18 January 2016
Category Opinion
18 January 2016,
 Off

The idiom ‘taking the biscuit’ has been given literal meaning by the recently-revealed tax avoidance of Cadbury’s US owner Mondelez International.

I have always been partial to chocolate fingers, but they will now be hard to swallow knowing the £149m profit generated by Cadbury in 2014 did not yield a single penny of tax for Britain’s public services.

Last week, a descendent of the company’s founders, Ruth Cadbury, contrasted this with the “very strong social ethics” that led her Quaker ancestors to create the Bournville garden city when they built a new factory outside Birmingham in the late 19th century.

“My forebears were more than profit-making chocolate manufacturers,” she said. “They built a community with a host of social and educational facilities at a time when there was no welfare state.”

The difference today, of course, is that a global giant like Mondelez owes no allegiance to any community and has no qualms about starving local services of cash.

Globally, Mondelez made a net profit in 2014 of £2.55 billion but paid only £353m in tax – an effective rate of 13.8% – by attributing costs where they were most beneficial in tax terms.

In the case of Cadbury, they offset interest on corporate debt against the £149m profit generated in this country to entirely avoid paying UK corporation tax at a rate of 21%.

As the Cadbury’s saga unfolded, Reuters published an analysis showing five major banks operating in London also paid no UK corporation tax in 2014.

The banks involved – JP Morgan, Bank of America Merrill Lynch, Deutsche Bank, Nomura Holdings and Morgan Stanley – had offset billions in profits against losses carried forward from the banking crisis because, unlike some countries, Britain has no time limit for this.

Faced with the outrageousness of banks exploiting a crisis of their own making to avoid tax, the government has in their case from 2015-16 restricted the offset against carried forward losses to 50% of profit.

But that is half-closing the gate after most of the horses have bolted – and it comes with the sweetener that corporation tax for all companies is reducing to 19% in 2017 and 18% in 2020.

The self-employed, meanwhile, are apparently not deserving of sweeteners. In their case, the government is planning to introduce quarterly tax ‘updates’ in 2020 to try to collect an extra £6.5 billion it says goes unpaid because of accounting ‘mistakes’.

These, we are told, will not be like full tax returns but will simply be a case of “checking data generated from record keeping software or apps and clicking ‘send’.”

But anyone who has started a business as a sole trader knows those words are bureaucrat-speak. Unlike corporate executives, the self-employed do not have minions to do this work – never mind find the loopholes.

And whether you call them updates or returns, the numbers you submit are likely to have a binding, upward effect on your tax liability – the stated intention is, after all, to raise nearly £1,500 per head from the 4.6 million self-employed.

Not surprisingly, opposition to quarterly reporting has been strong, with concerns raised about red tape, accountancy costs and the potential for fines. An online petition has gained more than 100,000 signatures in just a few weeks.

I’m one of them because I remember that when I started my own business in 1997 one of the most daunting things was the paperwork. Self-employment was recommended to me then as preferable to forming a company because it was less complicated.

And I was lucky to have an accountant friend who charged next to nothing for preparing my annual tax return. For three years I happily paid my way tax-wise with minimal fuss.

It was only when the business had grown to the point of employing seven people that the paperwork of incorporation seemed worth the trouble.

I’m not sure what I would do now if faced with quarterly reporting, but one thing is clear: the word ‘big’ needs inserting when the government says it is business-friendly.

There is, though, one consolation in all this: consumers are punishing Mondelez for changing the recipe of Cadbury’s Creme Eggs to cut costs – sales are more than £6m down. So much for their entrepreneurism.

 

Steve Howell

 

This article is Steve’s monthly business column for Walesonline and the Western Mail newspaper.

Steve Howell is also the author of Over The Line, a novel telling the story of an Olympic poster girl facing a doping crisis.

Follow him on Twitter @fromstevehowell

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