Corporation tax is a big contributor to the Treasury’s purse. Last year, the yield rose by 25 per cent from £3.2bn to £4bn.
This was against the backdrop of the Government cutting the main rate of corporation tax to 20 per cent and moving to a new single rate. No more small profits rate, no more marginal relief. The move has been aligned with a relentlessly determined approach to stamping out aggressive tax avoidance.
The front pages have been full of the Government’s approach to individual tax avoiders – the rich and famous in particular. They make good headlines.
The plan to defeat tax avoidance, especially by individuals, has been built on an impressively aligned strategy incorporating the General Anti-Abuse Rule, targeted anti-avoidance rules, pursuing purposive judgements in the courts, the widening of the Disclosure of Tax Avoidance Schemes net, the issuing of accelerated payment notices and, of course, public naming and shaming.
The first three components clarify and limit what will be treated as aggressive tax avoidance and what action will be taken, effectively limiting planning to that which is acceptable to HM Revenue & Customs.
The fourth (the Dotas expansion) represents an enhancement to the effective early warning system to HMRC and gives it the platform from which to issue all-important APNs. These, in turn, facilitate the potential for the collection of tax in advance on Dotas schemes.
By way of further explanation, APNs help HMRC cash flow. The innovation of APNs (and “follower notices”) represents an effective flipping of the presumption in relation to the schemes for which APNs are issued.
The APN and the advance payment of tax demanded means, effectively, that the tax avoidance scheme is treated as failing (requiring a potentially returnable deposit of tax) before its effectiveness has been determined.
Last but not least, naming and shaming represents an incredibly powerful means of influencing attitudes and behaviours in relation to aggressive tax avoidance.
It has substantially killed off “popular” and specialist demand for aggressive schemes, which has proved much more effective than trying to limit supply or punishing (through legislation or litigation) taxpayer behaviour.
But despite the publicity given to individual tax avoidance there is no doubt the Treasury is seriously aware that the (tax collecting) opportunity cost of corporate tax avoidance is immense. Big, companies generate big revenues and from big revenues should come big tax demands and receipts.
However, this seems often not to be the case, particularly when it comes to global companies. This causes media, official and public ire. A pretty powerful triumvirate is it not?
Just recently, coffee and tax has raised its head again. The Starbucks versus the Margaret Hodge-led Public Accounts Committee standoff is the stuff of fiscal legend. Let’s not forget, by the way, that Starbucks, out of the goodness of its own mocha-centric heart, paid over £20m to the Treasury. It did not have to, it just did. Have a nice day, UK!
The latest coffee tax talking point is based on Ethical Consumer magazine’s recent survey of the tax machinations of the various coffee chains over the last year.
Café Nero brought attention to itself (in a good way, it hoped) when it decided to stop stocking milk from farms in areas that culled badgers. However, it seems badger-loving Café Nero is also a fan of Luxembourg and the Isle of Man. Café Nero (or should it be Café Zero?), it seems, has paid no corporation tax since 2008 – not even as much as a pannatone (which sounds like it could be a unit of currency at least somewhere in the world doesn’t it?).
So Starbucks and Café Nero have questionable tax history. Does the public care? Does tax have the power to generate coffee-centric vente vitriol? We’ll see next week.
Tony Wickenden is joint managing director of Technical Connection