Losses incurred by Royal Mail over previous years see the business able to defer corporate tax payments in the week it is set for an IPO
THE ROYAL MAIL is in line for a corporation tax break after collecting £2.8bn in tax credits following losses in previous years.
The group, set for a £3.3bn stock market flotation at the end of the week, included details of the reliefs in the prospectus for its initial public offering (IPO) resulting from several years of losses and payments into its pension scheme.
Suggestions reported by the The Sunday Times that the reliefs could last for up to ten years have been dismissed by the organisation. Instead, the Royal Mail said, there is a series of deferrals in place resulting from “making significant transformational investment over a long period, during which [the Royal Mail] has also recorded significant operating losses”.
“It shouldn’t be surprising to anyone that Royal Mail has generated tax reliefs”, a spokesman said. “As a result of the additional deferred tax charge arising from the material one-time non-cash exceptional credit related to its pensions reform, the group’s UK effective tax rate for Fiscal Year-End (FYE) 2014 is expected to be lower than the statutory rate. In FYE 2015, the group’s UK effective tax rate now is expected to be above the statutory rate and then broadly in line with the statutory rate in FYE 2016.”
While the tax break was set in place by government, it has drawn criticism, particularly from the Labour Party, over the possibility the taxpayer could lose out from the entity’s privatisation.
In a letter sent to business secretary Vince Cable, his opposite number Chuka Umunna said: “You and the government are obliged to secure the best return for taxpayers from the IPO.
”It is not at all clear from the information provided in the IPO prospectus that this is the case.”
In a statement, the Royal Mail said: “Royal Mail adheres to UK tax law like any other responsible company and we make our required tax payments in full. As is widely known, Royal Mail made significant trading losses in prior years, while investing very significantly to transform its operations. As our prospectus makes clear this has generated tax reliefs which will be carried forward and may be utilised against any future profits and depreciation.”