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Insight - The Great British Tax Giveaway

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http://uk.reuters.com/article/2013/12/20/uk-tax-britain-credits-insight-idUKBRE9BJ09120131220

When Neil Withington, the legal director of British American Tobacco (BAT) and the firm's largest British shareholder, files his next tax return, he will receive a little help from the state. Like every other UK taxpayer, he will be entitled to a tax credit on any dividend payment he receives. He can use it to reduce his total bill.

The credit is intended to compensate shareholders for the fact that dividends are paid out of income which has already been subject to UK corporate income tax. To help avoid the same money being taxed twice, the UK trims its levy on dividends.

There's just one problem: BAT, Europe's biggest cigarette maker by sales, didn't have a UK tax bill at all last year. In fact, its accounts show, over the past six years its total UK tax expense has been zero.

This means that the company's investors are being given credit for taxes the firm has not actually paid.

BAT is not exceptional.

A Reuters examination of available public records has found that for the most recent financial year, British shareholders of at least 11 major blue chip firms have received more in dividend tax credits from the UK tax authority than they lost through the corporate income tax levied on their companies. This means that in effect, the UK government is subsidising them to own shares.

This seems an easy loophole to close, if shareholder payouts exceed income tax received no tax credit?

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This seems an easy loophole to close, if shareholder payouts exceed income tax received no tax credit?

Or just abolish it altogether? Is there a single other tax that works like this? I don't get a tax credit for my VAT or council tax just because I am paying them with money I already paid income tax on.

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Or just abolish it altogether? Is there a single other tax that works like this? I don't get a tax credit for my VAT or council tax just because I am paying them with money I already paid income tax on.

just another example of the results caused by making the system too complex isn't it?

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This seems an easy loophole to close, if shareholder payouts exceed income tax received no tax credit?

Used to be what the law was until Broon changed it in 1998.

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just another example of the results caused by making the system too complex isn't it?

Zigackly ;) That's the root of the whole rottenness. Seems fairly clear today's corportation tax regime is not fit for purpose.

But largely it works the other way: investors, including those who "should" get their money tax-free, cannot actually claim the tax credits. The most famous case is Brown's "pensions raid".

If you live in a country that has a tax treaty with the UK, you can really take advantage:

- get a UK dividend on which tax is deemed to have been paid.

- get a tax credit with it.

- present the tax credit to your local tax authorities, and reclaim it under double-taxation rules.

You sometimes see that when a company pays a big "special dividend". Someone will arrange with the market makers to buy as many shares as are available and sell them next day at the same price, less the amount of the dividend and a broker's fee[1]. Unlike a UK-resident investor, they can collect the value of the tax credit and thus make a profit on the deal.

[1] I don't know the level of those fees, but I think they're at a level that would make it a waste of time for "retail investor" amounts.

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I love the way they spin it as a tax giveaway.

It is simply tax not being collected.

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There has been no givaway or uncollected tax. Under UK company law a dividend can only be paid from profits (which will have been subject to corporation tax) in some previous year i.e. more than 6 years ago in this case. So assuming the dividend is legal, corp tax will have been paid on that profit at some point in the past.

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