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Npower Has Not Paid Any Corporation Tax

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Energy giant nPower has admitted paying no UK corporation tax for three years despite making £766million in profits.

The revelation emerged yesterday during fierce questioning of the company's chief executive by MPs.

NPower joins Amazon, Google and Starbucks in coming under fire for making millions in Britain while contributing little to the Treasury's coffers.

The company's average dual fuel bill has risen by £257 in just two years – leaving households facing punishing annual payments of £1,352.

In theory, the £766million profits for the period 2009 to 2011 could have generated a tax bill of £200million rather than staying wholly with German parent company RWE and its shareholders.

Ian Lavery, a Labour MP, suggested several of the 'big six' power firms were paying less corporation tax than they should – with nPower the worst offender.

Paul Massara, who heads the firm, admitted it had paid no corporation tax in the three years.

However, he insisted the situation was perfectly acceptable because nPower had put the cost of building wind farms against its tax liability.

Mr Lavery said he was amazed by this and customers would struggle to understand such a 'surprising' explanation.

It's not so much that these scumbags avoid paying taxes.

The real problem is your elected officials engineering the IR in such a manner as to allow corporations to take 100% and give nothing back.

Tax them fairly and you'd see the major indices drop like a stone.

Perhaps that is the explanation for such inflated valuations, all tax avoidance?

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It's not so much that these scumbags avoid paying taxes.........

There's a name for this, it's called deferred taxation.

Paul Massara, who heads the firm, admitted it had paid no corporation tax in the three years.

However, he insisted the situation was perfectly acceptable because nPower had put the cost of building wind farms against its tax liability.

So lets assume that the firm earns £100 income in the year and spends £100 building a wind farm; the correct accounting treatment is to capitalise the £100 spent on the wind farm and depreciate the expense over it's life (say 10 years). This means that your results are £100 income, £10 depreciation expense and £90 profit.

The company taxation position is different. Expenditure on wind farms appears to qualify for 100% annual investment allowance; the company's income is £100, it is allowed a £100 deduction for the cost of the wind farm, its taxable profit is nil.

So either we want them to make this investment in which case we should shut up or we don't in which case we should change the law. What we should't do is complain about them doing exactly what the government has asked them to do.

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It's not so much that these scumbags avoid paying taxes.

The real problem is your elected officials engineering the IR in such a manner as to allow corporations to take 100% and give nothing back.

Tax them fairly and you'd see the major indices drop like a stone.

Perhaps that is the explanation for such inflated valuations, all tax avoidance?

Load of b****cks.

Fact is that the government is p*ssing our money up the wall on 'green' initiatives. Not Npower

A couple of years ago for example the government replaced the entire vehicle fleet with lower CO2 options, costing billions.

They have/had various 100% first year write-downs on things such as low emission cars.

http://www.hmrc.gov.uk/capital_allowances/investmentschemes.htm

In this case what happened was that Npower made a certain amount of profit, £766 million I believe, and rather than pay tax on that, they invested that money (or perhaps a little more, say £800 million) into green power, which carried with it a 100% write down.

Because they spent £800 million on equipment, which was still worth say £770m a year or two later, so that didn't affect their real profit, but in taxation terms it reduced their taxable income to zero, because they got a 100% write-down/

Had they invested, not in 'green power', but in say coal power, they would only have been able to write off 4% or 6% a year, so only £32 million, instead of £800 million, and would have paid plenty of tax.

In my view the government got exactly what it wanted - that power companies would invest their profits into green power (wind) rather than coal.

Having gone out of its way to create this incentive, they are being unreasonable, and anti-business to complain about it.

Without these incentives, the cost/benefit would probably have swung towards coal instead.

There is absolutely nothing unethical or untoward about this form of tax avoidance. Unlike companies that funnel revenue through lower-tax jurisdictions for example, which has no purpose other than tax avoidance, there was a legitimate goal that the government believes is in the national interest here - producing eco-power. If they didn't want them to invest in this area, they shouldn't have offered the incentive.

Lots of other industries also enjoy generous tax breaks, such as the film industry, and it's not a scandal at all that people use them, in fact something would be wrong if they didn't.

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Yes, perhaps. But it still doesn't make it right......

I'm not sure how doing exactly what the government has asked you to do can be described as "not right".

...... and is causing unnecessary harm to the economy.

Leaving aside the fact that a lot of this green investment is probably bo11ocks again that does not follow.

The money has been invested in something that produces a return, that return will be taxed at the appropriate rate in the future. We do need to produce electricity so I'm unclear how this can be described as harming the economy.

To repeat, the company has not actually avoided any tax; it has deferred it into a later period. The 100% capital allowance has been taken in year one; this means there's nothing left in later years.

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Lots of other industries also enjoy generous tax breaks, such as the film industry, and it's not a scandal at all that people use them, in fact something would be wrong if they didn't.

I take it a few bean counters visit this website haha.

'Investing' in green tech, all viability issues aside, is not really a benefit to the state in which the company is 'avoiding' taxes, as it does nothing to add to the public purse now when it is needed. Perhaps if they were 'gifting' the facilities to the UK taxpayer I might say differently, but giving private companies carte blanche on tax issues is unethical.

Its easy to say that businesses should be avoiding taxes because it is their right, but to do so in the same breath that is also decries cuts in public expenditure and the social security system is a bit ironic, isn't it?

However you cut it; One rule for them, one for us.

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'Investing' in green tech, all viability issues aside, is not really a benefit to the state in which the company is 'avoiding' taxes, as it does nothing to add to the public purse now when it is needed. Perhaps if they were 'gifting' the facilities to the UK taxpayer I might say differently, but giving private companies carte blanche on tax issues is unethical.

You might think that, the government disagrees.

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You might think that, the government disagrees.

Yes, well that's the crux of it. It's crap policy for the proles, tea and crumpets for the big man.

And if we look to what I wrote originally we end up going in a circle.

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I take it a few bean counters visit this website haha.

Not a bean counter, but have done my own taxes and have some basic understanding.

'Investing' in green tech, all viability issues aside, is not really a benefit to the state in which the company is 'avoiding' taxes, as it does nothing to add to the public purse now when it is needed. Perhaps if they were 'gifting' the facilities to the UK taxpayer I might say differently, but giving private companies carte blanche on tax issues is unethical.

I think it does benefit the state because as I understand it the state will be fined if it doesn't meet various targets for CO2 emissions, and also because the money was invested in the economy (jobs, taxes paid by individuals, etc.). Further, that money invested would boost Britain in what may be a growth area in the future, so again that's good for us because we get say, China, coming here to buy wind tech from us, because we've invested in it already.

There is no carte blanche at all, there are specific tax initiatives, this one related to green power, and they had to invest in green power in order to take advantage of it. They couldn't just opt out of paying tax.

As a company they will have made the decision based on the net cost - here at 70p in the pound , wind worked for them. Maybe at full price it wouldn't have done, and they wouldn't have spent this money.

A few years back there was a 100% year 1 writedown on new IT equipment (so effectively buying new PCs at 70p in the £1). This would have encouraged companies to buy new PCs, but you wouldn't buy stuff you didn't need, because a useless computer at 30% off is still useless!

Likewise here, NPower are not throwing money away, they invested because it made sense at the government's offered rate, and rightly so.

Its easy to say that businesses should be avoiding taxes because it is their right, but to do so in the same breath that is also decries cuts in public expenditure and the social security system is a bit ironic, isn't it?

I don't necessarily see this as tax avoidance. Selling CDs out of Jersey, or funneling your coffee beans through Luxembourg, or choosing to domicile in Ireland, are all examples of tax evasion, with real benefit to our economy, only to the profits of the retailer.

Offering tax incentives for investment, is a different kettle of fish. Apparently Game of Thrones were tossed £10 million by some government-funded quango in Northern Ireland. They argue that this has benefited the Irish economy as a whole to the tune of £65 million in terms of tourism, etc.

Here Npower have I guess saved around £200 million in Corporation Tax, but there will be a benefit to our economy now and in the future of £x millions (I don't know what the figure is). Obviously if £x is less than £200 million, then that's a problem and these tax incentives should be stopped by the government (no blame on Npower though!)

But we should be clear that this is something that the government INVITED Npower to do. They CREATED this tax saving, explicitly to encourage companies to invest in this area. Now the media are being very dramatic and saying 'no tax in 3 years', but actually there isn't particularly a difference between Npower making £1.6 billion and then spending £800 m on wind farms, and them making £766 m and spending £800m on wind farms - the net tax loss is the same, and the fact of 'no corporation tax' isn't particularly significant.

NPower will submit a corporation tax return each year, and the tax write-offs will be on that, explicitly identified, and this will go into HMRC's computers. Within those computers someone should be able to flash up a report saying 'Green power incentive Spending £x billion, Tax lost £y billion', and they should be reporting on that back to Parliament, with a view to Parliament deciding whether to scrap or keep the incentive. What they shouldn't do is publicly criticise Npower for doing as they were told, and investing in the area identified by Parliament.

This is quite different from Jimmy Carr claiming that his income was a loan. That's an artificial avoidance scheme, dreamed up by accountants, with no purpose other than avoiding tax. Here they did indeed avoid tax, but they also invested as the government intended in wind.

It's the ignorant journalists in the media that frankly p*ss me off because they are incapable of distinguishing between pure tax avoidance, and this.

Edited by bambam

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You pay taxes on profits.

Money legitimately invested isn't taxable. Npower has been investing money in future power generation capacity.

We can all save tax if we invest our taxable income. I've been doing it with my income tax for several years.

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You don't have to convince me that companies do X to receive Y benefits in tax and what the law is.

I see it in the oil/gas and energy business all the time, where I work and research in, who probably reap the biggest benefits in tax avoidance schemes.

My concerns with the NPower... or any tax grab is the following. Forget NPower for now.

Joe Bloggs states they will do X amount of infrastructure build..or something..., ok give them Y relief. Sure, good times.

Was this option put out for tender so that other companies could bid on said 'much needed' projects, perhaps for significantly less prior to the free pass?

Does this future assumed benefit create moral hazard because of a screw ball valuation, which it likely is?

Is there a way to claw back the tax on them not meeting the said benefit?

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You don't have to convince me that companies do X to receive Y benefits in tax and what the law is.

I see it in the oil/gas and energy business all the time, where I work and research in, who probably reap the biggest benefits in tax avoidance schemes.

My concerns with the NPower... or any tax grab is the following. Forget NPower for now.

Joe Bloggs states they will do X amount of infrastructure build..or something..., ok give them Y relief. Sure, good times.

Was this option put out for tender so that other companies could bid on said 'much needed' projects, perhaps for significantly less prior to the free pass?

Does this future assumed benefit create moral hazard because of a screw ball valuation, which it likely is?

Is there a way to claw back the tax on them not meeting the said benefit?

Its quite the opposite isnt it?

Aren't we already being told that a hooping great levy will be added to our bills to pay for all this?

So NPower effectively pay nowt for their infrastructure upgrades now, then we shell out on top.

Am i wrong?

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Joe Bloggs states they will do X amount of infrastructure build..or something..., ok give them Y relief. Sure, good times.

Was this option put out for tender so that other companies could bid on said 'much needed' projects, perhaps for significantly less prior to the free pass?

Does this future assumed benefit create moral hazard because of a screw ball valuation, which it likely is?

Is there a way to claw back the tax on them not meeting the said benefit?

Whoosh!

They don't get tax relief on promises. This is investment they've already made.

If the investment pays off, they'll pay the tax as and when the profits arrive. If it doesn't, then there's no profit.

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Whoosh!

They don't get tax relief on promises. This is investment they've already made.

If the investment pays off, they'll pay the tax as and when the profits arrive. If it doesn't, then there's no profit.

I think they'll be fine....

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If the investment pays off, they'll pay the tax as and when the profits arrive.

My point is the tax system sucks as it favours only one end of the spectrum.

These clowns are not going to pay that money back to the treasury, ever.

It will just be deferred, or weaselled out of, or heavily rebated by some other way of their choosing.

And you know it.

You are not going to convince me otherwise.

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Yes, well that's the crux of it. It's crap policy for the proles, tea and crumpets for the big man.

Or is it crap accounting standards.

If the company was allowed to write off the investment in their accounts in the year of purchase so that they reported no profit then presumably you'd be perfectly happy.

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My point is the tax system sucks as it favours only one end of the spectrum.

Well yes. PAYE was invented by Milton Friedman, and was one of his regrets.

Basically if you deduct tax from people's incomes at source, they ain't getting it back.

So it's easy and efficient to tax people on their salaries, and also on consumption (VAT), but much harder to effectively tax people and companies at the end of the year, because they can effectively structure their income to avoid it.

For example, I am due a £16k capital gain this year, and to avoid paying tax I just yesterday transferred the asset into joint names with my wife, which means that collectively we pay nothing, whereas in my name alone I would have paid £1500.

Had I been paid a bonus by my employer of £16k, then the treasury would have received almost half of that, so it just shows the extent to which the exchequer goes after the fat, slow-moving targets (people's incomes), rather than those, such as my capital gain, that can easily be structured to avoid paying tax.

Taxation is as much an art as a science, but unfortunately there's so much indignation and ignorance (as in this thread) about tax that it's unlikely that fair and efficient taxation will ever be achieved.

These clowns are not going to pay that money back to the treasury, ever.

Well yes and no. No they won't pay £200m this year to make up for it, but if they earn more money this year as a result of their investments, say £40m more, then they would pay tax on that, and over the life of the asset they would indeed pay additional tax in those future years compared to not making the investment at all.

It's quite possible that the additional cumulative tax over the years will exceed the one-off upfront tax saving, because NPower wouldn't spend real money (even with a ~30% tax discount) on something that didn't earn them anything.

Of course it might be that this year they do the same thing and continue to legitimately invest in new areas with the benefit of government tax incentives, and NEVER pay any tax, but that's really up to the government.

In any case with corporation tax rates having been sharply cut from 30% towards 20%, it makes a lot of sense to make this kind of upfront investment, that turns into profits that will in future be taxed at lower rates.

Edited by bambam

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You can look at this another way: capital depreciation is surely an illogical tax rule, surely any capital purchase by a company should immediately qualify for 100% deduction against profit. If they liquidate the asset then the revenue from sale is treated as profit vis corporation tax. This would encourage all companies to prefer capital investment to stockpiling cash.

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Absolutely in character. NPower has the worst customer service I have ever know of any company by a huge margin. Huge incompetence, constantly tried to do me out of money, long spells on the phone trying to fix their messes. I was over the moon when I got out. Do yourself a favour and avoid this shower.

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I'm not sure NPower has been investing all the profits in wind farms. I've read that they've been sending a lot of their profits abroad as 'interest payments'. A bit like Starbucks and their 'royalties'.

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My point is the tax system sucks as it favours only one end of the spectrum.

These clowns are not going to pay that money back to the treasury, ever.

It will just be deferred, or weaselled out of, or heavily rebated by some other way of their choosing.

And you know it.

You are not going to convince me otherwise.

That is pretty obvious.

By the way, I have avoided income tax by paying some of my income into another government scheme called a "pension". This pension scheme means I get to avoid paying on the income I generate. I expect you want to denounce my evil tax dodging ways too.

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  • 239 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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