It's really quite amazing what the Fair Tax Mark will sign off on - Credit Betty Longbottom / Timpson Shoe & Watch Repairs - Main Street / CC BY-SA 2.0

Timpson’s has just been awarded the Fair Tax Mark. Which gives us a lovely example of quite what the Fair Tax Mark will actually sign off upon. We also get an explanation of a little more detail about the Mark, one that seems to obviate any use at all of it.

The Fair Tax Mark is delighted to announce that the Timpson Group (which includes high street businesses Timpson, Johnsons the Cleaners, Snappy Snaps and Max Spielmann), has been accredited with the Fair Tax Mark, demonstrating their commitment to paying the right amount of tax, at the right time and in the right place. The accreditation comes at the opening of the UK’s first ever Fair Tax Fortnight, and alongside the release of new research about the public’s attitude to tax and good corporate conduct.

How super and how lovely of course. We being proper free market types around here we’ve no problem at all with some group trying to sell an accreditation to people. If people think it of value they’ll buy it, if not they won’t. Just as with any other product out there in the market and just as with near any economic transaction. The Very Best of British to them in fact.

We would though rather question the value of the Mark itself. As one correspondent (a noted tax accountant in fact) writes to us to point out:

Timpsons, the key cutters and shoe menders, have been awarded a FTM.

As they have thousands of Tiny outlets, it enables FTM to expand their misleading claim using ‘shops, offices and outlets’ as its measure of participation, rather than actual companies, which would be far more honest.

So let’s have a closer look at Timpsons.

John Timpson has routed support for his son’s political career through company donations. According to reports in Reuters, some £480,000 over 6 years has been donated to Edward Timpson.

Now, IF Timpson senior had paid for the donations out of his own pocket the tax and NIC position would have been (This is simplified as if all £480k were paid this year):

Gross salary £885,000
Income Tax £383,850
NIC £21,324
Net salary £479,825

And employers’ NIC – £105,232

And so it would cost a total of £990,232 for Timpsons to pay Timpson senior enough to allow him to donate £480,000 to his son. They would get a CT deduction of course so a net cost of £802,087

By routing the donation through the company, the net cost is £480,000 (as they shouldn’t get a tax deduction for it – but see below)

That’s a saving of over £320,000. And it’s all tax and NIC that is saved.

Totally legal of course but is it playing ‘fair’? Is it paying by the ‘spirit’ of the tax rules as FTM is supposed to be about? The donation would seem to be personal and if Timpson was an ordinary employee, he just wouldn’t be able to do this.

What does Spud say about this?

“That is not what the Fair Tax Mark appraises”

“We can say the law is wrong but we can’t call it avoidance if the law obviously permits it”

In other words if a company is not breaking the law, it doesn’t seem to matter to FTM at all what a company does. So long as the company is prepared to stump up the fee to FTM, it seems they will get a FTM.

So much for the ‘spirit’ of FTM. While Murphy publicly decries companies who use the rules to their advantage, he seems quite happy to turn a blind eye in practice, just so long as FTM gets their fee.

So what, exactly, is the point of the FTM?

Incidentally, while political donations are not allowed for tax purposes, Timpson senior has actually said that isn’t what the payments were. They were;

“…paid for administrative (not campaigning) costs that enable Edward to fulfil his public function as an MP more effectively,”

So it’s possible, just possible, that the company has claimed the cost for tax purposes – using an argument that the payments helped the company’s trade in some way through Timpson junior’s support for the trade that the company is in.

Possible but unlikely. But surely Spud would have looked into whether Timpsons were claiming a tax deduction for this before FTM awarded the mark?

“.. I have not double-checked, just for the record”

“Spud” is our regular figure of fun around here, the Senior Lecturer at Islington Technical College.

Richard Murphy (for it is he – Ed) is one of those behind the Fair Tax Mark and of it he says, over this issue:

Richard Murphy says:
June 10 2018 at 5:38 pm
I struggle to see why ISAs aren’t tax avoidance but they are not

The answer is – because the law clearly permits this

it’s really that straightforward

We can say the law is wrong but we can’t call it avoidance if the law obviously permits it

And that, right there, is the death of his claims about tax avoidance. For he has claimed that Boots was avoiding tax by being debt funded and thus paying large amounts of interest, leaving near to no taxable profits. But this is clearly allowed by law. Expressly stated in it in fact. To the extent that we actually have significant sets of rules (“thin capitalisation” rules) to make sure people don’t take the micturation while doing it. Thin capitalisation rules which Boots clearly were not breaching. He has claimed that Vodafone was tax avoiding by using Luxembourg as a place to park profits- this was clearly legal under EU law, that EU law which over rides the UK’s CFC rules. This was something actually considered by the highest court in the land – definitely and definitively legal. He has claimed that the Greens avoided tax through the remarkable dodge of Lady Green not being British and not living in Britain – the law is really quite clear that such don’t pay income tax in Britain.

We can take this further too – his entire set of estimates about the “tax gap,” the amount that should be paid but isn’t, is based upon not what the law says but what he thinks the law should be.

That is, his definitions of tax that should be paid, tax that is paid, the gap between them and his certifications that all are doing this correctly or not are totally scrotal.

But then we knew that anyway, right?

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3 COMMENTS

  1. But a corporation that pays zero tax is also “doing what the law permits,” or especially not doing what the law forbids, or it will answer to Inland Revenue whether or not Professor Murphy has endowed it a Fair Tax Mark.

    If Timpson’s should lose money in a future tax year (and/or allocate some revenue to tax-favored activities) and thus not be legally liable for any corporate tax, will the Fair Tax Mark reassure people that its affairs are legitimate? Is this like the protection money the food industry pays to the British Nutrition Foundation, discussed nearby?

    Tim is right, there is no problem that a corporation purchases absolution from a Church of Envy. Unfortunately, the payments also portray as legitimate the issuer of the Fair Tax Mark. And that is fraudulent, because he is a total pant-load.

  2. I avoid tax by the simple expedient of nobody being prepared to pay me more than 11k a year. But by Murphy’s argument as the law allows that, it’s not avoidance. So what verb should be used to describe the action of not paying tax because the law tells me not to pay any tax?

    And if “it’s not avoidance if it’s legal”, WTF is evasion?

  3. I don’t think Timpson’s will have taken a corporation tax deduction for the payment, and HMRC should have challenged it had it done so. See BIM37970 of HMRC’s manuals.

    But I don’t think you can just add back the donations in the corporation tax computation in this case.

    The problem is the income tax and NIC side. It’s worth noting what HMRC have said about the Rangers case:

    “In paragraph 39 of the Court’s decision, they set out the principle that employment income paid from an employer to a third party is still taxable as employment income.”

    Paragraph 39 uses payments to family members (Aunt Agatha, no less) as a prima facie example of a situation where the employee ought to be taxed on the payments to the family member.

    I’d say that applies here.

    If the payments were originally treated as employment income of Timpson Sr, they would probably not have been described in the accounts as above. So it’s fairly safe to assume they weren’t subject to PAYE for Timpson Sr.

    But anything short of treating the payments as something other than employment income is problematic. The payments arise almost certainly by the virtue of Timpson Sr’s employment. And Rangers, a decision of the Supreme Court, says that means it should be taxed as employment income.

    If I were assuring the public that Timpson’s has paid its taxes “fairly”, or at least according to the law, then I’d have been damn incompetent if I’d not raised this issue with the company.

    I wonder if FTM did.