Forty-two FTSE 100 firms paid less than 20% tax in their last financial year

On a statutory basis the 100 members of the UK’s leading stock market benchmark paid £32.9 billion in tax in their last financial year. That equated to a tax charge of 33.7%.

Adjusting for (allegedly) exceptional items such as restructuring charges or non-cash accounting items such as asset write-downs and impairments, the adjusted tax bill was £31.6 billion for a charge of 24.6% - higher than the 20% statutory corporate tax rate which applied for the fiscal 2016-2017 tax year and the 23% rate that is estimated by the Tax Foundation to be the worldwide average national corporate tax rate.

On an adjusted basis, 11 firms paid a rate below 10% and another 31 paid a rate below the 20% UK corporate tax rate. More than fifty, however, paid a rate above 20% and the low rates are the result of an international business mix and legitimate tax breaks rather than anything that could be described as tax evasion.

The twenty lowest (adjusted) FTSE 100 corporate tax rates paid in the last financial year were:

Source: Company accounts. Covers each company’s last financial year and not the UK fiscal year 2016-17.

Of the 11 who paid below 10%, BP made a loss last year owing to a plunge in the oil price, while 3i and Scottish Mortgage are investment companies and British Land, Hammerson, SEGRO and Land Securities benefit from the tax breaks associated with their status as Real Estate Investment Trusts (REITs).

Morrisons benefitted from a deferred tax credit (relating to prior provisions for future taxes). Carnival’s 1.7% tax rate (a bill of $49 million on a pre-tax profit of $2.8 billion) relates to a number of international tax treaties, the UK tonnage tax on shipping (where companies must have suitable status, qualifying vessels and commitments to train seafarers and the Panama domicile of its US cruise ship business.

The other eye-catcher is AstraZeneca, down at 4.1% ($146 million paid on pre-tax income of $3.6 billion) but there is an explanation. The drug giant benefited from a $453m adjustment following agreements between the Canadian tax authority and the UK and Swedish tax authorities in respect of transfer pricing arrangements for the 13-year period from 2004 to 2016. Excluding these effects, the global company’s reported tax rate would have been 17%.

Eight FTSE 100 firms paid more than £1 billion in corporation tax worldwide on a statutory basis. Vodafone was the single largest payer at €4.7 billion (£3.9 billion) on a stated basis, for a paid rate in excess of 100% of profits, although changes in tax laws in Luxembourg cut the adjusted rate to 24.6% and the bill to €761 million (around £650 million).

Twenty highest FTSE 100 tax payments (adjusted basis) in the last financial year

Source: Company accounts. Covers each company’s last financial year and not the UK fiscal year 2016-17. Used average exchange rates for the year where companies report in dollars or euros.

Russ Mould, investment director at AJ Bell, comments:

“Even the lowest of the FTSE 100’s tax rates are legitimate, given established accounting rules and tax treaties, the global nature of some of the businesses involved and – in some cases – simply difficult trading conditions.  However not everyone will be satisfied and the issue of tax gets to the heart of the argument over whose benefit companies are run for: the shareholder, management or the stakeholder.”

“Management teams have a duty of care to shareholders to maximise returns and investors may well argue that this involves using legitimate means to minimise tax to boost profits, cash flow and therefore potentially dividend payments.

“By the same token, managers should not do anything that risks bringing the wrath of the regulator and / or the people upon themselves in their efforts to maximise value (and potentially minimise tax). That would work contrary to the interests of the company and thus its owners (shareholders) and stakeholders (and if the stakeholders are not happy the chances are they will not perform as well as they can, to the detriment of the shareholders). 

“At a time of perceived austerity and pressure on public services, when UK corporate tax represents barely 7% of the UK total tax take, it may not be that smart for companies to be seen to be pushing as hard as possible to lower tax to the minimum (despite their desire or need to offer shareholder value).

“The electorate is quite capable of voting in a government which may look to squeeze harder (or frighten the incumbent into doing so) to the potential detriment of near-term profits and thus share and stakeholders.

“Any company should look to protect itself and the interests of all from intervention by not overstepping the mark in the first place. Nor would a Rollerball-style society where corporations did as they pleased be any better than an autocratic state. Even the most skilled entrepreneur does not succeed ‘on their own’ - they hire staff who are largely educated and kept healthy by the state and companies benefit from the rule of law and infrastructure provided and protected by the state, so they should contribute accordingly.

“However, the corporate and other tax rates need to be carefully calibrated for two reasons.

“First, the incentive to work and strive is diminished if taxes are seen as too punitive, with the result that companies will not create the jobs which themselves provide revenue for the state from income tax, national insurance and other sources such as VAT and excise when employees spend their pay.

“Second, money flows away from where it feels unwelcome (owing to high taxes or corruption) to where it feels welcome (owing to lower taxes and rule of law).

“The Laffer curve, which seeks to establish the optimal level of tax to generate the maximum amount of revenue, therefore remains a serious issue as the debate that has been promoted by the Paradise Papers over what is the ‘right’ level of corporate tax goes to show.”