If there is one thing that almost every accountant thinks they know about tax it is that almost no one understands tax outside our profession, says Richard Murphy.
Our co-directors and clients do not understand tax, the public doesn’t and as for politicians; well some in the profession have had a word or two to say on that. The result is that there are those who say that the tax debate that has raged over the last few years has been misinformed.
There is, of course, an alternative view on this issue. That is that the tax debate has been based on incomplete data and that will continue to be the case while the accounting information provided by companies in their financial statements continues to leave most people, including our co-directors, clients and politicians, in the dark about just what tax a company might pay and why. The fact is that if most people were asked to read the tax notes in a set of accounts it’s not that they might come away none the wiser, they might actually believe that there is something most companies want to hide.
Unfortunately nothing in the new UK GAAP is going to change that, it does little to modify existing practice and the result is that a company that wants to show it is paying a fair tax rate has no way of doing so, and that is a problem because, as the Institute of Business Ethics found in November 2013, tax is now the number one issue of concern among the UK public regarding business behaviour.
This is where the Fair Tax Mark, of which I am a director, comes into play. After a trial launch of this mark in 2013 we have now repackaged and relaunched the idea as a mark that companies can apply for to show that they pay fair tax. Think of it as the Fair Trade Mark for the tax world. In doing this we have, however, listened long and hard to what people want from such a mark, and have worked with some corporate pioneers who have taken part in the process of being accredited by us.
The result is that the Fair Tax Mark strikes a balance between corporate need to show that companies are doing ‘the right thing’ and public demand for information so that they can make an informed choice on who they want to trade with.
From the company’s perspective this means that while we have to meet public demand, to appraise the effective tax rate that the company declares it is actually possible to now get a Fair Tax Mark and pay no tax. This though is dependent upon the company doing three key things.
The first is it has to be transparent. That means publishing a full set of accounts at Companies House, for a start. It also means explaining what the company does (which doesn’t seem onerous and yet rarely happens in any set of SME accounts when these are a perfect opportunity to advertise the company’s activities) as well as making sure a trading address is recorded if different from the registered office and that the directors and beneficial owners can be identified. That should all be commonsense.
Our second expectation is more unusual. Few companies have committed to a tax policy to date and yet we think it good PR and good governance to have one whatever the size a company is. To help, we publish examples on our website that could slot into any directors’ report. What we expect is a commitment to paying fair tax, not making use of tax havens to artificially relocate profits and to steering clear of all artificial transactions of the sort that might attract the automatic attention of tax authorities by, for example, running risk of DOTAS and the GAAR.
Finally, we want better accounts reporting. To be specific we expect a reconciliation of both the current and deferred tax charges in the financial statements of the Fair Tax company, and not one combined statement. We also expect narrative notes to explain the reconciling items. Three word descriptions can be a cover for a multitude of sins in this area; we think narrative is a lot more powerful in revealing what is really going on, and for that reason we also expect deferred tax provisions to be explained. Again, there are templates, in Excel format, on our website.
If a company does these pretty straightforward things (I amended an SME’s accounts to suit in about half an hour) then it’s likely to get a Fair Tax Mark. In that case the question is, why bother? We think there are three reasons.
Firstly, doing this will help an accountant explain to their clients, whether fee paying or in the company they work for, just what the company’s tax position is. That increases the accountant’s status.
Second, the company can use the mark as part of its sales pitch. It’s not often accountancy can be said to do that; on this occasion it can. We can provide all he marketing materials to achieve this goal.
Thirdly, we believe that this will help any company in its relationships with HMRC. It’s hard to see how it couldn’t.
In that case what we’re offering is accountants the chance to sell this mark to their clients at rates which start pretty modestly for the likely marketing gains many companies can make. This then is not just about paying fair tax; it’s about selling the fact that you do to a public anxious for information on this subject. And that’s why we think this is a chance for accountants to change the debate on this issue.
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Richard Murphy is a practising chartered accountant and director of the Corporate Accountability Network. After twenty years in industry and commerce, he co-founded the Tax Justice Network and Fair Tax Mark before moving into academia as a professor of political economy. He co-authored the original Green New Deal in 2008 and is still engaged on...