Why do companies pay tax?

[rpm]

Sure. Just as there is in many areas of the law. Fortunately we have judges and courts to decide which side of the line a specific company or individual stands.

I`m happy with that Ray but when these companies can pay big bucks to the same people the government pay for advise on UK tax laws then there has to be conflict of interest.

 

[stevetheplumber]

I`m happy with that Ray but when these companies can pay big bucks to the same people the government pay for advise on UK tax laws then there has to be conflict of interest.

the trouble with that staement is the top men in the field comand huge wages which the goverment would be crucified for paying to employed staff so they are forced to use the same people as they are free lance but they pay them as consultants and probably pay more
similar situation with medical staff agencies most agencies are part owned by the very people running the health service
to a certain degree there is a similar situation with gas the people who advise the making of the regs are often involved with the training industry who benefit from ever changing rules that every one has to pay to be trained in

 

[rpm]

I know and agree Steve, just saying it`s wrong.

 

[Ray Stafford]

The answer must lie in simplifying the system, so there is little advantage to employing high powered consultants.

 

[rpm]

The answer must lie in simplifying the system, so there is little advantage to employing high powered consultants.

Along the lines of all companies pay the rate of tax that is due to the government of the country in which they trade not where their HQ is registered, then you stop companies buying up other companies in other countries purely for tax avoidance reasons.

 

[Ray Stafford]

Along the lines of all companies pay the rate of tax that is due to the government of the country in which they trade not where their HQ is registered, then you stop companies buying up other companies in other countries purely for tax avoidance reasons.

The trouble is that corporation tax is (rightly) levied on profit, not turnover. Its possible to have a massive trading presence, but make no profit. Equally, its possible to move profits between different jurisdictions in such a way that its incredibly difficult (impossible?) to prove whether it was done for genuine business reasons or just to minimise tax.

The best solution would be to harmonise tax rates across countries, so there was no benefit to be had. However, since being a tax haven is a large part of the economy of some countries, there is little prospect of that.

Another possibility is to move away from taxing profits, and tax some other element of corporate activity - like the payroll or property taxes mentioned earlier. This also has some negative effects - for example, if we have high payroll taxes, it encourages businesses to move still more jobs to countries with both lower wages AND lower payroll taxes.

The chancellor is steadily lowering corporation tax, continuing a trend by chancellors of all political parties. From a peak of 52% in 1983, they will have fallen to 18% by 2019, which I think is the lowest in the G20. Ironically, Britain may actually benefit by companies choosing to pay tax in the UK than in one of the higher tax continental countries.

The actual income to the treasury from 1980 to 2020, will be almost exactly the same - at about 3% of GDP plus or minus 1%. The variations, peaks and troughs in the graph of corporation tax receipts, clearly show booms (lots of profit = lots of tax) and recessions (little profit and falling tax receipts) but many cuts to the actual rate at which it is levied does not seem to reduce the amount it raises in the long run.

 

[voivod]

And another tax avoidance in a roundabout way>
Those tax avoiding companies who pay crap wages....WHY .....because we then HAVE to top up their crap wages with tax credits to make a bad wage a wee bit better ....seems bad you work 40+hrs and hae to really on tax credits .

 

[Ray Stafford]

And another tax avoidance in a roundabout way>
Those tax avoiding companies who pay crap wages....WHY .....because we then HAVE to top up their crap wages with tax credits to make a bad wage a wee bit better ....seems bad you work 40+hrs and hae to really on tax credits .

This is another difficult one. I just don't know where the line should be drawn.

We are a living wage employer* - so even our entry level staff earn quite a lot more than the minimum wage. So if a young childless couple both worked for us and lived in an area with relatively inexpensive housing, they would enjoy a reasonable standard of living.

However, imagine the same couple now have 3 kids, and she gives up work - partly because she wants to look after her own kids and partly because childcare amounts to more than she can earn.

All of a sudden, there is no way that they can survive on his money, even if we gave him another 20% payrise, it wouldn't be enough. Is that the employers fault?

There simply isn't a good solution. If you force up the minimum wage, then inevitably some jobs will be lost. The more you push it up, the more jobs will be lost, because either automation or offshoring will be cheaper. So you benefit those in work, but at the cost of creating more unemployed, and making it much harder for those with marginal skills to find work.



*a proper living wage, not the nonsense that Osborne came up with in the budget

 

[rpm]

Most clever companies dodge it all anyway, Starbucks probably still pay less tax than me :/

Saw today that Starbucks UK paid 8m tax.

 

[firemant]

Why don't they calculate in advance what is due and spend it all on training/expansion/equipment? Is there a law against this?

Because 100% tax deductible only means that you can reduce the taxable amount by the cost. It does not reduce your tax bill by 100% of the cost (if that is what you meant). So you would still have to stump up the balance . So (for a company with a turnover up to £300k) a £10000 qualifying purchase/expense will "save" the company £2000, but cost £8000.