AFTER THIRTY YEARS of being self-employed and having to organise my own financial affairs, there are two things I can say with certainty about taxation. The first is – if you are self-employed or run your own business, you should get yourself an accountant straight away to deal with it. They’ll save you money and keep the Inland Revenue off your back. Secondly – don’t believe anything the media say about tax and business. They’re ignorant and usually biased.
There have been numerous stories and complaints about big businesses avoiding paying their “fair share” of corporation tax recently, and nobody defining what that “fair share” is. Google and Starbucks figured as outstanding villains in the demonology of the popular imagination. The government got in on the act via its Public Accounts Committee, chaired by Margaret Hodge, who was happy to berate the CEOs of big corporations for legally minimising their tax bills in the same way as the family trust from which she herself benefits.
In most cases the brouhaha was righteous hot air and little action resulted from it apart from the occasional company coughing up some Danegeld to keep the mob quiet. After a bit of a lull, however, the witch hunt has begun again and this time it’s Facebook in front of the Inquisition. Here’s the Guardian laying out the charge:
Facebook made an accounting loss of £28.5m in Britain in 2014, after paying out more than £35m to its 362 staff in a share bonus scheme, according to the unit’s latest published accounts. Operating at a loss meant that Facebook was able to pay less than £5,000 in corporation tax to HM Revenue for the year.
Now it is a given that no one who writes for the Guardian, or most other papers and broadcasters for that matter, understands the difference between turnover (ie, sales, or income) and profit. If they do, they’re keeping pretty quiet about it.
Profit is what is left after the deduction of all business expenditure from income – which includes the cost of employing staff. To adapt Micawber’s famous dictum: “Annual income one million pounds, annual expenditure nine hundred and ninety-nine thousand, nine hundred and ninety-nine pounds, result profit. Annual income one million pounds, annual expenditure one million and six pounds, result loss”.
And it is a truth universally recognised (unless you are a British journalist) that you cannot tax a loss. No doubt the £5,000 that Facebook forked out is due to some kind of roll-over, but I’ll leave that to the professional pen-pushers to explain.
The grand irony of the current accusation is not so much that Facebook made a loss and is therefore not liable to corporation tax, but that it deliberately engineered the loss by paying its employees too much.
I should think there’s an additional irony (though, again, I leave it to the financial geniuses of the Guardian to do the research on this) that the amount of tax paid by those lucky employees is probably greater than the corporation tax the company would have paid if it had been stingy boss.
So it comes down to the fact that it’s really not the amount of tax that is collected from a company and its employees that matters to the progressives, but that the company should be seen to be handing over a slice of its earnings to the state. Corporation tax in this world view is a punishment for making profit, ie, from being successful. It has no less a luminary than Obama himself advocating a similar approach in 2008 when he said he would raise capital gains tax in the States, for “the purposes of fairness” even if less revenue was raised by doing so. Taxation has become a fetish.
And that’s another thing I’ve learned: never leave financial matters in the hands of fetishists who cant about fairness. They’re always looking to dip their fingers into someone else’s wallet.
