebled from £24.3m to £72.3m.
Pete said that headlines which equated tax bills of companies with their turnover, “when companies the world over pay tax on their profits, not on their turnover,” were among the chief examples of media misreporting.
He added: “The other point which is constantly missed is that corporation tax is usually a very small proportion of a company’s actual tax burden.
“For example, Amazon will pay income tax and national insurance contributions to HMRC on the salaries of all its staff. It will also be liable for VAT on the services it provides in many case, as well as paying local business taxes. The irony is that payroll taxes are at rates up to 47% on income, plus the 13.8% employer ‘s contribution, while the corporation tax deduction stands at 19%.”
Pete also takes issue with the word “claim” in news stories about compulsory tax deductions when writing about share-based compensation.
He added: “The reality is that these deductions are mandatory, both under the accounting standards and for tax purposes. There is no mechanism for a company to decide not to claim the deductions in its accounts or tax computations for its legitimate business expenses, so it would be unlawful for a company not to take the deduction.
“However, in various reports about Amazon, journalists talked about the company “claiming” tax deductions as though it were a matter of choice. This amounts to very subtle misinformation, in my view, and is designed to suggest that companies should not claim the tax deductions needed to arrive at the correct figure for profits on which they should be taxed.”
Pete, who lectures to accountants and lawyers nationwide in his capacity as a corporate tax adviser and as a Fellow of the Chartered Institute of Taxation (CIOT), said the public’s general lack of understanding about tax was “depressing.”
He added: “It has been suggested that taxation should become part of our national curriculum for high schools, so that people not only understand why they need to pay tax but also understand, to a limited extent, how the system works. But the national curriculum is already very full and there certainly does not appear to be any political will in this area.
“Overall, the current situation is somewhat depressing. Those of us who have the ability to make public statements continue to do so, but inaccurate reporting of the issues still seems to be controlling the public debate, despite our best efforts.”