Big companies like Starbucks and Amazon makes millions of pounds each year. Yet somehow they seem to be paying less tax than the rest of us. Say what?
Companies in the UK must pay corporation tax. This is a tax on the profits a company makes. It’s worth mentioning that profits are not the same as sales. Profits are your total sales, minus your costs. Basically what’s leftover at the end.
At the moment the corporation tax rate in the UK is 20%.
So if your company makes £100 in profit, you would need to pay £20 in corporation tax to HM revenue and customs.
All good in theory. Yet in reality many large companies are bringing in big profits, but paying low amounts of tax.
[SOR tax evaders video]
According to charity group Actionaid the UK’s top 98 companies are using tax havens. These are countries which offer businesses and individuals low tax rates.
Two key terms: tax avoidance and tax evasion. They sound the same, but are actually very different.
Tax avoidance is legally using loopholes in the law to reduce the amount of tax that you pay. We’ll repeat again, legal.
Tax evasion is illegally escaping paying taxes, usually by hiding your income.
When we hear about big companies in tax scandals, we’re probably hearing about tax avoidance. In these cases the companies haven’t broken the law. They’ve just worked the system to lower their tax bill. Sneaky or what?
There are a variety of ways that companies can legally lower their tax bill. Most involve lowering profits – as low profits mean you pay less tax.
However, if the profits were actually lowered then the company would be making less money. Cue lots of anger from investors.
Stephanie Flanders from the BBC explains how moving money around within a company can reduce profits (therefore reducing tax) and save you a lot of £££.
Still confused? Tim Bennett from Money Week goes into a little more detail;
In nutshell: UK section of the company buys and sells to other branches overseas – the cost of doing this reduces the company’s profits (which reduces the tax bill) while most of the money remains within the company.
Or in other words: UK tax law is a f@%king mess.
People get very angry about big business seeming to have an opt-out from paying taxes, whilst most mere mortals have no choice in the matter.
The current debate over tax avoidance erupted around the time of the Occupy Movement. This is an international organisation campaigning against social and economic inequality. Occupy’s slogan “we are the 99%” highlights how the 1% minority seem to play by different rules to the rest of us.
Large companies can afford to pay teams of legal experts to find potential loopholes in tax law.
They can also afford to set-up and run their business from countries with lower tax thresholds. Both of these are options that smaller companies potentially don’t have.
Our taxes pay for public services like roads, schools, hospitals and the police.
Anti-tax avoidance campaigners argue that companies avoiding paying tax are depriving the country of money which goes towards these things. They believe that companies which operate and benefit from a country should all pay the same tax as the rest of us.
The Robin Hood Tax idea goes even further, suggesting we should charge a tax on all large financial transactions which would pay for public services.
However big multinational corporations say that they do pay the correct amount of tax. Legally this is true. Who’s to say whether this is a “fair” amount or not?
As Toby Young explains there is no real definition of a “fair” share of tax. Therefore if we think the fair share is actually higher than the rate set by the government then everyone who fails to volunteer to pay more tax is guilty of tax avoidance. Slightly awkward.
There is also the elephant in the room – that most of us have probably avoided tax at some point in our lives.
Picked up some cheap booze at the Duty Free stand after a holiday?
Yep, that’s technically avoiding tax. Perfectly legal though.
So, do we only care about tax avoidance when it is large companies involved? If so, there’s something of a double standard going on here.
Even if it seems like tax avoidance is bending the rules, a 1936 court case sets the precedent that this is fine. A ruling by Lord Tomlin on the Duke of Westminster’s tax arrangements stated;
“Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax.”
Meaning: people may not like it but as long as you’ve stayed within the law then it’s all good.
Many people who disagree with tax avoidance protest by boycotting the company involved.
For Starbucks this is easier than you think. I’ll just get my soy double shot espresso macchiato from another shop. Amazon? OK, fine, I’ll have to do my shopping in real life. Slightly annoying but all for a good a cause.
Boycott Facebook? Riiiight, so how are people going to see my latest selfie?
How about Google? WELL HOW THE HELL AM I GOING TO KNOW HOW TO GET ANYWHERE??!*
Sooo… boycotting may not work long-term.
However, you could write to your MP raising the issue, or join any one of the many organisations campaigning against tax avoidance. Or maybe you think the tax system works just fine. Let us know in the comments below.
* We hear great things about paper maps.
Affordable housing is one of our biggest concerns. Prime Minister David Cameron promises to build 200,000 new starter homes for new buyers… wait, aren’t we “generation rent”?
At the moment there is a lack of affordable housing across the UK. This lack of homes is pushing the price of houses up, up and up – meaning fewer people are able to buy their own home. There are a number of reasons why this is happening. The government builds way fewer houses than it used to in the 1960s and 1970s. The Conservative government in the 1980s led by Margaret Thatcher sold off council houses under the “right to buy” scheme. The scheme was a popular policy, but critics claim it created a shortage of housing. Another major reason is that planning permission for houses takes a long time to be granted. Not all permissions lead to houses being built.
Prime Minister David Cameron just promised to build 200,000 new homes which will be available for people to buy.
“Those old rules which said to developers: you can build on this site, but only if you build affordable homes for rent …we’re replacing them with new rules… you can build here, and those affordable homes can be available to buy.”
Whether this is achievable is uncertain… in 2007 the Labour government set a target of building 240,000 homes a year. Admirable idea… but they failed to meet this target. Even if the government hits this target it may not solve high rents. The Guardian reports that offering subsidies (benefits usually in the form of a cash payment or tax reduction) to builders creating more homes has actually made things worse.
Many call 16-25 year olds “generation rent” as rising house prices mean we are less likely to be able to afford to buy a house.
The housing crisis is also pushing up rents – even faster than the price of actually buying a house. The cost of renting a room in London has jumped more than 20% in the past five years. Landlords, rejoice.
The average price of renting in London is now £1,500 a month; outside the capital is £751. Don’t forget that when renting you’ll also usually need a month’s rent as a deposit. Affordable for some, but not for those searching for work, on lower paid jobs or zero-hours contracts.
It would seem new affordable houses are definitely needed. However, the i100 reports that housing charity Shelter is skeptical over whether David Cameron’s promised new homes are actually that affordable. They say on the minimum wage only 2% of homes would be affordable. Hmm.
One thing is for sure; rents are rising faster than our wages. Paying more for rent means you’re unable to save as much (if at all) for a deposit or mortgage, lowering your chances of getting your own place or saving for a pension. In many countries it’s the norm to rent all your life, but in the UK we seem to want to own our homes. The result? More and more graduates are moving back in with their parents to save. There’s been a 28% increase in 20-34 year olds living at home since 1997.
Searches for shared rooms have risen dramatically in the last few years as others cut costs by sharing a room. It takes two to tango.
The problem is that as people become more desperate for a place to live they end up forking out extortionate amounts for cramped and often substandard accommodation.
Take the single room in Clapham advertised at £800. Or the £730 per month “fully contained” flat … basically a bed in a kitchen. This “loft conversion” (see; cupboard) was posted at the reasonable price of £40 per week. The catch – there is no standing room. Your affordable halls of residence seem like a distant daydream, don’t they?
Warning; thinking about the housing crisis for too long may lead to nausea/anger/fear/a cold numb feeling spreading through your whole body.
However we’re practical folks here at Scenes of Reason so we’ve compiled a some ways to escape the housing crisis and jump on that property ladder.
The government runs a “Help to Buy” scheme which allows you to buy a house with a smaller deposit.
Under the scheme first time buyers are able to buy a property up to £600,000, paying only 5% upfront as a deposit.
Usually you’d need around 10% for a deposit. Happy days!
The government is also offering a loan to cover 20% of the price of a new property. For the first five years you won’t be charged fees on this loan.
The BBC also has a calculator which tells you where in the country is cheaper to rent or buy. However, perhaps just buying or building houses may not solve the housing crisis.
According to the Empty Homes Charity there are over 200,000 homes left empty for over six months, and over 600,000 houses empty in total. So perhaps to solve the housing crisis we should start trying to fill these houses, rather than just building new ones?
Will David Cameron deliver on his promise to build 200,000 new homes? Will these even be affordable? How can we end the housing crisis?
Take action: If you think more needs to be done, sign the Housing Federation’s Change.org petition “Solve Our Housing Crisis”
RBS Sale Explained; Why is the government selling Royal Bank of Scotland?
Bankers like risk.
Financial Crisis in a Nutshell: The US market had lent BIG amounts of dollar to people in risky subprime mortgages (given to people with bad credit ratings). Basically, they shouldn’t have risked so much.
When people started defaulting (failing to pay back money owed) on their mortgages, the banks, like Royal Bank of Scotland, should have been able to cover the losses with their capital (AKA savings). But they didn’t have enough saved. Bummer.
The Labour government decided to save Royal Bank of Scotland by buying up shares in the bank. This meant RBS was declared solvent (able to pay your own way) and was able to get emergency funding from the Bank of England to keep going.
RBS was now essentially publicly owned; the UK government owns around 80% of RBS shares. By pouring money into a bank bailout, they hoped to prevent the bank from failing; which would have led to job losses and depositors losing money. In total around £107.6 billion of taxpayer’s money was spent on sorting the banks out.
The government spent £46 billion buying shares in Royal Bank of Scotland. Now a report by independent financial advisers, Rothschild, states that now is the best time to have an RBS sale to start selling the shares.
The small print: because the values of the RBS shares have dropped since they were bought, the government is set to make a loss of £7 billion on the RBS sale.
But because the other banks the government have bailed out have done better; the government is actually set to make a profit of £14 billion. Eventually.
Even though the government is making a profit, they will still be £7 billion down after the RBS sale. So they’ve lost money from bailing out a bank which didn’t do the best job of keeping our money safe. That’s £7 billion which could have been spent on other things.
But as we said, the government is estimated to make a profit overall. So it could be a lot worse.
People have blamed the bankers for the financial crash, others have blamed the government for not putting enough regulation in place to stop this from happening.
Change is coming; we explored how the new rules mean HSBC is separating its high street branches from the investment side of the bank.
Something called TTIP is being discussed in Europe. It’s all about Europe and America. Those in the know are getting pretty vocal about it; so it’s about time we got decoded.
This means nothing to me.
OOOOH, trade. Like with Pokemon cards?
Right now there are lots of problems with the EU/USA trading and doing business. Due to the fact that the US and Europe test products like cosmetics and genetically modified foods in different ways, they aren’t able to trade with each other.
This has been annoying companies on both sides of the Atlantic for a while now, so they’ve designed this new deal to sort it out.
TTIP will cut the red tape by merging current standards for testing. If TTIP is passed, products such as makeup from both the EU and America will be tested the in the same way, seamlessly enabling trade overseas.
TTIP also aims to give businesses the same rights as states. One major part of the proposed TTIP treaty is called the “Investor State Dispute Settlement”. I don’t know how they come up with these kickass names?!
This means companies will be able to sue if the government’s policies cause the company to lose money. This also includes expected future profits.
Example; the Australian government created laws which made all cigarette packaging blank. Business boss Phillip Morris then sued the Ozzies in 2011; his argument was that the blank packaging law had damaged his sales.
Standardized regulation on both sides of the Atlantic is quite a good plan. It means less red tape, which is better for business, which in turn means more jobs.
It’s estimated this could free up £100 billion for the economy, £10 billon of which would be going into the UK economy. That’s around £400 per year for each household.
Now we’re talking.
So, about those figures… they’re estimates. No-one knows how much money TTIP could make, and you’ll get different answers depending on who you ask.
The Guardian reports that a committee of MPs stated that at present it is impossible to work out how much money TTIP would make. They say the government should actually investigate things properly.
Does more money for business mean more jobs really? Or will the rich bosses get richer, extending the gap between rich and poor?
Standardizing regulation is all well and good. But the USA is much laxer when it comes to regulation; so this could lead to a drop in standards. The EU bans cosmetics testing on animals… and the USA doesn’t. Standardize that, if you can.
TTIP isn’t just about the trade of goods; it’s also about the trades of services. And people are majorly worried about public services.
At present around 6% of the NHS budget is spent on hiring private companies to provide services. Agreements like TTIP open up public services to the international market; meaning private companies from other countries get increased access to public sector contracts.
As the New Statesmen reports the Investor State Dispute Settlement (see point 5) would make it virtually impossible to reverse NHS privatisation as companies would be able to sue the UK government if changes to NHS policy risked their profits.
Labour leader contender Andy Burnham has promised the NHS would be kept out of any trade deals. But TTIP could make it harder for the government to back out of any future privatisation deals. A leaked draft deal showed some wording that suggests the NHS will be kept out of TTIP, but people are not convinced.
Most of what we know or think we know about TTIP is guesswork; based on small leaks of information.
The meetings are being kept top-secret. But it has been reported that 90% of people meeting officials to advise on TTIP were from private companies. This has made people wonder if the decisions will be influenced in some way.
George Osborne’s first budget of the new Conservative government was full of contradictions. On the one hand he is cutting £12 billion pounds from benefits (boo); one the other he’s creating a National Living Wage of £7.20 PH (YAY!)
The announced changes were met with cheers from the Tories, and outrage from the Opposition (Labour, Lib Dems, SNP, UKIP Plaid Cymru and the rest).
The Guardian has reported that the new “Living Wage” isn’t enough to make up for the cuts to welfare. People who claim tax credits could be £1,000 worse of a year according to the Institute of Fiscal Studies. Doesn’t sound great.
So how does the new budget 2015 affect you? The BBC has created a Budget Calculator. You can try it out for yourself on the BBC website; we thought we’d explore how the changes could affect different people.
Let’s say you’re 21/22. Perhaps you’ve just left university, maybe not. You have a job on the minimum wage (currently £6.50 PH) working 40 hours or so a week. Your annual earnings would probably be around £13,000.
Because the tax-free allowance is going up to £11,000 you’d end up around £80 better off. Yipee!
So, lets look at the claim from the Guardian that due to changes to tax credits some people could be £1,000 worse off. Tax Credits are benefits (extra £££) given to people who look after children, to disabled workers and those on lower incomes.
In the new budget “working-age benefits, including tax credits and Local Housing Allowance, will be frozen for 4 years from 2016-17”
The calculator says a married couple with a combined income of £21,600 and two children could be worse off by £1,113. Hmm.
This was based on one partner earning £19,000 a year on full-time hours; the other working part-time and earning £2,600. Both at 25 (still young!) and the age you’ll become eligible for the new “Living Wage”.
Though they are £80 better off thanks to changes to income tax, on the whole they make a loss because they are getting less tax credits. In fact, the calculator suggests that in order to keep the same income they had before, the partner (who originally earned £2,600 a year) would have to earn an extra £10,978.56! Whether this is the case, we don’t know. But we sure hope not!
Removing the two children from the equation means we’re back to £80 better off. Does this mean we shouldn’t have kids?!
Looks a bit like The Guardian 1, Osborne 0.
An older married couple with a combined income of £85,000 would actually be £221 better off. Say what?
This is again because of the changes to the tax thresholds where you pay the higher rate of tax.
Does this mean the budget will be better for the rich and worse for the poor? Although the media might say “YES”, it’s a lot more complicated than that. Like any example these calculations are very specific. Everyone has different circumstances so it’s probably impossible to come up with a basic rule which covers everyone.
It’s also worth saying (because the BBC did) that these figures are estimates only. They don’t include all the changes made; just the ones made to income and earnings.
People are still unhappy though. And if you’re under 25 you might be too. Whilst others get the fancy new “Living Wage” of £7.20 PH you’re going to be stuck on £6.50 PH. Minimum-bleugh.
The budget 2015 wasn’t just about tax and income; it covered a whole range of topics. The speech was even a few minutes longer than usual. Crazy times.
One of the major policy brought in by the coalition government which affected young people was the raising of tuition fees. The new budget only raised them in line with inflation; but Student Maintenance Grants are being scrapped. These are non-repayable £££’s which are given to students from low-income backgrounds.
Instead of grants students will have to take out Student Maintenance Loans instead. Conservatives say “Don’t worry, you won’t have to pay them back until you’re earning £21K +”. As well as paying back tuition fees.
LRT – i would never have gone to uni, nor be graduating with a first class honours next week if #maintenancegrants were scrapped
— Holly Gallagher (@hollyrachael_) July 8, 2015
At the moment around half a million students in England receive grants. However some people aren’t too bothered;
So, you need somewhere to live. Don’t count on the government paying however. The Conservatives are stopping the automatic entitlement to housing benefit for 18-21 year olds.
Housing benefit is a regular £££’s to help pay your rent. It’s paid by your local council. You can claim it if you’re on a low-income or claiming other state benefits.
So, not the best of times if you’re young and/or a student. George Osborne says he wants to make the tax and benefits system fairer.
“We have to move Britain from a low-wage, high-tax, high-welfare society to a higher-wage, lower-tax, lower-welfare economy.
For Britain is home to 1% of the world’s population; generates 4% of the world’s income; and yet pays out 7% of the world’s welfare spending. It is not fair to the taxpayers paying for it. It needs to change.
The best route out of poverty is work. It is not acceptable that in an economy moving towards full employment, some young people leave school and go straight on to a life on benefits.“
– George Osborne’s Budget 2015 speech
It’s not just young people who are affected by the budget. But even so, the Guardian asks “What have young people done to deserve George Osborne’s contempt?”. We’d love to hear from Mr. Osborne himself. So if you’re reading, George – is it personal?!