If you’d looked at the newspapers about npower last year you’d have thought that any company not paying was doing something wrong. Or if not wrong, then immoral. But life — and business — is rarely that black and white. All in all our company had invested over £3 billion over the previous 5 years in UK infrastructure. This investment meant we accrued tax reliefs, which meant we didn’t pay corporation tax. And this lack of tax payable led to loud accusations that we were “tax dodging”.
The intense media scrutiny had at least one unintended consequence – complete agreement in May 2013 on one specific tax issue by senior politicians from all three main parties (although this did not get anything like the same media coverage).
That issue was the importance of “capital allowances”, which is the tax relief that businesses get over time for large investments they make, like power stations. Here’s what they said.
“Sometimes there will be good reasons why companies pay little tax – some companies invest large sums in R&D, assets and infrastructure. We want that real investment here in Britain and we should encourage it, even when it temporarily reduces the tax those companies pay.” [Labour]
“When a company uses capital allowances, as Parliament wanted them to do, I don’t think they should be criticised for that.” [Lib Dem]
“[Tax reliefs] are entirely legitimate, entirely legal and they shouldn’t be confused with avoidance.” [Conservative]
Npower’s experience shows that a poor appreciation of how UK business taxes work can be really unhelpful for UK business. Participants in any serious debate around business tax ought to know at least the basics. We’ve tried to contribute to a better understanding, at least of capital allowances, by publishing our tax commentary in June 2013.
Brian Harris is Director of Tax for RWE in the UK, having worked in the utility sector for more than 15 years. Before that he worked in the profession as a chartered accountant and tax adviser, despite graduating from Cambridge as a chemical engineer.