Oh dear, he's really lost it now. I've also included a brief discussion with @tomthewaters, in which Ritchie digs an even greater hole for himself.

Where do you begin with this nonsense? The substance of a tax cut is this: before the cut the government wants X% of taxable profits and after the cut it wants Y% of taxable profits. And Y is less than X.

What the government might decide to spend its tax revenues on is neither here nor there. That's because we don't hypothecate taxes, nor do we insist that our government operates a balanced budget every year. So there's simply no link between "the tax that we think we would have received in corporation tax had we not cut taxes" and "the money we spend on the poor".

So there's simply no truth at all to the idea that accountants would view a tax cut as a subsidy to the company. The European Union doesn't require it, accounting standards don't require it, good practice doesn't require it and nobody, as far as I know, other than Ritchie has ever thought it to be a good idea. It's a stupid idea. It doesn't reflect reality and it doesn't describe the underlying substance. It's equivalent to saying that, because robbers decided not to burgle your house last night, the substance is that they gifted you all the things you own.

It's a really stupid idea. Only Ritchie would disagree.

Filed under: Accounting, Taxation with tags idiots, richard murphy, substance over form, tomthewaters
5136No Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F09%2Fin-which-ritchie-argues-that-tax-cuts-are-state-subsidies%2FIn+which+Ritchie+argues+that+tax+cuts+are+state+subsidies2011-09-30+22%3A41%3A22Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D5136

Our mate Eoin is trying to define a 'responsible business. It's one that makes 'responsible profits'. And this apparently means:

responsible profits... in the region of 10-15% (rate of profit)

Ie. Put a hundred quid in, get £100-15 out..

some financial services, energy providers, and telecoms are making profit rates of 40-50%

Let's see now. Here's the dividend yield of some financial services companies (courtesy of itpaysdividends.co.uk):

• Royal Bank of Scotland:  0%
• Lloyds Banking Group: 0%
• HSBC: 3.51%
• Barclays: 1.90%

And here are some telecoms companies:

• Vodafone: 4.75%
• British Telecom 3.72%

And here's some energy providers:

• Drax: 7.86%
• SSE: 5.56%
• Centrica:  4.33%

For the best of these, Drax, you'd put in £100 to get £7.86 back annually. In precisely none of the sectors that he highlights as making excessive profits can we find any evidence of them. He's not even in the right order of magnitude.

Eoin, just where are these mythical companies making super-normal profits? My pension trustees would love to know.

Filed under: Economics with tags banks, dividends, drax, eoin clarke, idiots, yield
51204 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F09%2Feoin-clarke-wondrousness%2FEoin+Clarke+wondrousness%212011-09-30+18%3A32%3A48Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D5120

Heather Stewart has a great idea for improving corporate reporting on tax

In the UK context, that would mean firms reporting what percentage of their profits they have paid in tax in a given year – and why it's lower than the headline rate (eg because of mind-blowingly complex avoidance schemes involving a string of subsidiaries in tax havens).

Wow, what a great idea! Yes, we could call this idea IAS 12. No, it seems that IAS 12 is already taken. And it says the following:

IAS 12.81 requires the following disclosures:

• aggregate current and deferred tax relating to items reported directly in equity
• tax relating to each component of other comprehensive income
• explanation of the relationship between tax expense (income) and the tax that would be expected by applying the current tax rate to accounting profit or loss (this can be presented as a reconciliation of amounts of tax or a reconciliation of the rate of tax)
• changes in tax rates
• amounts and other details of deductible temporary differences, unused tax losses, and unused tax credits
• temporary differences associated with investments in subsidiaries, associates, branches, and joint ventures
• for each type of temporary difference and unused tax loss and credit, the amount of deferred tax assets or liabilities recognised in the statement of financial position and the amount of deferred tax income or expense recognised in the income statement
• tax relating to discontinued operations
• tax consequences of dividends declared after the end of the reporting period

That's right, she's only gone and recommended something that's already required under international accounting standards (and by UK accounting standards prior to that).

And, Dear Guardian, if you'd like to pay me Monbiot-style wages to train your journalists in the theory of accounting, just get in touch.

Filed under: Other blogs, Taxation with tags corporation tax, heather stewart, ias 12, ifrs, observer, uk gaap
5127No Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F09%2Fplease-could-the-observers-economics-editor-learn-some-accounting%2FPlease+could+the+Observer%27s+economics+editor+learn+some+accounting%3F2011-09-29+20%3A34%3A12Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D5127

Owen and Ritchie fall over themselves in their determination to prove who is the more ignorant about business taxation.

Owen:

Then Ritchie:

And finally Ritchie (remember, "you're wrong" is not debate):

Sean Sullivan has got it right and our chief cheerleaders for the left have got it wrong. Even small changes in taxation can cause phenomenal difficulties for businesses. Here are some illustrations:

1. On 24 November 2008, the then Chancellor, Alistair Darling, announced that he would be reducing the rate of VAT from 17.5% to 15% with effect from 1 December 2008. He gave businesses one week's notice of this profound change. Many businesses had already printed their 2009 brochures and price lists. Thanks to Darling's change they had to either pulp them or put stickers over every price. Website-based businesses also had to scramble to generate the correct pricing. This generated a phenomenal amount of admin and, thanks to Darling's desire to create political capital out of the increase, business had virtually no time to react to it.
2. When the corporation tax rate changes, businesses have to do more than just pay tax at the new rate. They also have to revalue their deferred tax balances and fix the reconciliation between the actual and effective tax rate. But that's not all. Typically they'll need to explain to critics (such as Ritchie) why changes in their accounts are legitimate transactions and not just the fruits of tax avoidance. This isn't just a simple change, it's much more complex than that.
3. Small changes in income tax can also create problems. Businesses have got to get every last change to income tax right, otherwise they'll produce the wrong numbers in their employees' PAYE figures. And that's serious business, because employees typically hate it when they have more tax to pay in one year because their employee reported the wrong figures to the tax office in the previous year. It glosses over the phenomenal amount of work businesses do to ensure that personal income tax paid by employees under Schedule E is right.
4. And today we have a new example, courtesy of Wales. Wales has decided that retailers must charge a minimum of 5p for single-use carrier bags. But the price is still 5p regardless of the VAT status of the business. So unregistered businesses must charge 5p and VAT-registered businesses charge 4.17p + VAT. But that's not all. "For the purposes of Corporation Tax and Income Tax, receipts from the compulsory charge on single-use carrier bags should be brought into account in calculating trading profits. The Welsh Assembly Government expects the proceeds to be used to fund good causes in Wales and relief may be available where the normal charitable donations/gift aid rules are met." Sure, it's only a 5p charge, but it means profound changes to businesses who, if they get it wrong, will face fines and penalties from HMRC.

We know Ritchie was once the brave entrepreneur that sold Trivial Pursuit in Ireland. And it's obvious that Owen has never had a real job in his life. Neither has any idea of what it means for a business owner to react to the torrent of petty tax changes that has plagued this country over the last 15 years.

Filed under: Regulation, Taxation with tags corporation tax, idiots, income tax, owen jones, paye, red tape, richard murphy, vat
50867 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F09%2Fwinner-and-7th-most-influential-left-wing-thinkers-demonstrate-their-ignorance-over-business-taxation%2FWinner+and+7th+most+influential+left-wing+thinkers+demonstrate+their+ignorance+over+business+taxation2011-09-29+20%3A19%3A15Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D5086

Alice has a cup. She loves it, and doesn't want to get rid of it. Belinda wants a cup just like it. She really wants one just like it, straight away, and she doesn't want to wait.

I ask Alice if I can borrow her cup for a month, on the understanding that she gets it back in identical condition. I'll pay her £1 for letting me do this.

I then sell the borrowed cup to Belinda for £10. That gives me a month to find a replacement cup for Alice. Luckily for me, Clare has one that she doesn't want, and she sells it to me for £7.

At the end of the month, I can give the used-to-belong-to-Clare cup to Alice. She's happy because, as promised, she's got a cup again. She's also got £1, for basically doing nothing.

Belinda is still happy; she's got the cup she wanted, for a fair price.

Clare is happy because she has got rid of the cup she didn't really want, for a fair price. She's now got £7 in her pocket, which she can spend on something else.

And of course I'm happy too. I've got £2 profit, which I can go spend on something else.

That's short-selling in a nutshell. Everyone ends up happy.

OK. The eagle-eyed among you are already crying foul. Alice didn't get "her" cup back; she got another one. When you're dealing in shares, not cups, this doesn't matter. Shares in public companies are all identical and can't be damaged. So this wheeze really does work.

But it only works for me if the price falls over the month. If the price rises, I may be forced to pay more to Clare to be able to fulfil my agreement with Alice. Ultimately, I could lose out. But the girls will still be happy. It's only me that loses out.

Another claim made by critics of short selling is that my intervention in the market forces the market price down. But they never explain how. And, having traded with Belinda, I'm a buyer in the market. Once my transaction with Clare is completed, I no longer have any exposure to cups at all. How does this manipulate the market any more than any other participant looking to buy or sell?

Oh. On no account try to repeat this analysis with one less girl and one less cup. That really is hazardous and, I'm told, not safe for work!

Filed under: Accounting 101, Capital markets, Economics with tags derivatives, market abuse, shares, short selling, stock lending
51001 Comment »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F09%2Fthree-girls-two-cups-how-short-selling-works%2FThree+girls%2C+two+cups%3A+how+short+selling+works2011-09-29+18%3A53%3A00Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D5100

Ritchie has his claws out:

I note Digby Jones, the former CBI director general and a trade minister under Gordon Brown (but never a member of the Labour party) has described the speech as “divisive and a kick in the teeth” for business. Well I have news for him. He’s wrong. I’ll reflect separately on what good business is, but what we can be sure of is that Digby Jones is the personification of all that is wrong with it: cronyism, self interest, monopoly abuse, employee abuse, environmental abuse, secretive, indifferent to community, indifferent even to shareholders and those like pensioners who depend on business profits for their future well being.

Oooh, get her!

Does this mark a reluctant acceptance that "You're wrong" is indeed now considered a valid argument, or is Ritchie failing to live up to the very standards he loves to require of others?

Filed under: Entertainment, Other blogs with tags hypocrisy, idiots, lord digby jones, richard murphy
50911 Comment »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F09%2Fritchie-vs-digby%2FRitchie+vs+Digby2011-09-28+20%3A05%3A14Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D5091

Ritchie gets riled by the brilliantly named @ssap9rulesok into spluttering the following:

Well, I happen to be an FCA too. And Ritchie is wrong. Here's why.

Just suppose you're a pension fund manager and you believe that a particular share of yours is overpriced, meaning that its price is set to fall. What would you do? Of course, you would sell it.

And suppose that you believe that that share is underpriced, meaning that its price is set to increase in the medium to long term. What would you do? Of course, you would hold it.

Now suppose that some fool comes along and offers to pay you to lend them that stock. You will get your stock back of course, and you will also get some cash for letting them borrow it. Clearly you think the share is underpriced, otherwise you would have already sold it. So, not only do you get to keep your share, you get some cash too. It's the ultimate example of having your cake and eating it.

So any self-respecting pension fund would happily take the money of anyone who wished to pay them to lend out their stock. Why not? If you think the shares will, in the long run, increase in value you've got nothing to lose and everything to gain. Stock lending is not only consistent with good fiduciary duty, it's virtually required by it.

Filed under: Corporate governance, Other blogs with tags fiduciary duty, pensions, richard murphy, short selling, stock lending
50602 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F09%2Fstock-lending-and-fiduciary-duty%2FStock+lending+and+fiduciary+duty2011-09-28+19%3A34%3A58Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D5060

The ICAEW's Tax Faculty has produced a couple of interesting posts on its blog about the tax gap.

Firstly, they reflect on the recent estimate by HMRC. ICAEW rightly observes that it's difficult to measure something that, by definition, people are trying to hide from them.

It is inherently difficult to calculate the tax gap because you are trying to measure what is not there and quantify what potential tax liabilities people have deliberately tried to hide from the authority. HMRC’s figure is considerably smaller than the equivalent figure which the TUC published three or so years ago and the figure that civil society currently thinks is the real extent of the tax gap.

They're playing their cards quite close to their chest, but it looks to me like they're siding with HMRC over the TUC/Richard Murphy estimate. In particular, they put the boot in to the very idea that you can estimate the tax gap via a top-down approach. They support this point of view in their second post, in which they've unearthed an intriguing paper by HMRC on why it rejects the top down approach to measuring the gap.

An HMRC working paper The practicality of a top down approach to measuring the direct tax gap concludes that such an approach isn’t going to be useful in determining the overall direct tax gap but it could be helpful in assessing some of the constituent elements of that gap.

If one can produce an accurate estimate of total income, including the income that is not declared to the tax authority, then it should be possible to apply the tax rate to that income and determine what direct tax should have been paid. The tax gap is then the difference between this theoretical total and the actual tax collected.

In practice there is no ‘source’ for data on this undeclared income because by its very nature it is not declared. Another defect of the top down approach is that even if one could arrive at a figure for the overall direct tax gap it wouldn’t provide an indication of where any revenue authority should concentrate its efforts to close that gap.

Given that one of the keenest advocates of the top down approach is one Mr Richard J Murphy Esq ¹, it's a thinly veiled slapdown of his estimate. And he thought they liked his work.

Filed under: Institutes, Taxation with tags hmrc, icaew, richard murphy, tax gap, tuc
5084No Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F09%2Ficaew-on-the-tax-gap%2FICAEW+on+the+tax+gap2011-09-28+17%3A53%3A03Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D5084

The ICAEW has issued some shiny new logos (member login needed). They say:

Any ICAEW member who is entitled to use the ACA or FCA designation may use the member logo. This includes members in business and practice. Sole practitioners may use either the member or the member firm logo.

Alrighty then, I will. I've added it to my sidebar. Thanks for creating them!

Filed under: Institutes with tags icaew, meta
5022No Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F09%2Fim-a-chartered-accountant-and-im-proud%2FI%27m+a+chartered+accountant+and+I%27m+proud2011-09-27+20%3A16%3A03Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D5022

Here's Tess Riley explaining why it was vital that they stuck their fingers to the glass and kicked over a couple of store mannequins:

Acquitted or otherwise, we know that we are not the criminals in this situation. Acknowledging alternatives to devastating spending cuts is a basic human right. The failure to do so is the real crime taking place around here. 

Well, Tess, I hate to be, um, chartered accountant about it, but don't you think you should look at what the government is forecasting for public sector expenditure over the next few years?

From page 48 of this year's Budget document:

Excluding capital expenditure, public spending is set to increase from £632.8bn last year to £656.7bn this year, and then increase each year up to £713.4bn in 2015-16. Including capital expenditure, it increases from £694.4bn last year to £710.4bn this year, and £763.8bn in 2015-16.

How the Brighton 9 can portray increased expenditure in every year across six years as 'devastating spending cuts' is anyone's guess. Can anyone explain?

Filed under: Current issues, Economics, Politics with tags brighton, budget2011, deficit, hm treasury, idiots, public sector current expenditure, tess riley, total managed expenditure, ukuncut
50512 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2011%2F09%2Fmore-is-less-a-brighton-9-defendant-on-why-they-did-it%2FMore+is+less%3A+a+Brighton+9+defendant+on+why+they+did+it2011-09-27+19%3A41%3A42Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D5051