Uncle Tim quotes disapprovingly from some leftie diatribe about Big Companies Not Paying Enough Tax:
There currently exists a loophole whereby businesses can offset this year’s profits against last year’s losses. This should stay for SMEs as they struggle through these difficult times, but the government have craftily neglected to tell us that the banks who returned to profit this year are exempt from paying taxes due to last year’s losses. We would close this loophole for large companies.
So far, so dull, but Tracy W nails it in the comments:
If you don’t allow companies to carry forward losses and offset them against future profits, then logically, companies who happen to be consistently in profit pay less tax in proportion to their total revenue than companies that move in and out of profit. So, by his scheme, get rich quick companies would be paying less tax proportionally than ones that get rich slow.
To which I added:
... excellent point.
That’s why the big and profitable companies actually prefer VAT to higher corporation tax. With VAT, a disproportionate share is paid by new, small and struggling businesses and it acts as a barrier to entry.
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5 comments:
Bet those two comments went down a treat...
Tracy W's comment needs to be qualified, or perhaps I mean expanded. What she said assumes the same total turnover and the same total profit over a given period for both sets of companies.
For example: Company A has turnover of £1m a year for 5 years and makes £100,000 profit each year. Compare to Company B with £1m turnover a year but losses of £100,000 in two years followed by profits of £200,000, £200,000 and £300,000. Both have the same turnover and total profits of £500,000 but the Company A pays tax on £500,000 whereas Company B pays tax on £700,000.
L, the comments were at Tim's, not at the original website.
TFB, if in doubt apply common sense. Where Tracy said "revenue" she almost certainly means "taxable profit" and not "turnover".
So it's not necessary to specify turnover of £1m for A and B. As you rightly point out, A pays tax on £500,000 profits and B on £700,000 profits.
You decided they both had the same turnover, but you could have decided that B is in fact a very low margin business with turnover of tens of millions a year, in which case B's corp tax bill is a smaller % of net profits.
But that's where the incumbents crush the little guys by slapping them with VAT, which really is a similar % of turnover regardless of profits.
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I'll now give it five minutes until some twat comes along to peddle the myth that "Businesses don't pay VAT, the consumer does".
As you know, I'm with you on this argument about VAT.
TFB, oh, I'm glad to hear it. My crusade against VAT really hasn't made much headway, has it?
I messed up my previous comment actually, the third para should have read:
"You decided they both had the same turnover, but you could have decided that B is in fact a very low margin business with turnover of tens of millions a year, in which case B's corp tax bill is a smaller % of TURNOVER. "
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