UHY Hacker Young plus tax policy equals total unmitigated disaster
Posted by Christie Malry on October 31, 2011 at 1:02 pm
Oh my days. Despite the utter nonsense they produced last time they tried to make tax policy, our mates at UHY Hacker Young have produced yet another total tax policy stinker:
The effective tax rate of FTSE-100 companies (i.e. the percentage tax they pay on their profits) is now just 26% compared to 35.8% two years ago. This tax rate has fallen even as profits have risen.
While this is partly a result of a fall in the headline corporate tax rate over the last two years[1], the steep decrease has also been partly caused by some British companies moving their headquarters overseas.
FTSE 100 companies are also generating a higher percentage of their revenues overseas. This means that they are able to take advantage of lower prevailing tax rates in those overseas jurisdiction
And they produce a little graph to support this claim:
They haven't shown their workings, so I can't work out precisely what they've done. I suspect they're taking the total tax charge in the accounts and dividing it by the profit before tax. This is, of course, going to produce totally stupid results because it will fail to take account of legitimate tax incentives provided by governments, such as R&D tax credits, whiich reduce the tax payable. Most seriously, to the extent that companies have made taxable losses which they fear may not be recoverable, they won't have provided deferred tax against them. So in 2009 the tax charge may have been higher than expected due to unprovided losses which ultimately did become recoverable in later years.
And you'd have thought that they might at least have read their own research. Their own table showed that the only major country with a corporation tax rate higher than 35% is Japan. So, unless the companies in their survey were miraculously making most of their profits in Japan, it's pretty unlikely that they would have been able to get a tax charge as high as 35.8%.
Two things are for sure. Firstly, while the lower UK corporate rate, relocating headquarters and revenues overseas might have some impact, this is dwarfed by the impact of unrecognised losses. Secondly, Roy Maugham and UHY Hacker Young should stay well away from tax policy. This is the second idiotic tax policy note they've issued in so many months. They're making the entire profession look ridiculous.
here's a scary thought... entirely speculative, of course.. what if in 2009 they simply added corporate profits up, and added corporation tax, and then gave us the percentage. because that would, i''d imagine, lead to a silly (and high) percentage because of those companies (banks) that made stonking great losses - but didn't, of course, get back big slugs of tax at the time.
i don't know who these people are... could they be that stupid?
Actually I suspect that's exactly what they did. Without their source data and a proper explanation of their methodology, there's not much I can do to prove it though.