Tuesday, 22 February 2011

The real point about Barclays’ Tax Bill

Barclays have paid £113 million in Corporation Tax which equates to approximately 0.97 per cent of the company’s pre-tax profits of £11.3 billion

£113 million still sounds like a lot of money until you realise that the UK’s Corporation Tax rates currently stand at 28 per cent. What, I hear you ask, happened to all the money?

Apparently, Barclays wrote it off against losses in American subprime mortgage trading. Barclays excuse is that under UK Corporate Tax law losses made in any business division can be written off against Corporation Tax. So, in other words, Barclays played in the casino of mezzanine credit default swaps, lost and now the Exchequer is out a lot of money. (Those interested in casino banking and how our banks got involved in all of this this should read The Big Short by Michael Lewis).

Whilst this is a clear violation of the principle of risk and reward, the foundation upon which investment decisions are made, the real point is that all of this is legal. Successive Governments consistently promise to close tax loopholes, but instead leave this gaping chasm open to abuse.

Why don’t they close this loophole? Because our politicians are scared stiff that major corporates like Barclays and HSBC, who have already threatened to leave the country, will up sticks and set up in a low tax economy like the one just off our shores. It’s called Ireland and it has a Corporation Tax rate of 12.5 per cent.

So the next time you hear an Opposition party say that they are going to close tax loopholes when they get into Government treat it with the scorn it deserves.


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