Britain’s failure means a poor child born in 1970 is less likely to have gone to university than one born in 1958, the MPs say.

Eh? That must be total bollocks, given that the number of university home places now is much, much higher than it was then.

Later in the article, they explain:

In 1981, children from the richest fifth of households were three times more likely than those from the poorest fifth to go to university. By the late 1990s, they were five times more likely to go.

But that's not the same thing at all. Because there are more university places, it's meant that more poor people can go than ever before. The fact that richer people are also more likely to go is irrelevant to the opportunities for the poor.

And we can't let this go:

Studies have shown that while only 42 per cent of parents in the poorest fifth of homes read to their children every day, 78 per cent of those in the richest fifth do so.

Wealthier parents are also more likely to send their children to bed at a regular time. It has led to richer children being more likely to be deemed ‘ready’ for school at three.

These both cost nothing. And it's pretty hard to blame the rich for the poor not reading to their kids or putting them to bed on time.

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Filed under: Other blogs with tags daily mail, idiots, poor, rich, social mobility, university
66213 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2012%2F05%2Fdrivel-about-social-mobility%2FDrivel+about+social+mobility2012-05-02+09%3A20%3A53Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D6621

Simon McKie, writing in the Church Times, says:

Many are deeply sceptical about the efficacy of Government spend­ing. A wealthy man who chooses to give £1 million to a charity decides to trust the charity to spend that amount of his wealth for the good of others rather than to allow the Government to spend half of it. That does not seem to me an irrational preference.

And Ritchie replies:

That is tax avoidance.

Ritchie has jumped the shark here. Where a tax concession being used in precisely the way it is intended is described as "tax avoidance", the term loses all its meaning. 

Parliament intends that an individual's "taxable income" be assessed for income tax. And "taxable income" excludes donations to charity. So it's not tax avoidance. There is no tax because it isn't taxable income.

Saying that tax might have been higher had things been different is a totally pointless exercise.

Filed under: Taxation with tags charity, church times, idiots, richard murphy, simon mckie, tax avoidance
66182 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2012%2F05%2Fstretching-the-definition-of-tax-avoidance-to-breaking-point%2FStretching+the+definition+of+tax+avoidance+to+breaking+point2012-05-01+09%3A28%3A47Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D6618

Not content with having a go at Barclays, Pirc is now taking pot shots at Standard Chartered and my old firm, KPMG:

KPMG IS THE latest Big Four firm to face criticism from shareholder governance group Pirc, which is calling on shareholders to vote against its re-appointment as auditors of Standard Chartered, Accountancy Age has learned.

The shareholder governance group is urging institutional investors to vote against the bank's annual report; auditors and audit committee chair Rudy Markham because it claims it has failed to to provide a "true and fair view" of its financial position.

In the case of Standard Chartered, Pirc is claiming that the bank's overstated profits include bonuses of $828m that have been deferred but not expensed, and provisions for bad debts that amount to $2.8bn.

Now, I'm no particular friend of the Big 4. But I'm afraid to say that Pirc has got it horribly wrong on both counts.

Bonuses under long term arrangements are recognised over the period over which they vest. Now, a particular concern of politicians and the public has been bankers taking big bonuses today when the bank falls over tomorrow. So pressure has been brought to bear to ensure that bankers must wait several years to collect their bonuses. In order to tie bankers in, the bonuses have "strings" attached, conditions that need to be met in order for the bonus to remain payable. Under IFRS, the bank makes an estimate of the likely level of payment and recognises it over the period of vesting, usually three years. The reason the bank hasn't expensed the profits yet is because they haven't been earned yet. They could still not be paid, should the conditions not be met.

Bad debts in banks are recognised on an "incurred loss" model, ie the bank must have some evidence that a debtor is likely to fail to repay their debts. Now this does understate the level of bad debts because there will be some debts for which there is no evidence today but on which the debtor will default in the future. In the bad old days of 1980s accounting, banks were allowed to provide general provisions for such debts. But the intention wasn't better accounting, it was used to smooth profits out of good periods in order to hide some of the dismal performance in bad periods. This flattered profits during periods of downturn and allowed managers more discretion about meeting targets that might trigger bonuses. Unimpressed, the standard setters removed this subjectivity. The loss provision in the accounts isn't "understated"; it's a deliberate approach that the standard setters are demanding in order to prevent management from cooking the books.

But political pressure being what it is, the standard setters are returning to the "expected loss" model and are very likely to reintroduce it at some point. The idea that it will solve bank reporting at a stroke is, shall we say, unproven.

I find the Pirc campaign pretty frustrating. It's a shame that their knowledge of IFRS is so poor that they can make such fundamental errors. It's also a great pity that their ignorance has gone completely unchallenged by the business editors of the major newspapers. Is there anyone (other than me that is) that is prepared to tell the world they have no clothes?

Filed under: Accounting, Current issues with tags banks, barclays, bonuses, expected loss, idiots, ifrs, ifrs 2, incurred loss, kpmg, pirc, share based payments, standard chartered
66014 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2012%2F04%2Fbunch-of-pircs%2FBunch+of+Pircs2012-04-30+08%3A38%3A08Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D6601

It makes no sense at all – and reveals a belief by many that the wealthy count for more – that their hypothecation of government funding to charity carries more pro rata worth than the giving of basic rate taxpayers and those who do not pay tax at all

Erm, if you want a progressive tax system, and we know Ritchie does, and if you  have a tax system that encourages charitable giving by allowing donations out of pre-tax income, as we do, then it's a necessary condition of mathematics that you will forego more tax when a rich person donates than when a poor person donates. It's simply not the case that the wealthy count for more, other than in the sense that they count for more tax receipts. Even after their charitable donations, their net tax payments will still be higher than the vast majority of the population.

And if it really "makes no sense at all", then that's probably because Ritchie is an idiot. People who don't pay tax at all can hardly expect a bigger tax concession than those who pay 45% of their income in tax, can they? They get less because they make such a little contribution to the Treasury in the first place. It really isn't that hard. And it is, after all, merely the flip side of a tax system which, by design, taxes the poorest less and the richest more.

Filed under: Taxation with tags charity, hmrc, idiots, income tax, progressive, richard murphy
66083 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2012%2F04%2Fthe-flip-side-of-progressiveness%2FThe+flip+side+of+progressiveness2012-04-29+21%3A08%3A09Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D6608

Via Accountancy Age:

Labour MP John Mann, a member of the Commons Treasury select committee, said Goldman Sachs should not defer tax payments when it was able to pay now.

"It's morally and ethically wrong. These are people who are at the heart of the problem in the financial world who've paid extraordinary bonuses to their partners and aren't prepared to pay a fair amount of tax. It's pure unadulterated greed."

Oh, FFS! With stupidity this unrestrained, it's a wonder John Mann can tie his shoelaces, let alone get elected as an MP and serve on the Treasury Committee.

A company's tax bill is determined by tax law. And its reported profits are determined by accounting standards. Big companies report their consolidated profits for all the countries in which they operate.

Now these two sets of rules are different. So it's hardly surprising that sometimes they give different results. While some of the differences are about measurement, most of them are about timing. And usually this means the financial reporting numbers are faster to recognise profit than the tax man. The reason for that is to make it more likely that there's cash to pay the tax bill when it arises.

Because the main difference is one of timing, accounting standards force companies to account for these timing differences in their financial statements. And that's where deferred tax comes in. But deferred tax is a pure accounting concept. It's not something that otherwise means anything.

So John Mann is being a prime fuckwit when he talks about Goldman Sachs deferring their tax bill. The amounts that are reported as deferred tax aren't due. They represent profits in the financial statements that will give rise to a tax bill at some point in the future but don't give rise to one now.

Goldman Sachs might well be able to pay more now. But there is simply no "more" tax bill to pay. Not until the profits reported this year become taxable in future years.

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Filed under: Taxation with tags accountancy age, corporation tax, deferred tax, goldman sachs, idiots, john mann
65876 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2012%2F04%2Fgoldman-sachs-and-the-timing-of-tax-payments%2FGoldman+Sachs+and+the+timing+of+tax+payments2012-04-27+10%3A40%3A55Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D6587

Tax Journal reports that the BBC has had to apologise to Sir Philip Green for insinuating that he's a dirty tax avoider:

Today presenter Evan Davis said: ‘We need to clear up something from earlier this week ... We said that Sir Philip Green had cut his tax bill in the UK by hundreds of millions of pounds by transferring ownership of Arcadia ... to his wife. We’re happy to make it clear that Arcadia was bought by Lady Green in 2002, and because she has not lived in the UK for 15 years no tax was due in this country on any dividends that were paid to her. We apologise for suggesting otherwise.’

Now let's hope that Dishface also apologises for his crass contribution to the tax avoidance debate.

Then let's also hope that the BBC corrects Ritchie live on air every time he describes tax-compliant behaviour as tax avoidance.

Filed under: Taxation with tags bbc, david cameron, evan davis, idiots, richard murphy, sir philip green, tax avoidance, tax journal
65758 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2012%2F04%2Foh-this-is-fantastic%2FOh%2C+this+is+fantastic%212012-04-25+18%3A35%3A01Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D6575

Ritchie lays into deferred tax, which is included within the analysis of 'tax paid' within the CBI report:

What I will argue about is that they use the tax charge in the accounts as the measure of the tax paid by a company. This is just financially illiterate! Deferred tax is just an accounting entry and has literally nothing to do with tax that is being paid now. 

Now, if one of the main purposes of tax avoidance activity is to defer the time when tax is due by, for example, hiding profits in tax havens or seeking double allowances for tax or by postponing the recognition of income for tax in multitudinous ways (and I can assure you that this deferral is one of the main motives of tax avoidance because this deferral very often triggers extra payments under executive bonus schemes – linking this issue and excessive pay, inextricably and so explaining why multinational corporation directors are so dedicated to tax abuse) then to include the deferred tax charge in a company’s accounts (itself one of, if not the most subjective number in any set of accounts) in the tax charge is to ignore the fact that this accounting is precisely designed to disguise the fact from those lacking curiosity (like Oxford tax academics) that this tax avoidance is going on by suggesting a tax bill exists when there is none, and may not be for some considerable time to come, if ever.

What this means is that given that the tax gap is entirely about tax not being paid  then  basing an analysis of effective tax rates on a measure that deliberately and knowingly ignores the fact that tax is not being paid by including an accounting entry that disguises that fact as if it were tax paid when it is no such thing is to candidly, blatantly and knowingly distort the resulting data presented on effective tax rates and the tax gap. It can’t be anything else.

This is basically a load of Ritchiebollocks. A key part of the argument made by tax campaigners such as Ritchie is that the profit within the financial statements should fundamentally be taxable. And that's why you see them leafing through annual reports to find companies with high accounting profits but low tax charges. Then they go into their high street stores and glue their noses to the window.

Now, tax systems don't work directly off the accounting profit. They work on a national - not consolidated - basis. And then, while they may use the accounting profit as a starting point, they frequently amend it to make the system fairer for the companies that pay corporation tax. So, tax systems usually don't allow depreciation to be deducted in tax computations. Instead, they apply a different approach, which recognises that a company that has spent many millions of pounds on new equipment to generate profits in the future probably wants a hefty tax deduction today (instead of the accounting approach which would spread the cost over the useful economic life of the acquired assets). Similarly, companies that invest in R&D frequently get special incentives from government to do so, because it is costly upfront but may generate growth in the future.

Sometimes the tax system treats a transaction the same way as the financial reporting system. Sometimes it recognises costs or income earlier and sometimes it recognises costs or income later. Where the timing is different, financial reporting requires a deferred tax entry to be recorded, to reflect that the tax treatment is the same, just in a different period. When tax catches up with financial reporting, or vice versa, the deferred tax entry is reversed. The basic idea is that it makes the overall tax charge in the accounts smoother.

But you'll see from all this that the broad objective is to match accounting entries against their ultimate tax treatment. So it's ludicrous to suggest that deferred tax is "just an accounting entry" that has no relevance to the overall tax rate being borne by the company. And it's even more ludicrous to compare the current tax charge to the current year reported profits without considering what portion of the current year reported profits will give rise to tax liabilities in the future. Deferred tax helps you understand that. Ritchie, it appears, would prefer it if you didn't understand it.

Filed under: Taxation with tags corporation tax, deferred tax, idiots, richard murphy
65652 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2012%2F04%2Fritchie-and-deferred-tax%2FRitchie+and+deferred+tax2012-04-23+22%3A50%3A07Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D6565

I just don't understand this at all:

This is why I was particularly horrified to discover today that Addenbrooke's Hospital on the Cambridge University Hospitals' grounds are building a commercial hotel. The purpose of the hotel is so that international patients arriving from the oil rich countries will have somewhere comfortable to stay on their visits as they travel to Addenbrooke's to have private medical operations carried out. 

The NHS Trust at CUH is now a fully paid up member of the Health Tourism industry. Just quite where this leaves our English patients who can neither afford commerical hotel fees, or the money to jump the queue for private treatment remains to be seen.  Apologies for depressing you further when I tell you that that black building (the hotel) will also include an exclusively private hospital on NHS grounds. If you're poor you'll never see the inside of it.

Addenbrooke's wants to build a hotel to be operated on a commercial basis in order to raise funds that it can then use elsewhere. How does this impact NHS care at all? Suppose there's a world class surgeon who is enticed to Addenbrooke's by the commercial work, but who will also work 1 day a week on NHS patients. Without the hospital we would never have been able to acquire her services. But now we can. This can only enhance patient care in the NHS.

The fact that NHS patients won't be able to access the services within the hotel itself is totally irrelevant. Does anyone (seriously) suggest that Oxfam should be required to close all its shops because Africans are too poor to shop there?

Filed under: Economics with tags addenbrooke's hospital, eoin clarke, idiots, nhs, oxfam
65601 Comment »http%3A%2F%2Fwww.fcablog.org.uk%2F2012%2F04%2Feoins-beef-with-the-private-hotel-at-addenbrookes-hospital%2FEoin%27s+beef+with+the+private+hotel+at+Addenbrooke%27s+Hospital2012-04-23+22%3A29%3A59Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D6560

So there's this idea floating around out there to give companies that pay their fair share of tax in the UK a FairTax emblem:

Company FairTax emblem

Similar to the 'FairTrade' emblem, companies that pay their fair due in tax for doing business in the UK would be awarded the emblem. Many smaller UK companies would get this by default when they don't do any (or a very small percentage) of overseas business.

The goal is to stop global multi national corporations doing business in the UK and then funnelling their business through foreign subsidary companies therefore paying minimal tax in the UK. Examples include Apple, Amazon etc. The Amazon example is of only paying £124 million in tax on £7 billion of revenue from the UK.

If you want to do business in the UK you must support the UK too.

Now there's a rather big problem with this. And that's that they don't define who is going to be responsible for issuing the FairTax emblem. If it's going to be the usual bunch of rabid crusties and Ritchies, then it's fair to say that everyone will soundly ignore it. Just as I suspect Amazon can barely feel the impact of recent criticism of its tax structure. Lots of people might mutter about it, but they'll all happily shop there. You can judge how strongly Ritchie feels about Amazon by the fact that his book is still available for sale there.

A crusty-led scheme would have to be mandatory. But they have grander plans for FairTax. They would like all multinational companies to be required to have it (eg see Mike Saunt's comment timestamped Apr 23, 2012 5:32 pm). Now, in order for this mandatory version to work, it would need to have a government department or quango behind it to distinguish between those who pay the fair amount of tax and those that do not.

And there's the problem. We already have a government department for distinguishing between those who pay the fair amount of tax and those that do not. It's called HMRC. And HMRC has a very detailed and complex set of rules that it must follow for determining whether a company's tax payment is fair. Those rules are laid down by Parliament and frequently need considerable professional judgement on how they should be applied, both by the taxpayer and by HMRC. Some of the more difficult disputes end up in court to be resolved.

You just can't wave away all this complexity by renaming it as "FairTax". No matter how many signatures your petition gets (32 at the time of writing).

Filed under: Taxation with tags 38 degrees, amazon, complexity, fairtax, hmrc, idiots, mike saunt, parliament, richard murphy
6554No Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2012%2F04%2Fthis-fairtax-idea-wont-work%2FThis+FairTax+idea+won%27t+work2012-04-23+22%3A19%3A58Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D6554

On AccountingWeb, I notice the following comment:

I have always thought it unfair that £100 of child benefit is worth £100 to a non-taxpayer but £167 to a 40% tax payer

That's a really strange way of looking at it.

Sure, in order for a 40% tax payer to take home £100, he/she needs to earn £167 whereas someone who doesn't pay tax would need to earn just £100. But each person only has £100 in their pocket at the end of the transaction, because the richer person would have to pay £67 back to HMRC while the poorer person pays nothing. And the 40% tax payer can't buy £167 worth of goods with their child benefit. Like the non-taxpayer, they can only buy £100 of goods.

So the idea that it's worth "more" to the richer person is, really, pretty idiotic.

Filed under: Other blogs, Taxation with tags accountingweb, child benefit, higher rate, idiots, income tax
65491 Comment »http%3A%2F%2Fwww.fcablog.org.uk%2F2012%2F04%2Fa-very-strange-way-of-looking-at-child-benefit%2FA+very+strange+way+of+looking+at+child+benefit2012-04-23+21%3A47%3A17Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D6549