Suggested by Mr Lawson one time Torie Chancellor – good idea or bad idea?

What if you don’t make any profit? (Ok, I’ll admit I haven’t read his proposal)

Bloody awful, if I turn over 100K and only make a 1K profit, but pay 20% tax then I wont be in business for long – but I do agree something should be done

Sounds like a terrible idea. And not very Tory…

I think this is how corporation tax works in France?

I work for a business selling fuel. Last results we made £11 million profit, but turned over just shy of £900 million. But of that £900 million over £600 million is also tax from fuel duty. So for that reason, I’m out. Stricter accounting rules would make more sense.

Very dumb. Just get rid of corporation tax altogether.

A massive oversimplification of a very complex issue.

A lot of bllx on this topic, but would recommend the latest stuff on IFS website – some dry-ish economics but good analysis not least re the impact of corporation tax on labour

It’s breathtaking that an ex CoE thinks that a sales tax is some kind of panacea.

It’s called VAT

Very strange that coming from lawson…

I think this is how corporation tax works in France?

No, just like the UK.

I paid lots of corporation tax over the years and was happy to do so as it was on profit. It’s all the taxes that you pay before profits that hurt and mean businesses fail.

As stated earlier a tax on turnover is not good, it’ll simply be passed on to the customer.
I support the idea of getting rid of shareholders or, at least, limiting their powers as a means of attracting companies to the UK and giving them enough wiggle room to pay fair taxes too.

It’s called VAT

No it’s not, VAT has no real effect on a (real, VAT registered) company’s turnover or profit (bar administrative overhead). It’s specifically a tax on the consumer. It goes straight through any business, VAT paid out by companies is claimed straight back in VAT returns.

[Edit: sorry, no, I misunderstood initially. I see what you mean, VAT is supposed to do what Lawson is talking about. Ignore me. 🙂 ]

Getting rid of shareholders???? 😯

Not quite though is it – we pay out far more VAT than we reclaim!
And because they changed the rules a while back the huge excess can’t be offset against other taxes anymore (well not how it used to be) so we are paying almost twice the tax.

Getting rid of shareholders???? 😯

Yep, How many shareholders have the long term health of an organization over the short term profits? How many CEOs are making decisions in order to benefit the shareholder, and the company as a side effect?
We don’t need huge corporations in order to satisfy our needs.
It’s an idea worth discussing rather than pulling faces at. But I wouldn’t expect anyone with a vested interest to look favourably on the idea.
Obviously not a blanket ban, but worth considering.

Shockingly bad idea.

Some companies have to turn over a huge amount of money to make profit as they work in large volumes of low margin goods. They would go out of business. Meanwhile some companies turn over very little but are very high margin so would be laughing. Also I’m pretty sure within 12 months that most of the companies currently avoiding tax would have new legal set ups that would mean they would avoid this as well.

Agreeing a more sensible approach to transfer pricing would help. Even if just within Europe – the EU doesn’t seem too bothered that the acquis is being manipulated for tax avoidance.

In a world of excess debt and leverage, the last thing we need is to disadvantage the providers of equity.

That would be truly absurd.

Yep, How many shareholders have the long term health of an organization over the short term profits?

Without shareholders there is no business, where does the capital come from to start a business ?

OP idea is a non starter as we would likely be the only country to introduce it and business would just incorporate abroad, also almost certainly i possible as a member of the EU. Just imagine how expensive food woukd get, thats a very low margin business.

Surely they just need to make sure VAT works in the way it should. The fact that anything bought off Amazon UK doesn’t pay into UK HMRC is ridiculous. Just because of EU trading laws. These laws are very convenient to the customer, but only really work if either all tax percentages are equal, or if all EU tax gets paid into a single EU customs and then distributed appropriately.

Dreadful. I work in construction – turnover can be high but profits are generally 2-4%.

No, it’s a stupid Idea, and it’s entirely unsurprising coming from an Ex Tory CoE and the thinking of what the Tories are trying to achieve is clear. The reasons we should reject the idea and press the HMRC on corporation tax are many.

1. Corporation tax is a direct tax on capital and the Wealthy. the very people that should have the greatest burden of tax.
2. That many companies go to such extraordinary measures to avoid paying it, indicates its precision in achieving point 1.
3. Moving away from corporation to a sales tax disproportionately effects the poorest in society (Lawson’s aim, of course)
4. Define “Turnover” and “sales”. At the moment you look at one number, and it’s difficult and expensive to hide what you’re doing, turnover on the other hand…sales, interest, rents, capital gains, speculative market trading, derivatives, insurance premiums…none of these are turnover, all can be profit making.
5. If a person if sufficiently wealthy to live of capital alone and avoid taking payment in the form of dividends from profit (i.e not take money from his company), then there would be even more incentive to accumulate wealth in low or no tax locations, making the wealth divide even greater.

It’s not a massive surprise that this has come from the Tories, that they’d be so stupid about suggesting it, is probably why it’s Lawson for the time being and not Osborne (who would be laughed at even harder after his ridiculous claims about Goggle’s insulting low payment.) Lets’ be clear, when the Tories talk about this, what they are saying is “we don’t want us or our wealthy friends to pay tax on what we think of as “Our Money” and we will go to any amount of hassle to make sure we don’t have to” Keep that in mind every time you hear the banging on about about changing tax regimes, ’cause that’s what they mean.

And a tax on turnover unfairly targets companies with long supply chains, as unlike VAT there would be no way of offsetting it (reclaiming) meaning you’d have to pass the cost on directly each time.

Utterly stupid idea – a great way to see anything but the service industry fold overnight

I can only assume he’s been misquoted – and if he hasn’t then he certainly ticks the politicians haven’t a clue box, which most/many seem to now (as so few of them have actually worked in business).

The problem with Tax and International Corporations is that they can move the ‘profit’ around so it ends up being taxed in the lowest possible place. Hence the reason for Ireland’s and Luxembourg’s low rates.

What I think we should be aiming for is a tax on where the profit was made. As an example Starbucks makes huge profit in the UK (if it didn’t why are more of them opening all the time). But because Starbucks in the UK buy’s it’s coffee at inflated prices from Starbucks in Switzerland, technically it makes a loss and as such pays no corporation tax.

Somehow these mechanisms need to be removed – and that is going to be very difficult, if not impossible. A good first step would be to seriously overall our hugely complicated tax code, to make it easier to see for HMRC to collect tax and more difficult to find the loopholes. At a personal level give up the Income Tax and NI split and combine into a single tax.

So, basically it’s never going to happen.

No, it’s a stupid Idea,

And it started so well…But

and it’s entirely unsurprising coming from an Ex Tory CoE

No it’s still very surprising.

Corporation tax is a direct tax on capital and the Wealty

You are sure??…and then well…

At the moment you look at one number, and it’s difficult and expensive to hide what you’re doing,

If that was the case, we wouldn’t be having these debates

If a person if sufficiently wealthy to live of capital alone and avoid taking payment in the form of dividends from profit

Now I am really lost

What I think we should be aiming for is a tax on where the profit was made. As an example Starbucks makes huge profit in the UK (if it didn’t why are more of them opening all the time). But because Starbucks in the UK buy’s it’s coffee at inflated prices from Starbucks in Switzerland, technically it makes a loss and as such pays no corporation tax.

That is what happens at the moment. But it’s hard and complicated.

Starbucks is more to do with transfer of intellectual property for US to Neth and then royalty payment to use this from UK to Neth.

1. Corporation tax is a direct tax on capital and the Wealthy.

No, it’s not. hth

right, so the accumulation of capital and wealth is not the profit motive?

Better tell the capitalists, I’m not sure they know…

Sorry, what is that meant to mean and what is the link to corporation tax?

Possibly that the less corporate tax a company pays, the more can be given to individuals and shareholders. Yes, we’re back on that one.
But the opposite argument is that if it ain’t broke (which is most definitely is), don’t fix it (which is head in the sand stuff). 😀

Well the first bit is a truism, if incomplete

The second bit isn’t. The system IS broken – the question is how to mend it. Lord Lawson’s suggestion is at best an incomplete answer (the polite version)

Someone on R4 today was making the point it’s massively disincentivising to small business who don’t have the international reach or the financial team to work out the loophole, working so hard to run a business and make a profit in a challenging environment, and seeing large corporates take the mick to such an extent.

Part of the point of free market capitalism in a democracy is that consumers can take their money elsewhere if they’re unhappy – as they did with Ratners…

However, who here has stopped using Google, Amazon, Starbucks etc? We could provide an incentive ourselves which could be very powerful, but despite all the complaining going on we’re doing very little about it… in the case of Amazon and Google I’m afraid I include myself…

Well tax is disincentivising full stop. But governments need to raise revenue, so the question is how best to do it without disincentivising people too much.

Having an absurdly complex tax code is not the answer. So as the old joke goes, when talking about how to get somewhere. “You wouldn’t start from here!”

The main problem seems to be multi nationals who have the power to find locations and sytems that allow them to reduce corporation tax.
The UK has no benefit as the tax is paid outside the UK. Let’s put a 25% tax on all transfers until someone finds a way around that… Oops! Too late. The shareholders are pushing and driving for higher profits and dividends. When there is no possibility of growing sales through traditional models of growth (new product- existing market etc) the imagination has to find new ways of increasing profits. It’s a bit like the great strategy of offering lower prices than comopetitors, it won’t last forever.

We don’t need these huge multinationals or these structures. Starbucks had a parent company that charged starbucks for services rendered, thus removing all Starbuck’s profits from UK to holding company’s off-shore account.
We could limit the power or incomes of shareholders thus limiting their greed.
We could split the multinationals into country specific entities that pay tax in the host country ( you want to trade here, you pay our tax).
Let’s not forget that The Cayman Island’s tax status was authorised by British Govt and now we’re paying the price. Bravo.

EDIT:

Someone on R4 today was making the point it’s massively disincentivising to small business who don’t have the international reach or the financial team to work out the loophole, working so hard to run a business and make a profit in a challenging environment, and seeing large corporates take the mick to such an extent.

Have a look for Crickhowell and the Fair Tax town.

If the UK has no benefit, how do these companies survive?

What dividends do amazon and google pay?

Why do multinational exist, if no one needs them?

The shareholders are pushing and driving for higher profits and dividends. When there is no possibility of growing sales through traditional models of growth (new product- existing market etc) the imagination has to find new ways of increasing profits

This is a really important insight. What’s going on here is similar to all the share buybacks that are going on (using borrowed money).

It’s a very bad sign, one of corporate failure rather than success. Incentives for senior management to keep the share price high, are massive. Disincentives for letting share prices drop are also massive.

Demand worldwide is currently lagging – the result of the 2008 debt hangover – the West is skint, hence China now slowing up, and the Chinese and other emerging markets are now also showing their limitations, hence all the doom and gloom about global growth this coming year.

I don’t think anyone cheats because they want to, they generally do it because they can’t achieve what they want through legitimate means. So these accounting games (and the share buybacks) are happening because demand is slack and therefore companies are neither growing nor making much profit. However their managers’ personal wealth and survival depends on looking like they’re making a profit, hence the tricks and sleights of hand.

Sooner or later these strategies will lose their effectiveness. Also worth remembering we’re balls deep in debt at government level. With wages stagnant, George’s tax numbers are looking very shaky. Whatever his external signs of confidence you can bet he’ll be looking at closing these loopholes soon enough to avoid UK being bust just as he goes for the premiership…