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My Cup Runneth Over March 1, 2016

Posted by Audit Monkey in The State of the British Nation.
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In recent months there has been considerable media coverage devoted to Google’s relatively small tax payments to the British government in comparison to its total turnover. Eventually Google paid £130m tax in the UK after a deal was struck with HMRC. (Full details can be found here.) I haven’t paid much attention to the Google tax debate as presumably, Google is domiciled in the US of A, is operating an overseas office in the UK and probably has a complex group structure which only those who are really that interested will investigate.

My real reason for ignoring the Google tax is I think that it’s a classic case of smoke and mirrors as there are far worse examples of tax evasion closer to home. To my mind the worse culprits are the Water Companies who provide water and sewerage services to firms and individuals in the UK. Those with good memories will remember that the old Water Boards were privatised in the late 1980’s and passed into private hands, i.e. shareholders rather than notionally owned by the public. So far, so good. Somehow, somewhere, ownership of the Water Companies passed to Private Equity firms and overseas investors, be it conglomerates or sovereign wealth funds. You are going to ask ‘how do I know this’?  Answer I wanted to invest my savings in equities and there is nothing safer than water as one has to drink, bathe and flush the toilet. Alternatively, one could live like Stig of the Dump or like someone from CBS Reality programme ‘Hoarders’ but on reflection, perhaps not.

So where’s my beef? Simple. I was sorting out my paperwork and came across an article regarding Yorkshire Water pushed in the Sunday Times from August 2014. (Incidentally, does this indicate I’m a hoarder?) In short, Yorkshire Water paid no corporation tax in 2013/14 yet paid its owners with £165m in dividends. Even the Regulator, OFWAT, complained that the ownership structures devised by overseas groups were obstructive. When I’ve investigated the private Water Companies further, I’ve found that gross profit is around 33%. For example, Pennon Group which owns South West Water turned over £522m and profit before tax was £168m. (See here.)

To my mind, these companies are prime candidates for a Windfall tax. I’m sure there are arguments against but surely a 33% gross profit margin is excessive as it suggests the customer is being well and truly screwed. And if you are going to go after big corporations for failure to pay tax, why not go for those whose assets and products are tangible and in close proximity?

ootnote – 3rd March 2016

I should add the following footnote in the interest of balance. One aspect I didn’t explore is deferred tax liabilities and losses elsewhere. As Water Companies invest heavily in the infrastructure, this attracts various tax breaks and hence, they pay less tax. Are you persuaded? Probably not!

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