Special report: People power forces big business to pay up
Tax-avoidance schemes are being used by firms from Amazon to Google which deprive the British coffers of hundreds of millions of pounds. Sarah Morrison reports on what the Government plans to do about it
The extent of corporate tax avoidance, and the anger it provokes, widened considerably yesterday with revelations that a leading investment bank has been using a trust based in the Channel Islands to avoid company and staff taxes on payments, including bonuses.
The bank, JP Morgan, is expected to reach a £500m settlement with the Government over a Jersey-based trust, to which more than 2,000 current and former staff will contribute, according to a report in the Financial Times. The trust fund has been running for 20 years, and is thought to contain anything between £2bn and £9bn. Amazingly, US citizens who worked at the bank were barred from participation in the scheme because of US tax laws.
The news coincided with nationwide protests yesterday at more than 40 branches of Starbucks, the US-owned coffee-shop chain which has become infamous, and subject to boycotts, for paying what has been called "single-shot taxes on Venti-size sales". Several branches were forced to close as demonstrators occupied them in protest at the firm – which has had revenues for the past 14 years of £3bn, yet paid only £8.4m in corporation tax throughout that time, including no tax for the past three years. Starbucks has said it will pay £20m over the next two years in reparations, an offer widely derided.
There has yet to be a similar offer from the other firms known to have paid little or no corporation tax such as Google, with UK sales of £2.5bn, but tax paid of only £6m; and Amazon, which reported in the US revenues from the UK of £3.2bn, but declared a turnover of only £147m on which it paid corporation tax of less than £2m. The scale of their avoidance can be gauged by the rates of tax paid by other leading retailers: Lush (42 per cent); John Lewis (35 per cent); M&S (27 per cent), and Next (26 per cent). The rate paid by Amazon is less than 1 per cent. The Independent on Sunday last week revealed that Premier League football clubs paid only £3m in corporation tax, despite making more than £150m profit, a rate of 2 per cent.
The JP Morgan scheme used an employee benefit trust (EBT), which enables companies and staff to avoid paying employer's national insurance contributions and income taxes. Many are now being wound up after laws were passed clamping down on their use. An HM Revenue & Customs spokesman said: "The Government has legislated to remove any doubt that arrangements involving third parties, including EBTs, are ineffective as a way of avoiding tax." A spokesman for JP Morgan told the FT: "Our employee trust has always been transparent... and its independent trustee has consistently paid taxes in accordance with UK tax law." He added: "In addition to taxes paid by the trust, JP Morgan has paid, on average, more than £1bn of corporation and payroll taxes to HMRC annually over the past decade."
Richard Murphy, director of Tax Research UK, said the settlement "proves for two decades the tax industry has been out of control, selling abusive schemes that are now beginning to unwind". He added: "[It is time] to bring them back under control; we need to introduce a general anti-abuse principle which stops this industry in its tracks... JP Morgan is part of a massive tax-avoidance area which HMRC has been working for several years to close and recover the tax. There may be hundreds of millions of pounds more to get."
Richard Bacon, a Tory MP and a member of the Commons Public Accounts Committee (PAC), agreed that something must be done. He said: "The Government has been doing the same thing for decades, adding 700 pages each year to the tax pages, expecting that to get rid of loopholes, but they just create new words for clever accountants and lawyers to play with. The problem is we have a very complicated tax system; we need much greater simplicity and lower tax rates."
The Government is currently consulting on a general anti-abuse rule (GAAR) targeted at artificial and abusive tax-avoidance schemes, with a view to bringing forward legislation next year. For Mary Monfries, head of tax policy and regulation at PricewaterhouseCoopers, simplicity is key. She described "complexity" as a "key problem with the current tax model", adding that the GAAR should "help to act as a disincentive" against "abusive, extreme tax avoidance arrangements".
For Mr Murphy, however, this is not enough. "It is only intended to tackle the most abusive of pre-packaged tax-avoidance schemes eg, film partnership abuse and the likes of K2 of which Jimmy Carr was a member. That's important, but it deliberately goes nowhere near the sort of corporate tax-avoidance that Starbucks, Google, Amazon and many others have done," he said. "As such, it falls far short of public expectation and could even provide an excuse to those avoiding [paying tax] by saying, since it does not impact on their behaviour, it must be acceptable. That's worrying."
The Chancellor, George Osborne, said in his Autumn Statement that the coalition would get tough on tax dodgers, promising HMRC an extra £154m over the next two years to crack down on tax avoidance and evasion. But politicians, economists and campaigners said the whole system, and the loopholes it's created, needed to be overhauled.
Margaret Hodge, chair of the PAC, said: "The Government must treat this with urgency; they have talked the talk, now they must walk the walk. There are things they can do straight away; they don't have to use the taxpayer's pound to buy services from companies who avoid tax, and they don't have to wait for the press to name and shame the culprits; they could do that themselves."
Catherine McKinnell, Shadow Exchequer Secretary to the Treasury, said the Government needed to ensure HMRC "have the resources they need to do the job. Pressing ahead with around £2bn of cuts and the loss of 10,000 staff over the next three years risks being a false economy."
Protesters whip up a storm at 40 Starbucks outlets
Tax-avoidance protesters descended on more than 40 branches of the coffee chain Starbucks yesterday as chaotic scenes led to the closure of two of the stores. The demonstrations, organised by the activist group UK Uncut, took place at locations including Birmingham, Aberdeen and Bristol.
The protests come after the US-owned coffee giant said it would pay some £10m in UK corporation tax for each of the next two years, following revelations that it paid just £8.6m in 14 years of trading in Britain and nothing in the past three years. UK Uncut yesterday dismissed Starbucks' offer as a "PR stunt". It said it also wanted the "day of action" to highlight the disproportionate impact of spending cuts on women.
Sarah Greene, a UK Uncut activist, said: "It is an outrage that the Government continues to let multinationals like Starbucks dodge millions in tax while cutting vital services such as refuges, crèches and rape crisis centres... The Government could easily bring in billions by clamping down."
One of the most high-profile protests took place at Starbuck's "flagship" café in Conduit Street, London. Around 100 protesters tried to stage a peaceful sit-in and turn part of the shop into a makeshift crèche. But within 15 minutes police stormed the outlet, ordered everyone to leave or risk arrest, and closed the branch. Demonstrators moved to another Starbucks, where they continued a sit-in on the street after police barred entry.
Journalist Charlotte Raven was among the handful of mothers who attended the protest with her children. She said she was angry at the Government's failure to bring firms such as Starbucks to heel while threatening children's services that her family relies on.
An untaxing guide to the big issue
What is the difference between tax evasion and tax avoidance?
Tax evasion is illegal; for example, not declaring income or inappropriately claiming expenses. Tax avoidance is about using the law to reduce your tax bill. Starbucks paid no corporation tax in Britain over the past three years, despite UK sales of nearly £400m last year. This was via legal mechanisms.
Who pays corporation tax? The corporation, its owners or the people who buy its products or services?
Corporation tax will be paid by the company's owners, or shareholders. Some people argue, however, that because the tax affects the cost base of a company, it could also be partially borne by its consumers.
What is the problem with the current tax model?
In a nutshell, it's too complicated. For campaigners, it is "skewed in favour of big business", because they can afford to hire accountants, lawyers and bankers to find legal loopholes. Others claim the problem lies in the fact that companies' profits are taxed across up to 100 jurisdictions, with different tax rates. A company's corporation tax bill depends on how much profit it makes in each country.
If most tax avoidance is because of loopholes, why do governments create those loopholes?
Governments do not create loopholes intentionally. Some tax avoidance occurs because of uncertainty in the law – Britain, for example, has one of the longest tax codes in the world, comprising about 15,000 pages – while in other cases companies seek specialist help to find ways to reduce their tax legally.
Can we ever get rid of tax avoidance? If not, why not?
While we have 194 countries in the world, and differing tax and accounting systems, there are always likely to be loopholes. But avoidance can be mitigated, by providing disincentives to avoid tax, and penalties if companies are found guilty of it.
What is the Government proposing to do, and will it work?
The coalition is consulting on a General Anti-Abuse Rule, targeting artificial, abusive tax-avoidance schemes, with a view to legislating next year. Some say this will not quash most tax avoidance, or the kind that Google, Amazon and Starbucks carried out, as it will focus only on extreme cases.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 This restaurant has misunderstood the concept of 'cheese and biscuits'
- 2 Delhi bus rapist blames dead victim for attack because 'girls are responsible for rape'
- 3 PornHub turns masturbation into energy in bid to save the planet
- 4 Have sex with your iPad thanks to the new sex toy no-one asked for
- 5 The 'sex selfie stick' lets you FaceTime the inside of a vagina
New theory could prove how life began and disprove God
End of the licence fee: BBC to back radical overhaul of how it is funded
This is what it's like to be dead, according to a guy who died for a bit
'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
Ukip would cut billions from Scottish budget to fund English tax cuts
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
iJobs Money & Business
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
£15000 - £16000 per annum: Recruitment Genius: A Customer Service Advisor is r...
£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...
£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...
Day In a Page
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads