Worst-case estimate for big corporate tax cases hits £42.8bn
HM REVENUE & CUSTOMS has more than doubled its worst-case estimate should it lose its most significant court cases, its latest accounts show.
The taxman is currently fighting several court battles over disputed tax payments, and in the worst-case scenario could be forced to refund as much £42.8bn to companies which believe they overpaid years ago.
Provisions where payouts are more likely than not rose by around a third to £7.2bn in the year to March 2015.
The largest portion of the estimate relates to ‘contingent liabilities’, where payments are considered possible, rather than likely. Contingent liabilities hit £35.6bn in the year to March 2015 – a rise of a fifth, after doubling the year before.
Companies involved include Littlewoods, the retailer, British American Tobacco, the tobacco group, and Prudential, the insurance group.
In June it emerged HMRC is seeking to appeal a ruling by the Court of Appeal to repay Littlewoods £1bn in VAT and interest.
The court found that the retailer’s case for compound interest on VAT overpayments that it made between 1973 and 2004 was valid – despite HMRC having already repaid the VAT with simple interest – and ordered HMRC to pay £1.2bn to the Barclay brothers-owned chain.
A spokesman for HMRC said: “HMRC wins more than 80% of cases at tribunal. We are required for accounting purposes to include an estimated contingent liability figure of potential repayments of tax. There is no question of this amount or anything close to this amount ever being repaid as the figure is based on our losing every single case currently being litigated, which is not going to happen.”
One of the issues topping the agenda in large enterprises is “Big Data” which is essentially how you as an organisation make use of the ever increasing amount of data within your business and act on the information it produces.
But is Big Data really just for large enterprises and corporate’s? The simple answer is no.
In a business world which is evolving quicker than ever before all businesses need to be aware of what is going on both inside and outside of their environment. New start-ups are harnessing the data produced by mobile devices and shopping on line to analyse their customer buying habits and locations to build better profiles of their customer. Established businesses need to leverage the intelligence they already have access to through their existing systems and also plug into the new cloud and mobile technology.
The value is in the data itself and not the size of the data and what businesses do with that data which is important. Getting access to the right areas of the data and then being able to interpret the results for the benefit of the business, whether that’s making decisions of product strategy’s, cost savings, expansion in new locations or even buying a competitor, data is the key ingredient which will give you the information on which a business can base its decisions.
The major difference between large organisations and SMEs is the amount of people that can be allocated to analysis and interpret the data. It is therefore essential that SMEs have an understanding of the information they require and what they are going to do with that information to help grow the business or improve their existing services.
Using existing systems
SMEs have a plethora of information locked away in their accounting/business and CRM systems that can be used to make business critical decisions and also give them business insight into where to take the company in the future. By using built-in Business Intelligence tools as basic as standard reports and outputting them directly to Excel, a business can perform further data analysis and “what if” scenarios.
This can then be taken a step further using Excel integration tools that allow businesses to build in depth models and you can then use pivots or cube analysis to dive deeper into the trends. By combining different areas of your business system to achieve the data access required will give you a greater knowledge of what is happening with your business.
The final stage is to use automated Business Intelligence Dashboards which provide graphical interpretations of your key performance indicators which are always showing the latest information delivered to your desktop. This means that once designed you don’t have to go looking for the information or trends and you can take immediate action if needed.
Looking outside of your internal systems, products like Google Analytics or email marketing tools can give you valuable web traffic information and combined with your CRM system can give you valuable customer and prospect details which will allow you to find more buyers of your product or service.
SME’s can be the winners in Big Data
One of the other key differences between Corporates and SME’s is system integration. SME’s usually have integrated systems covering their accounting, supply chain and CRM which has huge advantages over companies who use disparate systems as the data is held centrally and is therefore more accessible.
So as an SME you can take full advantage of Big Data to make informed decisions about your business, whether for competitive advantage, efficiency savings or expansion, but make sure that you know why you want the information and also that its relevant. There is no point wasting a lot of time and effort getting into Big Data unless you know what you want to achieve as a result so before doing anything make sure you have a plan.
Director, Sales & Marketing at Pegasus Software Ltd
Britain’s manufacturing lobby has called on George Osborne to protect infrastructure and investment spending
Manufacturers and retailers are offering to do more to improve Britain’s dismal productivity performance in return for stronger support for infrastructure investment, research and tax incentives to encourage higher rates of pay.
The productivity challenge, one of the Chancellor’s priorities, is highlighted in reports released by the EEF, the manufacturers’ organisation, and the British Retail Consortium (BRC) in an effort to influence next month’s Budget.
The EEF has invested heavily in promoting suggestions and policies in a paper that predicts 40pc of the next decade’s productivity gains will come from the manufacturing sector.
Ahead of an upcoming Treasury report, the organisation argues that the Government must not cut back spending on infrastructure or research.
The business lobby, which represents 5,000 members, calculated that in the past five years output per hour has risen four times faster in manufacturing than across the economy as a whole. Economists have argued that productivity growth is vital to ensure living standards continue to rise. The EEF found that manufacturers spend six times more on R&D than their output share of the economy.
Companies should be open about their tax arrangements. In short, they need to own the debate rather than become embroiled in it, writes Jonathan Riley.
Evasion, avoidance, mitigation; tax is the proverbial hot potato for many companies and an issue that’s never far from front page news. However, as a significant operating cost and burden on all businesses, lessening the load is essential. But to ensure companies tackle this within the spirit and letter of the law, and not fall foul of public opinion, they should be open about their tax arrangements. In short, companies need to own the debate rather than become embroiled in it.
Keeping pace
To understand the furore over corporate tax practices, we must first consider why tax has become such a challenging issue for business. Part of the reason lies with the nature of the beast. The tax regime is complicated and porous. There are specific country-by-country policies and often complex systems governing how these national frameworks interact (in some cases there’s very little governing the interaction between regimes, which is how tax havens are established). This intricate set-up makes tax fertile ground for opportunistic practices and often why businesses face public rebuke.
The other contributing factor is that the tax regime has not kept pace with the changing nature of business. Technology has broken down borders and enabled companies to market their products worldwide – whether through a physical or digital presence. But, in this new environment, how should we define where profits are generated (and therefore, where taxes should be paid)?
The risks of running Windows Server 2003 after support ends on 14th July are well documented. But, what happens next, and what are you to do.
We are here to help and go through:
How the IT landscape is changing in response to this issue
Why you need to keep pace with the latest IT strategy
The solutions out there and what you can do next
Contact us today for more information and advice
GDP growth in the first quarter was better than first thought, following changes to the way construction output is measured.
The UK economy is in better shape than previously thought, it emerged on Tuesday, after statisticians took a fresh look at the health of the construction sector.
GDP rose by 0.4pc in the first quarter of the year, the Office for National Statistics (ONS) said, faster than its previous estimate of a 0.3pc increase, but a slowdown from the 0.6pc growth reported at the end of last year.
The ONS also said that GDP growth last year reached 3pc, rather than the 2.8pc previously reported.
Joe Grice, chief economist at the ONS, said that the upward revision to first quarter growth “is down largely to the recently announced new methods to measure construction output”
The ONS has since December been using mathematical models to estimate the construction’s strength, rather than the hard data it had before.
This month the ONS revamped the way it calculates output, bringing its measurements of the sector’s strength “closer to reality”, analysts said.
Output in the sector is now estimated to have decreased by 0.2pc in the first quarter, rather than the 1.6pc drop initially pencilled in by statisticians.
Revisions to the data meant that the first quarter GDP growth was no longer the weakest since the end of 2012, but rather, the weakest since the end of 2013.
George Osborne, the Chancellor, said: “I welcome today’s news that growth was stronger than previously thought.
“The figures are another reminder that the economic plan we’ve pursued in Britain these last five years has increased our resilience.”
The Federation of Small Businesses is seeking tax simplification and reform in the Emergency Budget.
BRITAIN’S small businesses have called on the chancellor to reform the tax system – particularly around business rates – in the upcoming Emergency Budget.
In its first submission to the new government, The Federation of Small Businesses (FSB) has urged George Osborne to “strengthen the landscape for small businesses” and enterprise by continuing to reduce the deficit, stimulate growth and back ambitious small businesses.
The body has added its voice to those – including former Sainsbury’s CEO Justin King – seeking reform of the business rates, which many believe is outdated and penalises businesses that require physical property to run.
A review is already underway, and the FSB is seeking assurances it will provide “a new, fully reformed system that is flexible, fair, transparent and efficiently administered”.
The review is set to report back before the 2016 Budget, will look at how businesses use property, what the UK can learn from other countries about local business taxes, and how the system can be modernised to better reflect changes in the value of property.
The group praised the seed enterprise investment scheme (SEIS) – which provides relief to individual investors in small, early-stage companies – and entrepreneurs’ relief, a tax break for business owners. Both, the FSB said, have had a “positive effect in stimulating growth”.
The average small firm is keeping £230,000 in a current account, missing out on the interest payments they could earn by saving the money.
Britain’s small businesses are missing out on thousands of pounds of interest payments by refusing to move huge cash piles from current accounts to savings accounts.
Challenger bank Hampshire Trust Bank analysed the accounts of 500 small-to-medium-sized enterprises (SMEs) and found that the average small firm has an account balance of £230,000, as businesses hold on to capital in case of economic shocks.
Firms with fewer than 10 employees keep an average of £44,000 in their current accounts, while companies with between 100 and 240 staff hold more than £420,000.
The ratio of current account balances to savings balances stands at £1 to £1.17.
The possibility of Greece’s exit from the euro, the upcoming European referendum and a slowdown in the global economy have spooked business owners, who are reluctant to tie up their cash in savings products.
Just a quarter of the small business owners surveyed said they felt confident enough to put cash into a savings product for a year, with 56pc citing the need for greater cash buffers and 26pc claiming that the volatility of the economy was a cause for concern. This suggests small business owners are missing out on significant interest payments.
Hampshire Trust Bank claimed that using one of its savings plans, a small business that left £130,000 in its current account and moved £100,000 into savings would be £7,300 better off at the end of five years.
“For cash-rich businesses there is a huge opportunity to maximise their money and make more out of every £1 they are earning,” said Stuart Hulme, head of savings at Hampshire Trust Bank.
Small business owners and investors have been hit by a £6.8bn tax raid under changes to the dividend taxation system. Tax experts say it may lead many to consider selling up before the rules are implemented.
Small business owners who are top rate tax payers currently have the option of growing their business and paying themselves dividend income at a 30.6pc tax rate, or selling the company and paying capital gains tax at a rate of 28pc.
From next year the top rate of tax on dividend income will rise to 38pc, while capital gains tax is set to remain at 28pc.
20pc taxpayers
40pc taxpayers
45pc taxpayers
Effective dividend tax rate now
0pc
25pc
30.56pc
Rate after April 2016 (after £5,000 allowance)
7.5pc
32.5pc
38.1pc
Source: KPMG, HM Treasury
Dermot Callinan of the accountancy firm KPMG said: “This reform has the potential to incentivise private company owners to put themselves up for sale.
“We were not expecting this and the new rates has our clients thinking: ‘Is it better to now sell the business ahead of the changes’.”
Some investors will also share the pain. Under the new rules only the first £5,000 a year of dividend income will be exempt from tax.
For dividend income above this allowance, basic-rate taxpayers will pay 7.5pc, while higher-rate taxpayers will pay 32.5pc tax and those who pay the additional rate of 45pc will face 38.1pc tax.
The Treasury said the changes “will ensure that ordinary investors with smaller portfolios and modest dividend income will see no change in their tax liability – and some will pay less tax”.
It added: “Combined with the increases the Government has made to the personal allowance and the introduction of the personal savings allowance [which allows interest on savings accounts to be paid tax-free], from April 2016 individuals will be able to receive up to £17,000 of income per annum tax-free.
Mr Callinan, added: “While a million people who receive dividends will see an effective £5,000 tax-free allowance, the changes will increase top-rate taxpayers’ contributions by at least 25pc. For all that the Chancellor wants to encourage saving, the new tax structure could discourage many high-income investors from doing so.”
David Cameron to confirm large businesses will be compelled to reveal average pay for male and female staff
LARGE BUSINESSES will soon be required to publish average pay for male and female workers under a new law established by parliament.
David Cameron will announce the measure today as he pledges to “end the gender pay gap in a generation”.
Chancellor George Osborne announced in last week’s Budget a new national living wage which will take the rate for over-25s up to £9 an hour by 2020, a move said to help women who tend to be in lower-paid jobs.
Cameron admits there is a “need to go further” and hopes the laws on reporting pay “will cast sunlight on the discrepancies and create the pressure we need for change, driving women’s wages up”.
The gender pay gap is currently at 19.1%, which means a woman earns on average 80p for every £1 earned by a man.
In the UK, there is an average of 7,000 large businesses with over 250 employees; only 5 of these have published gender pay figures under a voluntary approach.
The policy is expected to come into force in the first half of next year and applies to all UK firms with more than 250 employees.
Kate Andrews from free-market institute the Adam Smith Institute told City AM: “Education, previous experiences, negotiating tactics, and unique ability all contribute to one’s salary, none of which can be known by comparing John and Jane’s annual take home pay on a spreadsheet.”
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