Brown’s avoidance maze skews investor tax data

Gordon Brown’s crackdown on tax avoidance, and the increasing complexity of
the tax system, may be distorting the information available to investors, it has
In a wide ranging study of tax reporting by the UK’s top 50 companies, research
by affiliates of the Tax Justice Network uncovered significant changes to tax
charges reported to investors, with increasing adjustments
between 2000 and 2004.

Tax charges in the accounts of the UK’s top 50 companies were overestimated
by almost £5bn. Advisers said the adjustments probably reflected changes as a
result of company tax planning, and that they were most likely increasing as
uncertainty around tax grew.

Analysing the accounts of the UK’s top 50 companies, anti-avoidance
campaigner Richard Murphy found there were 183 prior year adjustments in the 238
sets of accounts covered. Of these, 44 were positive, amounting to an increase
in the tax
due of £656m, and 139 were negative adjustments, meaning the companies
paid £5.2bn less than they expected.

The adjustments were also growing, the report said. While in 2000 the average
adjustment was around 4.5%, the figure for 2004 was 11.6%.

Among those making the largest adjustments were Scottish Power, which made
average adjustments of 106.5% over the five years in question, and Compass Group
at 104.7%.

The reason for the negative adjust adjustments was unclear, said Murphy.

‘Possible explanations might be excessive caution by the companies, or that

the companies undertook tax planning with a reasonable degree of uncertainty

attached to it, which subsequently secured approval from the relevant tax
authorities,’he said.

Advisers were unsure as to why the increase in adjustments had occurred, but
one leading expert, who declined to be named, said it may be a result of
increased pressure caused by the chancellor’s anti-avoidance

‘Maybe this does say that life is becoming more complex, and maybe [firms and
advisers] do have to be more prudent and more cautious [in
preparing estimates],’the adviser said.

Malcolm Edge of KPMG said the findings bore out his experience. ‘Estimates
were often prepared in haste,’he said, adding that the negative adjustments
probably reflected tax planning.

Gordon Brown’s chancellorship has seen the length of Tolley’s Tax guide
double as the complexity of tax rules increases, and HM Revenue & Customs
has pursued a well-publicised campaign against tax avoidance. When asked to
comment on the
findings,HMRC referred questions to the Treasury, which declined to
comment in detail. Scottish Power also declined to comment.

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