Good news for ‘overburdened’ FTSE100 companies

Regardless of how unlikely it is, independent research this week concludes
that some FTSE100 companies could be significantly overestimating their
obligations to the taxman.

This probably isn’t the conclusion the researchers from the Tax Justice
Network expected. No doubt they would have preferred to tell everyone that the
big listed companies weren’t paying enough. Indeed, many companies
underestimated and had to make upward adjustments. But this minority was far
outweighed by the number that had to adjust to a lower tax figure.

Surprised? You should be. After all the attention focused on tax avoidance by
Gordon Brown and Treasury officials, you would be forgiven for thinking that
none of the UK’s companies pay a fair tax whack.

The companies themselves have been smarting from this growing public
perception and it’s hard, given some of the recent profits reported, to feel
sympathy for that position.

But the evidence is now there: companies overestimate. That the results come
from the Tax Justice Network makes the numbers even more credible. But, the
question begs, why overestimate your tax liability?

Is it a simple miscalculation, or could it be that many heads of tax are
simply hedging their bets that many tax avoidance schemes will not pass muster
with HM Revenue & Customs.

There is now so much concern about the government’s campaign against
avoidance that a collective nervousness appears to have gripped our biggest
companies, to the point that they overestimate tax liabilities, just in case the
Revenue pulls the plug on a promising scheme.

In any case, if companies are being overly pessimistic, then are analysts and
investors crunching the wrong numbers? Are share prices being affected, and is
the market somewhat skewed?

Fortunately, analysts are more likely to consider cash flow and forward order
books than a company’s tax obligation to the Treasury. But when tax is counted
in the tens, if not hundreds of millions of pounds, companies have a duty to
publish accurate figures.

If it is the government’s anti-avoidance campaign that is pushing the finance
directors to overestimate, then government is contributing to the problem. And
that cannot be good for UK plc.

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