The five howlers made by The Guardian in reporting tax paid by Barclays
Posted by Christie Malry on February 20, 2011 at 9:33 am
Introduction
On Friday 18 February, The Guardian generated an enormous amount of public interest in the tax affairs of Barclays with an article that suggested that, in 2009, Barclays paid UK corporation tax at a rate of 1% instead of the statutory 28%. This caused inevitable howls of anguish from their left-wing readership. The timing was particularly unfortunate, as it came on the eve of a mass demonstration against Barclays arranged by UKuncut. It added a considerable amount of fuel to an already tense situation.
Even more unfortunate was the fact that the article was founded on five total howlers that mean virtually the entire content of the article is complete nonsense.
Here's where the article went wrong:
1) Cash paid in 2009 largely relates to earnings from 2008
The article compares the cash paid to HMRC in respect of UK corporation tax in 2009 (£113m) to the profits generated by the consolidated Barclays group in 2009.
In the UK, tax is paid in arrears, subject to a payment on account system. A large company like Barclays would certainly be making a payment on account. But, even so, a large slug of money paid in 2009 would relate to 2008, not 2009.
2) Barclays only pays UK corporation tax on its UK sourced profits
Multinational companies such as Barclays pay tax in a number of jurisdictions. Carving up the profit between the various countries in which it operates isn't a trivial exercise and, in some cases, profits may end up getting taxed twice - a nightmare for any CFO. However, generally speaking, Barclays only pays UK corporation tax on profits it generated in the UK. Anything earned outside the UK doesn't get taxed here.
So it's a howler to compare the UK corporation tax payment to the global consolidated profit. Most of that profit isn't taxed here in the first place.
3) Barclays 2009 consolidated profits include a significant disposal which is taxed differently under UK law
(HT here to The Pedant-General and Alex, who first commented on this over at Tim Worstall's blog)
In arriving at a profit before tax figure of £11.6bn, The Guardian has added the profit from the ongoing business (£4,585m 1) to profits from a disposed business (£726m 2) and the gain made on disposal of that business (£6,331m 3) to reach a total of £11,642m.
In 2002 (yes, under Gordon Brown), the UK government introduced the Substantial shareholdings exemption, a corporation tax exemption for UK businesses disposing of a substantial shareholding in part of their business. The idea was that businesses should be more able to restructure their businesses without having to worry about unfortunate chargeable gains implications.
As explained in note 39 to the accounts, this means that the bulk of the gain on disposal isn't chargeable to UK corporation tax at all.
4) Barclays has brought-forward losses which alleviate the income that's taxable in 2009
It's a general principle under UK tax law that companies get much less favourable treatment of tax losses than of profits. At first glance this might be a bit counter-intuitive. When a company makes a profit it must make a tax payment. If it then makes a loss, shouldn't it get a tax refund to help it out?
Not so long ago, companies that made UK taxable losses were allowed to look back up to six years and 'carry back' those losses to a prior period. They could then demand a refund against tax already paid to HMRC. Over time, reflecting perhaps Gordon Brown's desperation for tax revenue, this has been tightened so that there is now only an unlimited carry back for one year. Losses above that must be carried forward to offset against future tax liabilities.
And that's what Barclays has done. In 2008 it offset global losses worth £859m against its tax bill 4. This isn't tax evasion; it's not even avoidance. It's a company that's made horrific losses being given some relief for those losses by tax authorities around the world. The utilisation of those losses will have reduced the amount of tax it handed over to HMRC in 2009.
5) Chuka Umunna is complaining about tax law introduced by his own party
The campaign of righteous anger being led by Chuka Umunna, a Treasury Select Committee member, is seeking to mobilise public protest against the Coalition. This rather overlooks the fact that Barclays made these profits in 2008 and paid tax on them in 2009. At this time the Labour party were in power.
Umunna should be writing to Gordon Brown and Alistair Darling to ask them why they did nothing at the time.
Conclusion
It's rare that an apparently reputable broadsheet newspaper such as The Guardian would allow itself to be associated with such a poorly constructed article as this. It's been picked up in the Daily Mail too. In fact, there are very good reasons why the cash payment to HMRC in 2009 might be substantially smaller than the global profits delivered in that year. In fact, the same is also true of the apparently ethical Co-Op bank.
Even worse, "facts" like those in the article tend to travel faster and more widely than the rebuttals which follow them. However, that's not going to stop me from reinforcing the facts of the UK tax system ahead of the UKuncut rhetoric.
Please comment below if you wish to challenge or reflect on any of the material above.
And please share this article with your friends and enemies. Spread the word!
Notes:
[...] Update: There’s a more reasoned and accurate description here. [...]
[...] – via FCABlog i also realise I forgot that the cash paid in 2009 will be payments on account in respect of both [...]
If we are being picky, it was me that identified the £6m profit for disposal of businesses - Alex then explained the tax treatment
However, I still cannot find the £113m. Where did this number come from?
Well, I think we are being picky, so I'm sorry for the misattribution. I'll fix it.
The £113m doesn't come from the accounts. Chuka Umunna asked Bob Diamond in a Treasury Select Committee hearing how much tax Barclays had paid to HMRC in 2009. Diamond said that it was about £2bn, but that he didn't know how much of this was corporation tax. He subsequently provided the information (£113m) in a letter to the committee. Umunna is whipping up outrage off the back of that letter.
[...] This post was mentioned on Twitter by Ken Tindell, Akvavitix, Simon Dickinson, Christie Malry, Neill Harvey-Smith and others. Neill Harvey-Smith said: RT @mjhsinclair: Incredible errors in Guardian report on Barclays tax, they've crossed the line into outright lies http://bit.ly/f2MoeT [...]
[...] have made a number of other errors in compiling their figures, and I am indebted to others such as Christie for taking chargeable time out to summarise [...]
Does any of this prove that Barclays pay a fair amount of tax? I don't think so. They are still parasites making huge profits from the crisis they created.
"Does any of this prove that Barclays pay a fair amount of tax? I don't think so."
Clearly your definition of the word "fair" is completely at odds with the natural one. In fact, it's more like the whining one a toddler uses, "it's not faaaaaiiiiirrrr!" (stamps foot). Did Barclays turn down your mortgage application and this is why you're so petulant?
I do so hope you're not going to start on bankers being parasites, starting all wars, Goldman Sachs are in cahoots with Skull and Bones to bring about Workd Government. It's all so 1933 (toss in "Jews" before "bankers" and we're there).
In general, your article is fair. This bit isn't, though.
UK-registered companies (like US-registered companies, but unlike Dutch-registered companies) pay UK corporation tax on profits generated worldwide. They are eligible for deductions for corporation tax paid overseas (so if Barclays Cayman Islands Ltd makes a profit of US$100m and pays Caymans tax of US$10m, then the US$10m can be offset against the UK tax due on the US$100m profit - so the money paid to the UK taxman will be US$28m - US$10m = US$18m).
Now, you could argue (and indeed, Richard Murphy's mob have said in other contexts) that this isn't fair - tax should be paid in the jurisdiction where profits are generated. But it is currently the case under UK law, and so you can't explain that as a way of minimising payments to the UK Treasury.
Anyway. I'm still slightly baffled (but the annual report is 348 pages long, and I've only got an analyst-y diploma in interpreting financial statements, not a full-on accounting qualification) by the reconciliation between the GBP1,117m figure that Barclays lists as its (cash, not incurred) tax charge for 2009 [annual report p208], and the GBP113m figure that the Grauniad uses. Anyone know where the latter is mentioned, or whether there's a published reconciliation?
So there's only a small amount of tax payable because British operations are only a small amount of profits - does this mean only a small amount of the losses can be offset against tax as only a small amount of the losses are as well?
If the Barclay share price keeps on rising that ok by me then I can Chukka a bit of the income into my business and even employ some more staff or is that beyond the logic of lefties who have never had to run their own companies.
I agree that there has been some woefully misinformed comment on corporate tax in the broadsheet papers and on the BBC, most of which comes from a complete misunderstanding of how consolidated accounts apply to an international group.
Also something like the SSE is not an option that Barclays could choose not to apply: if the conditions are there, the disposal is tax free. I say this because companies that make a loss on disposal cannot then claim a capital loss and some go to great ends to try and take the transaction outside of the SSE. Why should Barclays do so just beacause there is a gain?
But when were companies allowed to go back six years to offset losses (if I have read the comment properly)? Secondly the global losses worth £859m (which I think is £851m in the accounts) will not all reduce the amount payable to HMRC, only UK losses will do that.
.... but no one's mentioned that the hypocrites at The Guardian work under "trust" status and it has long been (almost) tax-exempt. Same difference, really - built into the rules by the famous and equally hypocritical C P Scott; and that's why it's deplorable that so much government and public advertising goes there. A leaked HMRC statement a year or two back showed that it was CREDITING The Guardian £200K, but the circumstances were not known.
[...] [...]
What strikes me is that there is a moral area here which has not been addressed.
I'm what you call a 'leftie' and have run several companies of my own.
I still find the Barclays tax manoeuvring abhorrent.
Isn't Guardian Media Group HQd in the Cayman Islands?
Ironic that.
Broadly speaking, yes, only UK losses may be offset against UK profits.
Well, that's the easy answer. I believe that the European Courts have made the answer a bit more complicated. Marks & Spencer case 'n' all that...
I was doing my exams back in the mid 90s. I'm pretty sure it was six years then. But I may be remembering it wrong.
You're right on the global losses point - Barclays don't split their global losses into UK and non-UK. I only use the £859m to illustrate that they have substantial losses available for use in the territories in which those losses were made.
I have yet to find a single UKuncut argument that holds water. It's hardly moral to base your argument, as UKuncut has done, on a campaign of misinformation and dodgy statistics. If their campaign is correct, don't you think they would be able to find some examples of tax avoidance that stand up to scrutiny?
How is it moral to lie and cheat to try to get people to do your bidding?
Which particular aspect of it? Come on, we've had details here. Let you provide similar details. You can't just talk about "dodging" in vague terms and hope mud sticks - that's just the dirty tactics of UKuncut reprised.
That's hysterical! Your article accounts for a few quid - what about the rest? The Guardian didn't prove Barclays had only paid 1% - but you went absolutely no way to proving they paid anything close to 28% either!!
As for the "Giving them a tax break because they lost all our money" argument, I can't believe you didn't blush to use it. Wouldn't say too much abut that one if I were you, people will be even MORE outraged. Or did you think no-one would understand your piece?
Sue,
If they hadn't calculated tax in accordance with the rules, the accounts wouldn't have been signed off by the auditors. Which they were. That is simply the way the world works. They stuck to the rules and the Guardian was talking hypocritical irresponsible nonsense. Deal with it.
Oh Sue Marsh, you are a star! You're right - these sums don't add up (despite all the obfuscating language)
I was doing my exams back in the mid 90s. I'm pretty sure it was six years then. But I may be remembering it wrong.
You are remembering it wrong!
The Guardian article - and BBC comment - is a sad reflection on the state of financial journalism in the UK. Sensationalism rather than analysis seems to be the order of the day.
A review of Barclays' financial statements does suggest some tax avoidance has taken place. It's impossible to quantify from the published information. However it's nowhere near the level suggested by the Guardian.
What is the numeric equivalent of Grauniad?
It's far far worse than that
http://harveyalexander.weebly.com/themoneyscam.ht...
Not only that @sueleeok - I'm psychic - worlds first psychic economic geek!!
http://www.guardian.co.uk/politics/2011/feb/20/ge...
Now, you must do a better job of explaining this one, because Osborne just let the banks write ALL their losses off against tax!!!! They lost all the money, we're paying off their mess and NOW they won't pay corporation tax for years!!! You couldn't make it up, really you couldn't.
The very thing I told you to keep quiet about is all over the internet. Sheesh.
If only Barclays had got themselves a lovely offshore trust fund account just like the Guardian's Scott fund.
Sue - you are defiitely psychic - I'm a believer!
So, by your estimation, how much tax did they pay on how much profit?
What is morally wrong (but not legally, I acknowledge) in the case of Barclays and the other banks is that they are permitted loss relief against future UK profits. The UK tax payer had to step in and support the banking sector at great expense when it occurred these losses, and if it failed to do so many UK banks would have failed. Even though there was no direct support to Barclays it would be pretty idiotic to say that they would not have suffered somewhat if HBOS and RBS and others had been allowed to collapse. And now having in effect covered these losses in the banking sector - the poor tax payer is being asked to pat again by granting loss releif against subsequent profits. RBS alone has an unrecognised deferred tax asset in its accounts in respect of losses of £3.6bn.
.Even if you think all of the above is socialist anti bank rhetoric - then perhaps you should look at Barclays from a capitalist perspective - and ask yourself what the normal capitalist response would be to a board that had allowed its staff costs to double between 2006 and 2010, while its profit was still at the same level and the share price had in effect halved. Fortunately for Mr Diamond capitalism and the corporate governance in the UK doesn't appear to be working too well.
[...] Rumbold’s update: UKuncut’s claim that Barclays paid 1% tax has now been comprehensively debunked. [...]
Sadly I was doing the exams in the early 1980's but the principles were the same. What could be carried back six years was surplus ACT, a concept that is now long gone, since 1999. Losses were only available for offset in the current period and carried back one year in effect, or carried forward indefinitely (even this is vastly oversimplifying).Gordon Brown can carry the can for lots of things in the tax system, including adding to the complexity, but this is not one of them.
But the main point is true that any bank making a loss would be able to get some tax advantage for that loss by offsetting against the profitable periods, whenever the loss was incurred, and that will reduce the net amount of corporation tax paid to HMRC.
[...] bank levy, non-recoverable VAT, employers NI, SDRT and so on. Over the weekend Tim Worstall and the FCA Blog tore chunks out of the [...]
MattNW5 - that's not the auditors' job. They provide an opinion on whether the accounts are materially true and fair, not whether the tax calculation is accurate.
What irritates me about both sides of this argument are that they are not actually arguing any points at all - there is no commonality of discussion. You are arguing that the legitimate use of the tax code to decrease tax liability is legitimate. UKUncut regard the tax code as unjustly slanted in favour of those with the means to exploit it. Neither of you are at all incorrect.
If for the sake of argument I could persuade my partner to live in Monaco and attribute my salary to him (in spite of my labours in this country clearly being the cause of my salary) then I would be in approximately the same situation as Philip Green (with a number of decimal places difference, obviously). The fact that I can't avail myself of this option is purely a function of our respective resources rather than any actual difference between our two circumstances in reality. The fiction of Mrs Green's holding of shares in Philip Green's enterprise is a legal device rather than a business reality.
In auditing in the UK, we are taught to look through legal fictions and see substance over form, but for some reason in our tax system we are content to apply the absurd american habit of box ticking compliance- based policy. Accountants are also taught to value consistency, and UKUncut therefore have my support because they seek a consistent treatment for taxation regardless of circumstance. How any accountant who doesn't earn their crust obfuscating the clients' tax bills away can disagree is beyond me.
What's your problem? Companies pay a tx on their profits. When they have losses they don't pay tax whether they are banks or any other company fair enough. We didn't "pay for the losses". We bought shares in the banks. That may or may not have been a good deal, but we can sell the shares whenever we like. The people who "paid for the losses" were the shareholders who put capital into the banks many years ago and saw their investment wiped out. We still have the shares, they don't- ergo they paid for the losses not us.
We also guaranteed some of the banks' assets, but that hasn't "cost" us a penny because none of the guarantees have been called (and the banks would have to take a big hit on the same assets before the guarantee becomes effective). We actually make money on those guarantees because the banks paid for the guarantees, several billion in fact.
So what are you whingeing about, or do you just not understand what is going on? I suspect the latter.
Jon
To be fair to Matt NW5 i don't think auditors in the UK have ever interpreted "true and fair" in the sense of being fair being in substance the same as moral and the right thing to do. This is certainly not the view given in the various documents issues by the Institute as to the meaning of "true and fair", much as you and I might like it to be.
Tax is statutory liability and hence by its very nature has to be determined by the rules and regulations. There may be situations where companies take a tax position where the rules are not clear and are subject to interpretation - in such a situation the auditor should take a prudent position and not allow the tax benefit to be booked into the accounts until they are certain of its existence - there may be a legitimate criticism of some auditors that they are too easily swayed by the client/their own tax advisors in such situations, but that is not what is happening with Barclays/Philip Green. If a company is trying to break the rules and defraud the revenue and wants to use the accounts to support such a fraud - the postion of the auditor is pretty clear - they should resign and are required to do so by their ethical code.
I too was using true and fair in the accounting sense, not fair as in a societal sense. But auditors are only obliged to sign off to the extent to which the tax bill materially influences the outcome of the accounts.
Proper accounting is also a statutory obligation upon Directors, but the variety of business leaves plenty of scope for disagreement. What I'm saying is what Davied Tweedie used to say, which is "if it looks like a duck, and quacks like a duck, it's probably a duck". Where our tax system allows for absurd obfuscation (such as the idea that Philip Green doesn't run and control Arcadia) then the revenue should be allowed to apply a sensible rule of substance over form (as they do when interpreting badges of trade with those claiming consultancy status). Other jurisdictions manage a "spirit of taxation" rule, so why can't the UK?
My problem isn't that the rules are being broken, they probably aren't. My problem is their inconsistent application.
Jon
I fail to see how any auditor could fail to intepret Philip Green's status differently when HMRC and the courts have accepted the same interpretation for himself and others in the past. The duck in this case is a statutory liability - and the only way to change it is to change the law, rather than blaming the auditor (that is not to say thatt there are not other practices where the tax is dependent on the accounting treatment, or where the legal poistion is not clear where the auditor may have a responsibility). I'm not sure about laws having a spirit - but i would agree that general avoidance rules and minimum tax rates have a role to play. Unfortunately, it is not going to happen under the present regime - despite the LIbDems so called commitment to tax avoidance.
Sorry Toryboysnevergrowup - I'm not blaming auditors here, but the law, as you say. I should maybe have been more careful about making two points in one post.
You don't need to estimate how much tax on the profits that BP paid - it's in the accounts of the 2009 account (page 30). It's around the 24% mark. However, something over 85% of that was paid in countries outside the UK.
Ah, thank you. If my tax tutor, Martyn Ingles, is reading this, I'm very sorry. I just got them mixed up!
But why do you see it as a fiction or a legal device? If I give shares in a company to my wife, and some years later we get divorced, you can bet that the Family Court will not see her ownership as a fiction. There are Inheritance Tax planning schemes for instance that may work for avoiding tax but depend on assets being given away to the children. When the children subsequently get divorced or go bankrupt, suddenly the implications of what was done become apparent as the assets are no longer owned by the parents. All constructed to save tax.
[...] This post was mentioned on Twitter by gregnbaker, Kent CF. Kent CF said: RT @gregnbaker: The five howlers made by The Guardian in reporting tax paid by Barclays http://t.co/7P2HCym via @AddThis [...]
Shouldn't that read " Labour government decided to step in a support the banking sector at great expense" ??
[...] Saturday’s post about The Guardian’s rank hypocrisy on tax avoidance, Guido Fawkes, FCABlog and Tim Worstall have kept up the [...]
The tax payer didn't give cash to the banks, it bought shares at the prevailing market value, paid for with printed money so the "cost" to the tax payer is zero. Companies, including banks are taxed on any increase in their cumulative profits, so any loss is simply carried forward until it has been set against future profits, just like every other company and person. The government hasn't lost a penny on Barclays or any other bank. The people who lost money were the previous shareholders.
"MattNW5 - that's not the auditors' job. They provide an opinion on whether the accounts are materially true and fair, not whether the tax calculation is accurate. "
Not so, they review the tax computation and their audit report states whether the reported tax provisions are fair and true (correct is a bit harder as this may be subject to debate with HMRC).
Actually, Barclays was one of the very few banks that sorted out its finances privately without recourse to tax payers money. So how did they "create" this mess?
They paid their taxes according to the law of the land. What else are they supposed to do? If you think they are making too much profit, buy some shares, just as your pension fund trustees have done.
Ironic that the Guardian's owning group pay less tax than the average student with a summer job.
Lefty fucking wankers.
Yes. Barclays Group plc doesn't earn any money at all, and therefore doesn't pay any tax at all.
The individual trading subsidiaries around the world make profits and are taxed on those profits as if they were separate companies, which they are. Losses made by an individual UK company can only be carried forward against future profits of the same company.
Tax laws in other countries around the world are different.
The ECJ case Christie Malry refers to relates to group relief, where one company in a group can surrender its losses to another profitable company in the same group. The ECJ case says you can surrender losses in one EU subsidiary to a profitable UK subsidiary in the same was as you could for a loss making UK subsidiary. That means losses can be set off against profits in the same year only. If other countries allow diagonal group relief, they would have to allow that for UK companies as well, but it would not reduce the UK tax liability.
One of the figures in the accounts is the amount of tax due. If that figure was wrong, the auditors would have to point that out in their report.
[...] bank levy, non-recoverable VAT, employers NI, SDRT and so on. Over the weekend Tim Worstall and the FCA Blog tore chunks out of the [...]
"The government hasn't lost a penny on Barclays or any other bank "
It may not have made a paper loss - but it certainly didn't do the deficit any good and who is paying for the deficit now. And who else would have paid the "market value" for the bank shares at the. As for the disruption caused to the rest of the economy by the failure of the banking sector - don't the banks have any responsibility for that?
Clearly if the views you express are those of the UK banking sector you clearly do not get it.
[...] piece comes entirely from the FCA Blog. I enjoyed it so much I thought I would just replicate it [...]
First page of comments and already a Nazi comparison. How amusing.
First page and there's already a twat with a non sequitur who missed the point. How tiresome.
Sounds like you think "deficit" means "debt". You must work for the Beeb.
That's a matter for the shareholders, not you: mind your own business.
Since "fair" is a word much abused, particularly whining socialists, I cannot see how auditors are to have any say on such a thing. if you don't like tax law the way it is, stand for election and change it - and accept the consequences.
If you cannot understand the principle of netting losses against profits then you are too stupid to come here and whine. Learn something and stop letting your emotions control you. You're behaving like an adolescent.
Bear in mind also that the Guardian generates the bulk of its profits via its majority holding in Trader Media. However, give that private equity owns the other 49.9%, an accountant would probably have fun looking at the transaction structure to understand exactly how much tax TMG / GMG pays.
I meant the public sector deficit - i.e public spending less borrowing - it is not the same as a profit and loss account. No I don't work for the Beeb.
I am a shareholder - I'm pretty sure my pension fund holds money in Barclays as does one of my unit trusts. Oh and of course I'm a lender of last resort - should the casino which Diamond has attached to his bank blows up because the croupiers (oops sorry bankers) take more interest in their short term tips rather than the long term future of their casino, not that has ever happened before. So criticism of unregulated free market capitalism isn't permitted unless you are a fully paid up subscriber, or free speech as we used to call it isn't welcome - welcome to Tory Britain.
[...] Various people of various ideologies have reacted to this disclosure, some by blockading Barclays branches, some by making fairly irrelevant points about tax losses. [...]
[...] of all. In case anybody cares enough, this is for example why fuss about Barclays was rubbish: FCAblog And if you really want to know why HMG (and the one before it and every other Government in [...]
[...] its tax bill stayed so low, because various bloggers (e.g. here) have explained it for them. Heck, I even explained it myself. It's pretty freaking obvious to anyone with a minimal amount of accountancy [...]
[...] has to bear in mind, though, that the UKUncut kindergarten economics has been informed by the half baked financial witterings of the Grauniad and politicians like Chuka Umana, who claimed that Barclays had only paid 1% in corporation tax. [...]
[...] actual reasons behind the apparently low figure are more complex. We are indebted to others such as Christie for taking chargeable time out to summarise [...]
[...] has to bear in mind, though, that the UKUncut kindergarten economics has been informed by the half baked financial witterings of the Grauniad and politicians like Chuka Umana, who claimed that Barclays had only paid 1% in corporation tax. [...]
[...] Posted by Christie Malry on October 11, 2011 at 10:06 pm var addthis_product = 'wpp-262'; var addthis_config = {"data_track_clickback":true,"data_track_addressbar":false};if (typeof(addthis_share) == "undefined"){ addthis_share = [];} I'm given as a source to demonstrate that Chuka Umunna is an idiot (in relation to Barclays and tax). [...]
[...] Posted by Christie Malry on February 13, 2012 at 10:52 pm var addthis_product = 'wpp-263'; var addthis_config = {"data_track_clickback":true,"data_track_addressbar":false};if (typeof(addthis_share) == "undefined"){ addthis_share = [];} jdc325 complains, with some justification, about accuracy in the press. Finding and pointing out stupid errors in print and online media represents a very rich vein for bloggers, including me. [...]