Be a very rich source of revenue, that would.
Private equity firms looking to make millions of pounds from selling the AA breakdown service have come under attack for the tiny amount of corporation tax its holding company has paid.
Unions and MPs have rounded on the owners of the AA’s holding company, Acromas, which also houses Saga financial products, for paying tax of 2.7% on profits since its creation in 2007.
The company’s accounts show that it paid a combined £67.1m in its five-year history, on total operating profit of £2.49bn made from a turnover of £8.75bn during the period.
The revelation will spark further outrage about the extent of UK tax avoidance by corporations, which last week saw representatives of Google, Starbucks and Amazon grilled by the public accounts select committee. UK corporation tax is set at 24% but is expected to fall to 23% next year.
Last week business secretary Vince Cable called on the chancellor to use his autumn statement to “get to grips” with companies that are “systematically abusing” the UK tax system.
Paul Maloney, regional secretary of the GMB union, which counts many Acromas staff as members, said: “The chancellor should use this example to end tax relief on private equity loans, which is skewing the corporate sector towards borrowing rather than equity, and leading to an erosion of the tax base. The loss of tax has been huge.
“Taking advantage of this tax relief is what drives private equity. It has led to excessive leverage across the economy in the likes of the AA, Southern Cross, Four Seasons Healthcare, pub companies and Boots as well as a loss of tax. There is now a wall of debt of £111bn that buyout companies in the UK will have to refinance over the next five years.”
We don’t actually know whether more tax is paid or less as a result of the deductibility of interest payments. Sure, less corporation tax is paid. But more tax is paid by the recipients of the interest income. Because that’s the way the system works, see? Income received is taxed.
And, amazingly, the tax rate on income received is likely to be higher than the corporation tax rate not paid.
Corp tax is what, 26% now? So, if the interest is being paid to a company then they’ll pay that on their profits…..we’ve just moved the corp tax payment from one company to another.
Or if the interest is being paid to individuals then, assuming that poor people aren’t buying corporate bonds (unlikely, no?) then they’ll be paying 40 or 45% income tax on their interest received. Which is, you’ll note, higher than corp tax rate.
It’s entirely possible that interest deductibility increases the total tax take.