Tax campaigners roll out Fair Tax Mark
Tax justice campaigners opened a new line of attack today with the launch of the world's first independent accreditation scheme to show an organisation has a responsible tax policy: the Fair Tax Mark.
The Fair Tax Mark officially launched today with representatives from the first "pioneer" businesses to adopt the mark: Midcounties Co-operative, Unity Trust Bank and The Phone Co-op. Public Accounts Committee chair Margaret Hodge was also there to show her support.
The mark was developed by a team of tax justice campaigners and tax experts and will be promoted and administered by a non-profit social enterprise. The new designation is designed to confirm that a company is making a genuine effort to be open and transparent about its tax affairs and pays the right amount of corporation tax at the right time and in the right place.
After three years of high profile tax avoidance headlines, the public remains deeply cynical about how much tax businesses pay. The accreditation also comes at a time when the Institute for Business Ethics found that corporate tax avoidance is now the number one concern of the public when it comes to business conduct.
Margaret Hodge said the reaction to the revelations about the tax practices of the likes of Starbucks, Amazon and Google showed the scale of public concern.
“Given the choice, many people would prefer to give their custom to a responsible business that does the right thing and pays its fair share of tax,” she said. “The Fair Tax Mark helps give them the power to make that choice, and seeing customers vote with their feet is perhaps the most effective deterrent there is to companies engaging in tax avoidance or other irresponsible practices."
Campaigner Richard Murphy, one of the founders of the mark, said it was the next step in the fight for tax justice.
“Around the world and here in the UK people are now aware that many big businesses routinely fail to pay the taxes they really owe. What they now want to do is spend their money with those companies who are doing the right thing by seeking to pay the fair tax that they owe in the right place at the right time.”
Ben Reid, chief executive of Midcounties Co-operative, added: “Twenty years ago co-operative enterprises were front and centre in the launch and roll-out of the Fairtrade Mark, which is now the best recognised ethical certification scheme in the UK. I look forward to the Fair Tax Mark enjoying equal success in the years to come.”
AccountingWEB initially heard about the mark around four months ago when the campaign was originally conceived as a way of reporting that companies had paid a “fair” amount of tax.
Richard Murphy said he had listened to feedback during the initial trial period and re-designed the campaign as an accreditation initiative that small companies could use to differentiate themselves by their ethical stance.
The project is also appealing directly to accountants’ self-interest. Murphy said accountants can become assessors and give the Fair Tax Mark to their clients.
“It is a saleable product, for accountants to sell an explanation, even if there are tax mark requirements, and why it might work for them. We can sell it to accountants who can then sell it onto their clients,” Murphy said.
The Fair Tax Mark tackled three issues in the small business market, he added: marketing that you pay the right tax; accountants explaining to clients why they are paying tax; and indicating to HMRC that you are trying to be a good taxpayer.
When they meet the requirements clients will be able to put a Fair Tax Mark on their door which if it’s a retail premises might look quite good, he said.
Accountants will also be able to make use of the mark as a marketing tool.
“It’ll actually take the accountant to explain to their client just what the tax notes in their accounts mean, which will probably be a bit of revelation for many of them. It might differentiate accountants in the marketplace.
“Thirdly we think it will also help with the Revenue." Murphy said. "If you say ‘I’ve prepared my accounts on the basis of I want to make full disclosure’, then you’ll be in lower category of tax risk.”
To get the credential applicants need to have a tax policy in place and undertake not to participate in aggressive tax avoidance.
“We don’t expect full marks – they will need 13 out of 20 to get a mark” he said.
Using all the tax reliefs available to a business is also fine, according to Murphy: “You will never be de-barred from having a Fair Tax Mark for having a low tax rate. In fact you can pay no tax and still have a Fair Tax Mark.
“We will give more marks if you do pay tax and it will be easier to get the mark but you will never be stopped from getting the mark. You will need to explain why you do not pay tax in a lot of detail that we can understand. It will also require you to say 'we are not using tax havens artificially'."
AccountingWEB put to Murphy a concern that there may be push back from those who will see this as another piece of unnecessary red tape.
“They don’t have to do it, it’s a completely voluntary thing and up to the company. They’ve got to consider if it’s worth the modest investment [the rates will be published on the site today, starting from a couple of hundred pounds for an assessment up to several thousands of pounds for a large company]. It’s a very simple process for a small business and is about empowerment rather than imposition of regulation.”
As Murphy acklowedges, some important accounting assessments lie at the heart of the Fair Tax Mark. In particular, its definition of the right amount of tax is based on the premise that "the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes" A compliant business will also be transparent about who owns it, what it does and where it operates, and will provide sufficient accounting data to suggest that its fair tax policy has been put into practice.
How to assess these points leads on to another idea Murphy is working on - the creation of a tax reporting standard. Murphy said the intention was to try and improve tax reporting and give companies a better understanding of their financial statements.
Murphy, who is involved in academic research and the ongoing OECD process around international tax issues, said there was a very obvious lack of understanding about the interface between accounting and tax.
“Financial reporting and tax are not doing each other any favours. One of the ideas is to put out tax reporting standards and the point is there is clearly is something that isn’t currently working.
“Existing financial reporting isn’t getting the right information for people to appraise if the right amount of tax is being paid.”
Tax rates, capital allowances and deferred tax charges in accounts are poorly explained, he added.
“What we’re trying to do with the Fair Tax Mark is part of that process. We’re trialling what better information would look like and then trying to conceptualise that into what a company is trying to do.
“It’s a programme that’s starting now,” he concluded.
The full methodology for the Fair Tax Mark, including examples and full support notes, is published today.