Large companies among the FTSE 100, who have stepped away from aggressive tax planning schemes, have seen a sudden increase in their tax rate, coupled with substantial fines from HMRC – which are not tax deductible say Harris & Co accountants Northampton, the specialist small business accountant.
According to research by UHY Hacker Young, the average effective tax rate for FTSE 100 companies has increased by more than a tenth over the last year, rising to 27.6% of profits, up from 24.5%. This reverses the steady decline over the last four years from a high of 35.8% in 2009.
In the last year FTSE 100 companies paid a total of £51bn in tax on profits of £143bn, compared to £58bn paid on profits of nearly £188bn in the previous year.
UHY Hacker Young says FTSE 100 companies are currently taking a more risk adverse approach to tax avoidance, partly in response to public and political pressure, although this may change in future.
Roy Maugham, tax partner at UHY Hacker Young, said: ‘Heads of tax are being asked to explain what they are doing and some tax planning opportunities are not being pursued as they seem too hard to justify to a sceptical public – clearly that is going to feed into bigger tax bills.
‘However, as memories of televised grillings in front of the Public Accounts Committee fade, then we may see more businesses returning to viewing a low tax bill as an important competitive advantage.’
UHY Hacker Young says that the higher tax rate is also due in part to the imposition of large fines and compensation payments which have pushed down companies’ profits without reducing their tax bill. These include fines for Lloyds and Barclays over LIBOR manipulation, HSBC’s $1.6bn (£950m) fine for alleged money laundering, and BP’s $4.5bn (£2.7bn) settlement with the US government over the Deepwater Horizon accident.
Average effective tax rate of FTSE 100 companies