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covid

Public Accounts Committee says HMRC not doing enough to deter tax cheats

2nd May 2023 by Alex Dunnagan

HMRC must do more to deter and punish tax cheats following disruption to its compliance programme caused by the pandemic, according to a new report by the Public Accounts Committee.

It shows HMRC opened 32% fewer cases in 2020-21 than the previous year, after 4,000 compliance staff were redeployed to work on Covid support schemes. This led to a £9 billion reduction in the amount of tax collected through its compliance work.

HMRC has said publicly that it isn’t planning to prosecute as many people as it did before the pandemic, and the Committee – which was given evidence for its report by TaxWatch – says it’s concerned this means there won’t be a credible deterrent effect.

Dame Meg Hillier MP, Chair of the Public Accounts Committee, said: “HMRC’s ability and efforts to draw in the tax that is so desperately needed to pay for public services were seriously compromised by the pandemic. That alone is bad enough in the current economic crisis but we need to see more effort from HMRC get this back. It is simply not doing enough to deter and punish cheats, even at very high levels.”

The report also called on HMRC to do more to help those who want to pay their taxes correctly, by supporting those with tax debts and improving its customer service levels. The Committee says it wants to ensure “it is never easier for people to cheat the tax system than to comply with it.”

One of the report’s recommendations, that HMRC should build in more resilience to the tax system given the strong value for money case for increasing resources, mirrors one of TaxWatch’s own recommendations in its submission to the Committee. TaxWatch has consistently argued that HMRC needs to have long-term resource planning and funding because of the positive return on investment, with each pound spent bringing in as much as £18 of additional tax revenue.

HMRC reveals new estimate for Covid fraud recovery

17th January 2022 by Alex Dunnagan

Three-quarters of Covid support claimed in fraud and error won’t be collected

HMRC has revealed that they expect to recover just 25% of a total £5.8bn paid out due to fraud and error in relation to the coronavirus support schemes. [1]HMRC responses to inaccurate claims, HMRC, 12 January 2022, https://www.gov.uk/government/news/hmrc-responses-to-inaccurate-claims

The latest figure has appeared in a document published on 12th January entitled “Myth Busters – HMRC’s responses to inaccurate claims” and sought to spin the figures as an achievement. Under a heading “HMRC has successfully tackled coronavirus help scheme fraud and error” HMRC explains “We recovered £500 million of overpayments in 2020 to 2021. The government then invested £100 million in a Taxpayer Protection Taskforce of 1,265 HMRC staff to combat fraud in the schemes. We expect the taskforce to recover £800 million to £1 billion between 2021 and 2023.”

This equates to a total of between £1.3bn and £1.5bn, or 22% and 26% of the amount lost to fraud and error.

The new figures appear to be a significant revision down from November last year, when Jim Harra, the head of HMRC, told the FT that the organisation will struggle to recover more than half of the losses. [2]HMRC expects to recover less than half £5.8bn lost in Covid fraud and errors, Financial Times, 21 November 2021, https://www.ft.com/content/3991505c-8311-401e-aece-55342f2b07df

The published figures suggest that HMRC will be seeing up to a 10x return on investment when tackling fraud and error in the coronavirus support schemes. It is therefore difficult to understand why the department is not being given more cash to tackle the problem and instead is leaving ¾ of the money lost to fraud and error in the hands of people that wrongfully claimed it.

Recent research from TaxWatch showed that the DWP is receiving more than 2x the funding HMRC is getting to tackle fraud and error in the benefits system arising from the pandemic – demonstrating that when an issue is deemed to be important enough, the Treasury finds the money.

This research was featured in The Times, The Daily Mail, and Public Finance, among others. This then lead to Jim Harra being questioned by the Public Accounts Committee on the figures, and to an Urgent Question in the House of Commons on fraud.

References[+]

References
↑1 HMRC responses to inaccurate claims, HMRC, 12 January 2022, https://www.gov.uk/government/news/hmrc-responses-to-inaccurate-claims
↑2 HMRC expects to recover less than half £5.8bn lost in Covid fraud and errors, Financial Times, 21 November 2021, https://www.ft.com/content/3991505c-8311-401e-aece-55342f2b07df

Furlough fraud to cost up to £7bn – with no civil penalties issued yet

12th May 2021 by Alex Dunnagan

• Furlough fraud and error set to cost between £3.5bn and £7bn

• 5 known arrests for fraud so far concerning £5m in fraud

• No civil penalties have yet been issued for furlough fraud

• More investment required to tackle the scale of the problem

Furlough fraud and error is set to cost between £3.5bn and £7bn by the time the Coronavirus Job Retention Scheme (CJRS) ends in September 2021 a new estimate produced by TaxWatch has found.

Despite being aware of the scale of the problem, and making several high profile arrests, HMRC appear not to have issued any penalties for furlough fraud yet.

DWP estimates that £4.6bn per year is lost to benefits fraud and error. To tackle this, the Counter Fraud, Compliance and Debt (CFCD) Department of the DWP had approximately 8,000 staff in 2019. By comparison, this new Taxpayer Protection Taskforce sees 1,265 HMRC staff chasing up to £7bn of money lost to fraud and error lost from CJRS, while also having to deal with issues arising from the multitude of other Covid-19 schemes.

Read the full report here.

Fraud and the Coronavirus Job Retention Scheme

12th May 2021 by Alex Dunnagan

12th May 2021

Download PDF

  • Furlough fraud and error set to cost between £3.5bn and £7bn

  • 5 known arrests for fraud so far concerning £5m in fraud

  • No civil penalties have yet been issued for furlough fraud

  • More investment required to tackle the scale of the problem

Introduction

With millions of people unable to work due to the pandemic, the UK government introduced the Coronavirus Job Retention Scheme (CJRS), which subsidises 80 per cent of people’s wages up to a maximum of £2,500 a month. Known as furlough, this scheme has saved millions from unemployment.

However, as with all covid related support schemes, there was an inevitable trade off that had to be made between the need to get money out the door quickly, and measures to protect these schemes from fraudsters.

It is thought that the most common way in which furlough fraud is committed is where an employer claims a grant for employees that are furloughed yet continue working. The employer may be putting pressure on employees to work when they shouldn’t be, or even not informing them that a claim is being made on their behalf. There have been instances of individuals still registered as furloughed for jobs that they were no longer in.1

The scale of the problem

In September 2020 HMRC revealed to the Public Accounts Committee that their working estimate was that between five and 10 per cent of furlough money had been claimed either in error or fraudulently – £3.5bn at that time.2

With the scheme currently set to finish at the end of September 2021, it is estimated that the cost of furloughing UK workers will be around £70bn – putting the scope for error and fraud anywhere between £3.5n and £7bn. This figure of £70bn comes from estimates from The Office for Budget Responsibility which put the cost of CJRS for the 2020-2021 financial year at £59bn,3 with a further £10.8bn predicted for 2021-2022.4 HMRC does not expect to have a complete assessment of the total fraud and error it needs to tackle until the end of 2021 at the earliest.5

According to HMRC, over the course of the pandemic, from March 2020 to April 2021, 11.5m jobs have been supported by the Coronavirus Job Retention Scheme.6 Given the department’s working estimate of up to 10 per cent of claims being paid in fraud or error, there could be over 1m incorrect claims in the system.

Payback

If a business has overclaimed a CJRS grant and have not repaid it, they must notify HMRC by the latest of these three dates or risk paying a penalty:

  • 90 days after the date they received the grant you were not entitled to;

  • 90 days after the date they received the grant that they were no longer entitled to keep because their circumstances changed; or

  • 20 October 2020

Following a Freedom of Information request sent by TaxWatch, HMRC revealed to us that as of 18 February 2021, over 13,000 organisations had made over 15,000 repayments, at a total value of £446.5m. At the same time, 112,000 organisations had made over 145,000 “corrections”, for a total value of £262.2m.7 These repayments and corrections can arise for any reason, from mistakes being made on the claim form, through to potentially fraudulent claims where HMRC action may have encouraged an employer to return the money. In some cases companies have even voluntarily repaid legitimate claims after they felt that they could sustain the cost of paying wages during periods of reduced work themselves.

Arrests

In total, HMRC have announced the arrest of 5 individuals for fraud related to the Coronavirus Job Retention Scheme. The alleged frauds account for a total of £5m in overpayments.

HMRC made their first arrest in July 2020. However, the individual in question appears to have been already under investigation for money laundering and a multi-million pound tax fraud.8

Further arrests were announced in September 2020, with an accountant from Romford and a company director from Walthamstow arrested on suspicion of fraud by false representation in relation to the CJRS.9

In May 2021, the newly constituted Taxpayer Protection Taskforce announced 2 arrests in connection with a £3.4m CJRS fraud.10

Penalties

In addition to arrests and criminal prosecution, HMRC have the power to raise enquiries into claims and issue penalties resulting from overpayments.

HMRC Chief Executive Jim Harra told Parliament last September that the department was inquiring into 27,000 “high-risk” claims, and that they had received 8,000 calls to their furlough fraud hotline.11

In April, the government said that it had opened 10,000 inquiries into possible instances of fraud in covid-related support payments.12

In February 2021 HMRC told us: “No penalties have been issued as our compliance activity has not yet reached the stage where such action is considered”. We followed up with HMRC in April, asking whether the situation had changed, the Department was unable to give us a response.

The return on compliance

In a National Audit Office report of October 2020, it was stated that HMRC estimates that post-payment compliance work – ie, staff working to recoup losses from fraud and error – would offer a return on investment of around 9:1. While the 9:1 ratio sounds a healthy return on investment, it should also be noted that any staff redeployed to furlough compliance will no longer be working on other areas within the department.

It was announced in October 2020 that HMRC were planning to deploy 500 full time staff, which they estimated would bring in around £275m.13 Using the 9:1 ratio, we estimate that meant expenditure on this staff of approximately £30.5m.

The 2020 Spending Review included an increase in HMRC’s budget, which included “£20 million to fund additional resource to implement and ensure compliance with Covid-19 support schemes”,14 taking the total to £50.5m, which would in theory recover £454m a year.

Expenditure on recouping money lost to CJRS fraud and error was increased yet again in the March 2021 Budget, which the Chancellor Rishi Sunak confirming the creation of a £100m “Taxpayer Protection Taskforce”. This new taskforce is to be staffed with 1,265 HMRC officials, and will seek to recoup money wrongly claimed from pandemic support schemes, including (though not exclusively) furlough.15

This sounds like a substantial investment, but to put these numbers into context, the DWP estimates that £4.6bn per year is lost to benefits fraud and error. To tackle this, the Counter Fraud, Compliance and Debt (CFCD) Department of the DWP had approximately 8,000 staff in 2019. By comparison, the new Taxpayer Protection Taskforce sees 1,265 HMRC staff chasing a potential £5.25bn of money lost to fraud and error lost from CJRS, while also having to deal with issues arising from the multitude of other Covid-19 schemes.

If we assume a return on investment of 9:1, should this taskforce focus exclusively on CJRS – which it won’t – it can expect to recoup £900m a year.

If we take the amount of furlough fraud and error to be £5.25bn (the mid point between the higher and lower estimates provided by HMRC), then it would take just shy of six years at an expenditure of £100m a year for HMRC to recover the total amount lost to furlough error and fraud. This does not take into account the fact that the marginal return on investment will decline as more cases are pursued.

However you cut the data, the conclusion is the same, in order to tackle furlough fraud, a lot more investment will be required.

Increased workload – new staff?

It was reported in City Wire back in March of last year that HMRC wasn’t planning on increasing its recruitment despite the new workload that had arisen out of the pandemic.16 HMRC confirmed this again in October, stating that it does not believe it can recruit additional staff to deal with furlough fraud and error due to the 18-month time-lag between starting recruitment and getting staff fully trained.17

The Budget announcement on the new Taxpayer Protection Taskforce stated that it will be staffed by “HMRC operatives” suggesting that staff are to be moved from elsewhere within HMRC.

So while this will allow for a dedicated body to tackle fraud and error arising out of covid schemes, it will likely detract from other areas of HMRC work which are already overstretched and having to deal with vast changes following Brexit.

Given the amount of money at stake, and the fact that we aren’t likely to see the full picture until the end of this year, HMRC’s reluctance to recruit is rather questionable. Had a decision been made when the Coronavirus Job Retention Scheme was first implemented, new staff would be recruited and fully trained by this summer.

 

1 Furlough fraud: I’m still registered as furloughed for a job I quit’, BBC News, 13 January 2021, https://www.bbc.co.uk/news/business-55633773

2 Public Accounts Committee Oral Evidence, House of Commons, 07 September 2020, https://committees.parliament.uk/oralevidence/978/default/

3 In a March 2021 statement, ‘The rising cost of the coronavirus policy response’ (https://obr.uk/box/the-rising-cost-of-the-coronavirus-policy-response-2/), the previous November estimate (https://obr.uk/efo/economic-and-fiscal-outlook-november-2020/) for CJRS in 2020-2021 was revised down by £3.5bn, from £62.5bn to £59bn

4 In the March 2021 ‘Economic and Fiscal Outlook’, it was estimated that the April-September 2021 cost for CJRS would be £10.8bn (https://obr.uk/efo/economic-and-fiscal-outlook-march-2021/).

5 Implementing employment support schemes in response to the COVID-19 pandemic, NAO, 23 October 2020, https://www.nao.org.uk/wp-content/uploads/2020/07/Implementing-employment-support-schemes-in-response-to-the-COVID-19-pandemic.pdf

6 HMRC, Coronavirus Job Retention Scheme statistics: 6 May 2021, https://www.gov.uk/government/statistics/coronavirus-job-retention-scheme-statistics-6-may-2021/coronavirus-job-retention-scheme-statistics-6-may-2021

7 FOI response from HMRC to TaxWatch, 02 February 2021.

8 HMRC Press Release, West Midlands man arrested on suspicion of £495,000 furlough fraud, 9 July 2020, https://www.mynewsdesk.com/uk/hm-revenue-customs-hmrc/pressreleases/west-midlands-man-arrested-on-suspicion-of-495000-pounds-furlough-fraud-3020956

9 Imogen Tew, London pair arrested over suspected £70k furlough fraud, FT adviser, September 11 2020, https://www.ftadviser.com/your-industry/2020/09/11/london-duo-arrested-in-70-000-furlough-fraud-case/

10 BBC News, Furlough: Pair arrested over £3.4m job scheme fraud, https://www.bbc.co.uk/news/uk-england-leeds-57027046

11 Public Accounts Committee Oral Evidence, House of Commons, 07 September 2020, https://committees.parliament.uk/oralevidence/978/default/

12 James Baggott, 10,000 “Furlough fraud investigations now open as government funds special task force to tackle cases”, Car Dealer Magazine, https://cardealermagazine.co.uk/publish/10000-furlough-fraud-investigations-now-open-as-government-funds-special-task-force-to-tackle-cases/220652

13 Implementing employment support schemes in response to the COVID-19 pandemic, NAO, 23 October 2020, https://www.nao.org.uk/wp-content/uploads/2020/07/Implementing-employment-support-schemes-in-response-to-the-COVID-19-pandemic.pdf

14 Spending Review 2020, HM Treasury, Updated 15 December 2020, https://www.gov.uk/government/publications/spending-review-2020-documents/spending-review-2020

15 Budget 2021, Pg 50, HM Treasury, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/966868/BUDGET_2021_-_web.pdf

16 Exclusive: HMRC won’t hire more staff despite Covid-19 pressure, City Wire, 30 March 2020, https://citywire.co.uk/new-model-adviser/news/exclusive-hmrc-wont-hire-more-staff-despite-covid-19-pressure/a1340960

17 Implementing employment support schemes in response to the COVID-19 pandemic, NAO, 23 October 2020, https://www.nao.org.uk/wp-content/uploads/2020/07/Implementing-employment-support-schemes-in-response-to-the-COVID-19-pandemic.pdf

Supermarket Super Tax Breaks

2nd December 2020 by Alex Dunnagan

Tesco has announced that it is repaying the £585m worth of business rates relief that it received from the government as support during the pandemic, saying that it is “the right thing to do”.1

Back in March when flour, tinned goods and toilet paper were hard to find, the government announced that all retail, leisure and hospitality firms would be exempt from paying business rates for 12 months from 01 April.

We wrote at the time that while many industries would undoubtedly take a hit during the coronavirus crisis, supermarkets would not be one of them. With hospitality closed for several months, supermarkets were bound to reap the benefits of the nation staying at home.

Relief for supermarkets is big business. According to The Grocer, superstores and hypermarkets pay a total of £2.68bn in business rates a year. Add to this an extra few hundred million paid by smaller stores and the total bill hits £3bn.

We asked “will the public continue to support the government if they feel that their tax money is being spent on companies that are set to do very well out of this?”

In an op-ed in The Guardian our Executive Director pointed out that in Wales “the government has reversed its decision to match business rates relief in England and is excluding the largest premises from accessing the relief. It plans to divert the savings (which it claims will amount to £120m) to help smaller businesses and charities”.

Our suggestion at the time, which featured in The Times, was that “it may be a better idea for the government to take a more targeted approach, with support being directed towards businesses forced to close, whilst those that remain open and thrive continue to pay business rates in the normal way.”

Since then we have seen supermarkets post bumper profits. Sainsbury’s profits rose by 26 per cent in the six months to 19 September. The grocer received relief on business rates worth £230m in the first half of its financial year and then paid £231m in dividends to shareholders.2

It’s not just grocers who have benefited from the coronavirus windfall, with some non-supermarket retailers also posting huge covid-related profits. The most notable recent example was B&M, which saw huge increases in profit over lockdown while receiving £38m in business rates relief. B&M’s answer to this increase in profit was to pay a £250m special dividend to investors, on top of increasing the interim dividend by 59.2 per cent to 4.3p a share. The result of this was that the billionaire brothers behind B&M received a £44m payout.3

Julian Richer, founder of UK retailer Richer Sounds (also Chair and Founder of TaxWatch),4 flagged the issue to the CBI last month saying “Now I get it for shops that are closed. The supermarkets have got customers queuing around the block. Why have they had a rates holiday? Hundreds of millions of pounds a year. Maybe they should refund their rates bill.”5 The CBI has repeatedly urged firms to “take only what you need”.

Tesco chairman John Allan said “The board has agreed unanimously that we should repay the rates relief we have received. We are financially strong enough to be able to return this to the public, and we are conscious of our responsibilities to society.” This is a commendable stand to take and should be applauded. The decision by Tesco will put pressure on other retailers that have done relatively well this year to do the same.

The question that should be asked though is whether this action should be voluntary. If we rely on the goodwill of the boards to return any help they don’t need, the main beneficiaries end up being businesses that don’t need support but care less about their reputation.

UPDATE: Since we published this article, Morrisons announced on 02 December that they would follow suit and repay £274m of business rates relief. Sainsbury’s then announced on 03 December that they would return £410m of business rates relief. This was followed by Asda who agreed to pay back £340m, Aldi who will pay £100m, B&M which will pay £80m, and Lidl £100m. This takes the total recouped from retailers to £1.9 billion. 

1 Tesco decides to repay business rates relief, Tesco, 02 December 2020 https://www.tescoplc.com/news/2020/tesco-decides-to-repay-business-rates-relief/

2 Sorry Sainsbury’s, but the pandemic also created a financial windfall, The Guardian, 05 November 2020, https://www.theguardian.com/business/nils-pratley-on-finance/2020/nov/05/sorry-sainsburys-but-the-pandemic-also-created-a-financial-windfall-rates-relief

3 B&M bosses set for £44m payout as lockdown profits soar, The Times, 13 November 2020, https://www.thetimes.co.uk/article/b-m-bosses-set-for-44m-payout-as-lockdown-profits-soar-tpmwwwlfs

4 Disclosure: Julian Richer sits on the board of TaxWatch and is also a major donor. http://13.40.187.124/about-us/

5 Big grocers told to repay business rates billions, The Times, 04 November 2020, https://www.thetimes.co.uk/article/big-grocers-told-to-repay-business-rates-billions-jwn0krbtc

Cruising for a bailout

17th July 2020 by Alex Dunnagan

The cruise ship industry was an early casualty Covid-19, with all major cruise operators being forced to halt their operations.1 This has hit the industry hard, with share prices in the largest cruise companies dropping by over 50 per cent compared with this time last year.

The impact of the virus on the industry became the first flashpoint in the debate about which companies should get state support. Following fierce debate in the United States over whether their decades long use of tax havens should disqualify them from receiving support, it appears that the industry can not access Federal support under the CARES Act. However, with little fanfare, the Bank of England has loaned £325m at low interest to the two largest cruise lines. both of which are renowned for their use of tax havens.2

Cruising for a tax deduction

By incorporating in places such as Panama (Carnival Corporation) and Liberia (Royal Caribbean Cruises), and registering ships in countries such as the Bahamas, as well as making use of a number of generous tax exemptions, cruise ship companies are able to avoid tax and are held to lower standards on health, safety, the environment, and labour rights.

A report by The Hustle calculated that the major cruise lines, all with a significant presence in Florida yet incorporated offshore, paid an average tax rate of just 0.8 per cent.3 A recent investigation by Business Insider found staff on cruise ships working long hours for as little as $500 a month.4 Carnival Corporation & Plc has recently been fined $20m for dumping sewage and plastic waste into the ocean, while falsifying records of incidents.5

America to the rescue?

In the US, President Trump has praised the cruise industry , calling these offshore companies “a great US business” during a press conference.6 The President has had a long association with the industry. Micky Arison, chairman of Carnival, is a personal friend of Trump and helped sponsor his reality show “The Apprentice”.7

Not everyone agrees with Trump’s analysis of the industry. Peter DeFazio (D-Ore.), chairman of the Transportation Committee, commenting on the industry’s request for a bailout has said “they aren’t American”, and “They don’t pay taxes in the United States of America. If they want to re-flag their ships … and pay U.S. wages and pay U.S. taxes, then maybe.”8

Despite the President’s fondness for the industry, it appears that it does not qualify for relief under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). As companies must be certified as “created or organized in the United States or under the laws of the United States” as well as having “significant operations in” and a majority of employees based in America.9 Despite all the major players having a presence in Florida, this effectively rules them out. 10

Carnival Corporation’s annual 10-k filing goes as far as to state that “…substantially all of Carnival Corporation’s income is exempt from U.S. federal income and branch profit taxes”, due to the fact that Section 883 of the Internal Revenue Code exempts “income derived by a corporation organized in a foreign country.”1112 Norwegian said in its most recent annual filing that under “current Bermuda law,” where it’s incorporated, the company is “not subject to tax on income and capital gains.”13

British bailouts

In a similar fashion to President Trump, the British Prime Minister has recently referred to the cruise industry as “a great, great British industry”, stating that the UK “will support it in any way that we can.”14 Though the rhetoric is the same, while the US isn’t bailing out the cruise industry, the UK is.

On 04 June, the Bank of England announced that £25m in Covid Corporate Financing Facility (CCFF) loans had gone to Carnival Plc, a British company that is ‘dual listed’ with the Panama incorporated Carnival Corporation.15 A dual-listed company is a corporate structure wherein two companies function as a single business. 16

On 25 June it was revealed that RCL Cruises Ltd, better known as Royal Caribbean Cruises, had received £300m in CCFF loans.17 Royal Caribbean does have a headquarters in the UK (along with one in Florida), but the ultimate owner is RCL, a company incorporated in Liberia in 1985.

In 2019, Carnival PLC declared profits of $1.2bn and faced a tax liability of just $40m. In 2018, the latest year that accounts are available, RCL Cruises Limited declared $226m in profit and received a tax credit of $59m.

We have written about how countries around the world have sought to exclude companies registered in tax havens from receiving government support, in our report, Paying in Equally. The cruise ship industry provides one powerful example of how the UK has taken a relatively easy-going approach to which companies qualify for government support. But with calls growing to place restrictions government bailouts, will the UK government’s support for the cruise ship industry be sustainable?

This research featured in The Times and Skift.

Photo by Morning Brew on Unsplash

1https://www.theguardian.com/world/2020/mar/27/stranded-at-sea-cruise-ships-around-the-world-are-adrift-as-ports-turn-them-away

2https://www.theguardian.com/world/2020/mar/27/stranded-at-sea-cruise-ships-around-the-world-are-adrift-as-ports-turn-them-away

3https://thehustle.co/the-economics-of-cruise-ships/

4https://www.businessinsider.com/cruise-ship-workers-reveal-how-much-money-they-make-2019-5?r=US&IR=T

5https://www.ft.com/content/0eac4946-8644-11e9-97ea-05ac2431f453

6https://www.washingtonpost.com/travel/2020/03/13/trump-offers-support-cruise-lines-during-coronavirus-outbreak-while-asking-them-stop-sailing/

7https://www.washingtonpost.com/politics/coronavirus-pandemic-tests-clout-of-cruise-industry-and-its-long-standing-ties-to-trump/2020/03/12/3f79a1ba-63aa-11ea-912d-d98032ec8e25_story.html

8https://www.politico.com/news/2020/03/11/coronavirus-cruises-126426

9https://www.whitecase.com/publications/alert/us-cares-act-relief-available-us-subsidiaries-european-companies

10https://www.politico.com/news/2020/03/11/coronavirus-cruises-126426

11https://www.carnivalcorp.com/sec-filings/sec-filing/10-k/0000815097-20-000003

12https://www.law.cornell.edu/uscode/text/26/883

13http://www.nclhltdinvestor.com/static-files/ebce2e02-cf0d-42ce-b3f6-4c91efcd3c9a

14https://www.telegraph.co.uk/travel/cruises/news/boris-johnson-british-government-support-cruise-industry/

15https://www.bankofengland.co.uk/markets/bank-of-england-market-operations-guide/results-and-usage-data

16https://www.travelweekly.com/Cruise-Travel/Saudi-Arabia-buys-a-piece-of-Carnival-Corp

17https://www.bankofengland.co.uk/markets/bank-of-england-market-operations-guide/results-and-usage-data

Monitoring the bailout

16th June 2020 by Alex Dunnagan

Monitoring the bailout

16 June 2020 – Alex Dunnagan

In response to the Coronavirus crisis, the government has made a huge and unprecedented intervention into the economy, providing vast amounts of assistance to the business sector. The comprehensive nature of the support has meant that some awards have attracted controversy, and this has prompted calls for the government to make support conditional on past or future behaviour. There is also no doubt that the large scale of the intervention will lead to a long lasting impact on the shape of the economy.

In order to better understand this impact, our recent report, “Paying in Equally”, suggested that the government make all data available to the public on which companies are accessing support schemes and on what terms. This would allow the public to better understand how the government is spending taxpayer money, and the issues raised by how these schemes are administered. It would also allow for the easier detection of fraud.

The Treasury has recently published the companies that have received the Bank of England’s Coronavirus Corporate Financing Fund (CCFF), which it intends to update on a weekly basis. Publishing this data is a good start, however, this fund represents a small part of the overall funding package. There are currently no plans to publish data on which companies have been receiving cash to furlough their staff or aid from any other government schemes.

Over the last few months we have been tracking where taxpayer money has gone, and recording which companies have been receiving government assistance. In the absence of any public data, we have been reliant on either press statements, stories in the media, or help from members of the public who have used our bailout tracker. With almost half of UK businesses accessing government support, we do not pretend that our list is in any way comprehensive. 1

Listed below is a selection of ten industries that have either received or are lobbying for government financial assistance throughout this pandemic, and some of the issues that have been raised by the Covid-19 bailouts. This provides a narrative of government support during the pandemic and covers all aspects of the bailout, the good and the bad.

In addition to this, there have been incidences where support from the government for specific companies has proved controversial because of the tax practices of the owners of the company or the owners themselves. These controversies have led to calls for the government to restrict support to companies with good tax conduct. In many countries, companies have been refused money if are incorporated in tax havens.

The tax controversies surrounding the Covid-19 bailout fall into three broad categories.

  1. There are companies which are incorporated in the UK, but which are substantially owned by tax exiles or tax haven companies.
  2. There are companies which have a known history of tax avoidance themselves.
  3. There are some cases, such as supermarkets, where there has been no poor tax conduct by the companies or owners themselves, but questions have been raised as to whether tax breaks given to the sector have been overly generous.

Below we present a table of companies which raise some of these issues, along with a link to the evidence of the company receiving subsidy. This is a live table and is updated as and when we pick up on issues, and when we are alerted to them by members of the public.

All of the businesses included in the table are legally entitled to claim the Government support, and TaxWatch is not accusing any of the aforementioned businesses of failing to pay UK taxes. Should a spokesperson for any of the businesses or individuals mentioned wish to contact us, please email info@taxwatchuk.org

The story of Covid-19 bailouts in the UK by industry sector

Transport

With the message from the government to stay at home, and countries around the world closing their borders, transport was always going to be one of the industries most severely impacted by Covid-19.

Given this, there were eyebrows raised when at the beginning of the epidemic in Europe, EasyJet pressed ahead with a £174m dividend. Of this payment, £60m went to the founder, Sir Stelios Haji-Ioannou. The airline has made shareholder payouts of more than £1.8bn since 2012.2

The low cost airline went onto secure a £600m loan from the Covid Corporate Financing Facility, the terms of which remain confidential. EasyGroup, based in the UK, owns a 33 per cent share in easyJet.3 EasyGroup is owned by EasyGroup Holdings based in the Cayman Islands, which is ultimately owned by the Sir Stelios Trust, also based in the Cayman Islands. Sir Stelios is resident in Monaco.

Sir Stelios is not the only Billionaire tax exile based airline owner to have hit the headlines. Sir Richard Branson has lobbied the UK Government to bailout Virgin Atlantic to the tune of half a billion pounds. Public outrage has focused on the fact that while Virgin Atlantic is headquartered in the UK, Branson has paid no personal income tax since moving to the British Virgin Islands in 2006.

After having been denied a request for a loan, Sir Richard has since announced that he is to sell $500m in Virgin Galactic shares to prop up the rest of the group.4 The shares account for just over a fifth of his stake in Virgin Galactic.

At the beginning of the crisis there was some optimism that after a short lockdown to crush the disease, we would be able to return to near normal conditions. Now airlines are realising that they are in for a long haul.

British Airways, which has furloughed more than 30,000 staff at 80 per cent of pay, at first said that it would not be requesting any government loans as it had enough cash to weather the crisis. It has now changed its position, seeking £900m from the Spanish Government and £300m from the UK. The airline has also announced it is to make 12,000 workers – one quarter of its workforce – redundant, anticipating a long term drop in demand resulting from the crisis. Engine maker Rolls Royce has taken a similar view, announcing plans to cut 9,000 jobs globally.5

With most planes grounded, airport revenue has taken a hit. Heathrow attracted controversy after it was accused of using the furlough scheme as a threat to discipline employees who did not want to accept a pay-cut. The airport told staff that they would be furloughed if they did not accept the cut to pay, and would then be made redundant when the scheme came to an end. Local councils in Manchester, which are the majority owners of Manchester Airports Group, have come to the rescue of the company which owns Manchester, Stansted and East Midlands airports, handing over additional funding of £260m.6

Back at sea level, ferry companies have also been accused of giving payouts to shareholders whilst taking government cash.

P&O Ferries is cutting a quarter of its workforce while using the Job Retention Scheme to furlough 1,400 workers. The ferry company also unsuccessfully applied to the UK Government for £150m in state aid. At the same time the owner of P&O, DP Worldwide, has paid out a £270m dividend to its shareholders.7 A DP World spokesman said the dividend is part of the delisting process, and the company is legally obligated to pay it. DP World is based in a free zone in Dubai where companies are exempt from tax.

After £35m was given to passenger ferry operators, CldN – one of the biggest freight operators in Europe – sent legal letters to the Department for Transport claiming the cash aid was illegal under European law.8 The Telegraph reported that the subsidy was unnecessary and instead provided the passenger ferry operators with a financial competitive advantage over their freight rivals.

Supermarkets

Supermarkets are playing a key role throughout this crisis, and we should be thankful for those working in the industry. However, there can be no doubt that for supermarkets, the crisis is good for business. Sales are through the roof. British grocery sales rose by 14.3% during the 12 weeks to 17 May, the fastest rate since records began in 1994.9

Supermarkets haven’t required access to the furlough scheme. While they haven’t lobbied the government for any relief, supermarkets have been awarded a business rates holiday worth £3bn.10 Shortly after this announcement, Tesco paid its shareholders a £635m dividend, leading some to question whether the business rates holiday was really necessary 11

Manufacturing / Heavy Industry

Building a digger is not work that can be done from home. As a result, many factories have had to close and are seeking government support. However, there has been some concern that this has resulted in billionaire industrialists receiving state handouts without the need to dip into their own substantial wealth.

Construction manufacturer JCB has furloughed the vast majority of its 6,500 staff. It is owned by Lord Bamford, 74, whose family wealth sits at £4.7 billion. JCB was previously controlled by a couple of Bermuda trusts, a structure which held up Lord Bamford’s peerage. The structure has now been brought onshore.

Another billionaire industrialist with a more ambiguous relationship with offshore is Sir Jim Ratcliffe, owner of Ineos, who has a personal fortune of £12.15bn. In 2019 The Guardian reported that Sir Jim had planned to move his residency to tax-haven Monaco to save on income tax, although he has denied that he went through with the plan.12 Ineos has moved to Switzerland to avoid UK corporation tax in the past but moved back when tax rules were changed. One part of the Ineos group, Petroineos, a joint venture with PetroChina, has been in talks with the Scottish and UK governments seeking as much as £500m in bailout cash.

The immediate parent company of Petroineos is Petroineos Trading Limited, a company incorporated in Jersey.

Hospitality

The hospitality sector has effectively ground to a halt, with hotels and restaurants closed across the country. Many businesses in this sector have been claiming for furlough, with others seeking government loans. Hospitality is also able to benefit from the same business rates holiday that supermarkets do.

In addition to being a plastics magnate, Sir Jim Ratcliffe also co-owns the hotel chain Pig Hotels. The CEO of Pig Hotels has written to the Prime Minister requesting further support from the government.13 The hotel chain had already furloughed 782 staff and received £4m from the Coronavirus Business Interruption Loan Scheme. Pig Hotels is still planning to expand, intending to open a luxury country retreat complete with a vineyard in Sussex next year.14

Another luxury resort seeking government aid is the Carnegie Club at Skibo Castle in Scotland, where Madonna and Guy Ritchie married in 2000. The resort has furloughed its staff, and is not topping up their salaries past the 80 per cent, the Daily Record reports.15 The club, which costs £30,000 to join, was bought in 2003 by Irish-American private equity businessman Ellis Short who is worth £1.36bn. The parent company of Skibo Castle is Bermuda registered Scytherbolle Limited.

Other offshore billionaires in the hospitality sector are the Reuben brothers, worth £16bn according to this year’s Rich List. It’s reported that they have furloughed around 750 staff at their racecourses and pubs.16 The younger brother, Simon, has lived in Monaco for almost 20 years, while the elder brother David is said to split his time between Monaco and Florida.17

David Reuben isn’t the only billionaire with UK hospitality interests that spends a considerable amount of time in Florida. It was reported in April that The Trump Organization, of President Trump fame, was seeking bailout money in both the United Kingdom and Ireland to furlough employees, keeping the loss making golf resorts afloat.18 The UK furlough scheme pays 80 per cent of a workers salary, while in Ireland it is 70 per cent (both are capped at an upper limit). It is not clear if the business was intending to top the salaries up.

Since becoming president, Trump has retained his financial stake in the business, with his sons assuming executive control. The Trump Organization has been specifically excluded from receiving support in the US, and has made roughly 2,000 employees redundant.19

Retail

British retailers have access to a bailout package of reliefs, grants, and loans, though the British Retail Consortium has warned that this is not enough.20 With the lockdown closing all but non-essential retailers, retail understandably needs financial assistance. However, many large chains owned by high net worth individuals have seen tens of millions – and in some cases billions – taken offshore.

Sir Phillip Green has furloughed 14,500 of the 16,000 staff who work for Arcadia Group, which includes Topshop, Topman, Burton, Miss Selfridge and Dorothy Perkins. Arcadia is owned by Green’s wife, Tina, whose residency in Monaco means that she is not required to pay UK tax on dividends. The Green family took a £1.2bn dividend from the company in 2005.21

It was reported in March that Arcadia Group was planning to defer the deficit recovery contributions agreed with the Pensions Regulator in 2019.22 The company is due to pay £25m annually to its pension scheme, but those contributions are said to have been postponed to conserve cash during the pandemic.23 Phillip Green’s net worth is estimated at £930m according to this years Sunday Times Rich List.

In a move similar to Sir Phillip, Chris Dawson, the founder of The Range discount stores, transferred his shares to his wife Sarah after she moved to Jersey in 2016. As a result, she did not have to pay any UK tax when receiving a £39.5m dividend in 2018.24 The Range has remained open throughout the pandemic and in doing so has been criticised for putting the health of employees at risk. The chain specialises in home, leisure and garden items, and some limited food items appeared in stores shortly before the order to close non-essential retail. The chain will benefit from the business rates holiday.

Discount chain B&M, owned by billionaire brothers Simon and Bobby Arora, temporarily furloughed some of its staff, briefly closing 49 of its 660 stores.25 The Daily Mail revealed that the company paid £152.6m in dividends between 2014 and 2017 to a holding company in Luxembourg, despite having no shops in the country or employing any workers there.26

Fashion and homeware retailer Matalan, owned by John Hargreaves, has furloughed over 11,000 of its staff, while deferring tax and national insurance payments, and accessing business rates exemption worth over £40m.272829

During an £84m tax dispute, Hargeaves told HMRC he had moved to Monaco and was no longer a tax resident in the UK.30 Hargreaves won this case against HMRC, with a judge ruling the case was too old for HMRC to make a claim. The Guardian reported that Hargreaves is suing his accountants for allegedly giving him ineffective tax avoidance advice regarding his move to Monaco in 2000. Hargreaves and his family have amassed a £550m million fortune, according to The Sunday Times rich list.

Football Clubs

There have been varying different responses from football clubs, with a number of clubs changing their decisions on whether or not to seek government support after news they would provoke angry reactions from the fans.

At the heart of the issue is the inequality in pay at football clubs. The furlough scheme allows companies to pay 80% of wages, up to a cap of £2,500. Companies can, of course, top-up wages to 100% if they wished. Some clubs originally sought to put their lowest paid staff on furlough, with the cut in wages, whilst continuing to pay stars in some cases hundreds of thousands of pounds a week.

Liverpool FC originally said they were intending on furloughing staff, before quickly performing a U-turn and apologising following a public backlash. Chief executive Peter Moore said: “We believe we came to the wrong conclusion last week and are truly sorry for that.”31 Tottenham, the eighth richest club in the world, owned by a multi-billionaire tax exile, was also criticised for placing staff on furlough. The club quickly reversed their decision, stating that they would not use the Coronavirus Job Retention Scheme, and have gone as far as to use their stadium as a Covid-19 testing facility.32 Tottenham has however borrowed £175m from the Treasury’s Covid Corporate Financing Facility.

Despite some clubs changing their decisions on furlough, Newcastle United and Norwich City are two clubs that pressed ahead with accessing government support, promoting calls for clubs using the scheme to be banned from buying players until the money is paid back.33

North of the border, Scottish Premiership side Celtic FC has confirmed that they will place their non-playing staff on furlough.34 The Paradise Papers revealed that Irish billionaire Dermot Desmond, owner of Celtic FC, used an offshore tax haven structure involving an Isle of Man company to avoid Swiss tax on his private jet company Execujet.35

Non-football playing staff as rival side Glasgow Rangers FC have also been furloughed.36 The club was involved in a huge tax avoidance scheme that ran players’ wages through a series of offshore trusts to avoid income tax. The resulting tax dispute with HMRC ended up bankrupting up the club.37 

Care Homes

Care homes are on the front line of the Covid-19 crisis with tens of thousands of care home residents dying from the disease. This tragedy has led to grim financial consequences for care home operators, who are paid based on occupancy.

This has led to calls from the sector to guarantee payments to homes based on minimum occupancy levels of 90%.

Before the outbreak of the virus, there had been a long running debate about the funding of the sector. One issue that had been a point of controversy is the fact that many homes are owned by Private Equity companies that had structured their business to strip out cash whilst minimising tax payments.

A 2019 Daily Mirror investigation found that over 1,000 UK care homes are owned by or run via offshore companies, with many of the largest operators making little to no profit, while paying large sums to related companies offshore.38

As we move past the immediate crisis, and into the inevitable inquiry into the disaster in the care sector, this issue is unlikely to go away.

Recently, Private Eye questioned whether the support being requested by the sector was even necessary, given the large amount of profits being booked offshore. It detailed how HC-One, the UK’s largest care home group, posted an operating profit of £57m last year, this was after making lease payments to an offshore related property company. The vast majority of the operating profit then disappeared in the form of £50m in interest costs.39 This interest of up to 18 per cent derives from loans from related Cayman Islands companies.

The group have paid out significant dividends in recent years, with £6m paid out in both 2018 and 2019 via a Cayman Islands holding company. Private Eye states that HC-One wouldn’t need financial assistance “had it not funnelled well over £50m into the Cayman Islands in three years (while paying minimal tax here, just £1m last year)”.

Second Homes

Some owners of second homes have managed to qualify for coronavirus support in what can only be described as a clear abuse of the spirit of coronavirus support.

In England, many second home owners have put the ownership of their second home into a company. If the property has been made available for rent (N.B. it doesn’t actually have to have been rented out), the company can then claim to be a business and avoid paying council tax, which has been increasing on owners of second homes. This tax dodge turned out to be even more lucrative when the government introduced grants for small business in response to Covid-19, which many second homes qualified for.40

This is despite the fact that many genuine bed and breakfasts did not qualify for the grants, because they do not pay business rates.41 The government responded to this by setting up a discretionary fund to assist businesses such as bed and breakfasts that fell outside the scope of previous schemes.

In Wales, the legislation is tougher for tax avoiders, as they actually have to rent out their second homes to qualify.

Professional Services

Professional services, accountants, lawyers and consultants being primarily office based, can make the transition to home working better than others. Although some will be seeing business in some areas slow down, other areas, such as insolvency practitioners and company administrators will be sadly seeing an increase in trade.

However, many professional services have been accessing government support schemes, opening up the sector to accusations that it has been taking advantage of government generosity.

Accountants have been particularly sensitive to the reputational risks of accepting government cash, given the way in which the industry has spent several years mired in controversy. A string of high profile corporate failures have pointed to widespread problems in the audit industry, and accountancy firms have been accused of industrial scale tax avoidance in devising and promoting tax avoidance schemes.

The six largest accounting firms held a virtual meeting in April to discuss the potential damage to their reputation should they accept government funding. During the call at least two of the Big Four accountancy firms announced that they had applied for a Covid loan from the Treasury, it was reported in the Financial Times.42 Partners at the Big Four firms earned an average of £720,000 last year. BDO, the fifth-largest accounting firm by revenues, announced it has furloughed around 700 employees. The firm’s partners earned an average of £602,000 last year.43

Law firms have been less bashful, with 90% of firms surveyed saying that they were furloughing staff. This was despite the fact that the majority of firms expect to remain profitable this year, and only see a dip in profits of less than 25%.44

To add to our bailout tracker, please click here.

1BCC Coronavirus Business Impact Tracker: First results show heavy toll on UK business communities as majority of firms face cash flow crisis, British Chambers of Commerce, 02 April 2020, https://www.britishchambers.org.uk/news/2020/04/bcc-coronavirus-business-impact-tracker

2Easyjet seeks state loans — but pays Stelios £60m, The Times, 20 March 2020, https://www.thetimes.co.uk/article/easyjet-seeks-state-loans-but-pays-stelios-60m-d26jghjtx

3EasyGroup About Us, Accessed 09 June 2020, https://easy.com/about-us/

4Virgin Group may sell up to 25 million of its Virgin Galactic shares to bolster travel business hit by COVID-19, Market Watch, 11 May 2020, https://www.marketwatch.com/story/virgin-group-may-sell-up-to-25-million-of-its-virgin-galactic-shares-to-bolster-travel-business-hit-by-covid-19-2020-05-11?mod=mw_quote_news

5Rolls Over, Rolls-Royce to cut at least 9,000 jobs, The Sun, 20 May 2020, https://www.thesun.co.uk/money/11663750/rolls-royce-cut-jobs-coronavirus-pandemic/

6Coronavirus: Manchester Airports Group to receive £260m, Transport Xtra, 12 May 2020, https://www.transportxtra.com/publications/local-transport-today/news/65425/manchester-councils-bail-out-mag-airports/

7U.K. Ferry Operator Cuts 25% of Staff as Demand Drops After Coronavirus Lockdowns ,Wall Street Journal, 12 May 2020, https://www.wsj.com/articles/u-k-ferry-operator-cuts-25-of-staff-as-demand-drops-after-coronavirus-lockdowns-11589297682

8‘Illegal’ £35m state aid for ferries faces legal challenge, The Telegraph, 27 May 2020, https://www.telegraph.co.uk/business/2020/05/27/illegal-35m-state-aid-ferries-faces-legal-challenge/

9UK grocery sales rise at fastest rate since 1994 on lockdown boost, Reuters, 27 May 2020, https://www.reuters.com/article/health-coronavirus-britain-supermarkets/uk-grocery-sales-rise-at-fastest-rate-since-1994-on-lockdown-boost-idUSL9N285047

10Supermarkets to benefit from £3bn bailout on business rates, The Grocer, 18 March 2020, https://www.thegrocer.co.uk/supermarkets/supermarkets-to-benefit-from-3bn-bailout-on-business-rates/603011.article

11Business is booming for supermarkets – they don’t need government handouts, The Guardian, 08 April 2020, https://www.theguardian.com/commentisfree/2020/apr/08/business-supermarkets-government-rishi-sunak-coronavirus

12UK’s richest man moves to Monaco to ‘save £4bn in tax’, The Guardian, 17 February 2019, https://www.theguardian.com/business/2019/feb/17/brexiter-jim-ratcliffe-uk-richest-man-plans-save-4bn-pounds-tax-monaco-move

13Rural Hospitality Letter, The Pig Hotel, 01 May 2020, https://www.thepighotel.com/rural-hospitality-letter/

14Luxury hotel chain The Pig opening country retreat in Sussex, The Argus, 17 May 2020, https://www.theargus.co.uk/news/18450603.hotelier-reveals-new-vineyard-bolster-sussexs-wine-scene/

15Posh health club with huge profits cashes in on coronavirus furlough scheme, Daily Record, 05 May 2020, https://www.dailyrecord.co.uk/news/scottish-news/wealthy-health-club-furloughs-nearly-21973962

16That’s rich! YOU are paying wages of furloughed staff employed by wealthy tycoons including Sir Philip Green and Matalan boss as they live lives of luxury in gilded tax-haven of Monaco, The Daily Mail, 25 April 2020, https://www.dailymail.co.uk/news/article-8257197/Britains-tycoons-living-lives-luxury-Monaco-youre-paying-furloughed-staffs-wages.html

17India-born Reuben brothers in UK’s new Tax Haven Elite list, Economic Times / India Times, 07 March 2019, https://economictimes.indiatimes.com/nri/nris-in-news/india-born-reuben-brothers-in-uks-new-tax-haven-elite-list/articleshow/68304464.cms

18Trump’s Scottish golf resort loses money for seventh year in a row, Independent, 05 October 2019, https://www.independent.co.uk/news/business/news/trump-golf-club-accounts-losses-menie-estate-aberdeenshire-scotland-a9144386.html

19Trump Organization, Written Out of U.S. Bailout, Taps Europe Aid, Bloomberg, 22 April 2020, https://www.bloomberg.com/news/articles/2020-04-22/trump-organization-written-out-of-u-s-bailout-taps-europe-aid

20UK retailers say bailout funds not sufficient to stop ‘imminent collapse’, Reuters, 10 May 2020, https://www.reuters.com/article/us-healthcare-coronavirus-britain-retail/uk-retailers-say-bailout-funds-not-sufficient-to-stop-imminent-collapse-idUSKBN22M0NR

21Sir Philip Green: Taxing issues for the rag trade king, Independent, 21 August 2010, https://www.independent.co.uk/news/people/profiles/sir-philip-green-taxing-issues-for-the-rag-trade-king-2058086.html

22Arcadia to halt pension deficit payments, FT Adviser, 30 March 2020, https://www.ftadviser.com/pensions/2020/03/30/arcadia-to-halt-pension-deficit-payments/

23Coronavirus: Green’s TopShop empire to halt pension payments, Sky News, 28 March 2020, https://news.sky.com/story/coronavirus-greens-topshop-empire-to-halt-pension-payments-11965013

24The Range boss Chris Dawson hands business to his wife saving millions in tax, The Times, 13 April 2019, https://www.thetimes.co.uk/article/del-boy-tycoon-hands-ownership-of-business-to-wife-saving-millions-in-tax-rd0jrf92j

25Wealthy Tory donors using furlough scheme to cover staff wages during crisis, The Mirror, 02 May 2020, https://www.mirror.co.uk/news/politics/wealthy-tory-donors-using-furlough-21964976

26B&M budget store bosses pay themselves MILLIONS through tax havens, Daily Mail investigation reveals, The Daily Mail, 27 February 2017, https://www.thisismoney.co.uk/money/news/article-4265602/Budget-store-bosses-pay-tax-havens.html

27Matalan Covid-19 Business Update, Matalan, 11 April 2020, https://production-matalanlive-assets.s3-eu-west-1.amazonaws.com/uploads/asset_file/asset_file/274127/1586609888.9444337-Matalan_Covid-19_Update.pdf

28Matalan Covid-19 Investor Update, Matalan, 27 April 2020, https://production-matalanlive-assets.s3-eu-west-1.amazonaws.com/uploads/asset_file/asset_file/275442/1587992521.3290188-Matalan_Covid-19_Investor_Update_27-04-20.pdf

29Matalan founder suing PwC for ‘ineffective tax avoidance advice, The Guardian, 20 May 2020, https://www.theguardian.com/uk-news/2020/may/20/matalan-founder-suing-pwc-for-allegedly-giving-ineffective-tax-avoidance-advice-john-hargreaves

30Billionaire Matalan founder wins £84m tax appeal after HMRC runs out of time, The Telegraph, 18 April 2019, https://www.telegraph.co.uk/news/2019/04/18/billionaire-matalan-founder-wins-84m-tax-appeal-hmrc-runs-time/

31A letter from Peter Moore to Liverpool supporters, Liverpool FC, 06 April 2020, https://www.liverpoolfc.com/news/announcements/392368-a-letter-from-peter-moore-to-liverpool-supporters

32Club update – COVID-19, Tottenham Hotspur, 13 April 2020, https://www.tottenhamhotspur.com/news/2020/april/club-update-covid-19/

33Newcastle United ‘owe an explanation’ on furlough, but as lockdown bites others may follow suit, Chronicle Live, 12 April 2020, https://www.chroniclelive.co.uk/sport/football/newcastle-united-owe-explanation-furlough-18082133

34Why Celtic scored a PR own goal by placing non-playing staff on furlough, The Herald, 02 April 2020, https://www.heraldscotland.com/sport/18352439.celtic-scored-pr-goal-placing-non-playing-staff-furlough/

35Paradise Papers: Celtic shareholder Dermot Desmond’s private jet firm used tax haven, BBC News, 06 November 2017, https://www.bbc.co.uk/news/uk-scotland-41857222

36Steven Gerrard and Rangers players take wage deferrals as staff are furloughed, The Scotsman, 06 April 2020, https://www.scotsman.com/sport/football/rangers/steven-gerrard-and-rangers-players-take-wage-deferrals-staff-are-furloughed-2531251

37HMRC drops further £5m from Rangers tax claim, BBC News, 10 December 2019, https://www.bbc.co.uk/news/uk-scotland-50727197

38Care home operators ‘beg for taxpayer cash despite being run by offshore firms’, Daily Mirror, 08 July 2019, https://www.mirror.co.uk/news/uk-news/care-home-operators-beg-taxpayer-17553469

39Care-less, Private Eye, 22 May – 04 June

40Second home ‘loophole’ fears as Yorkshire holiday lets get £30m in virus grants, The Scarborough News, 04 May 2020, https://www.thescarboroughnews.co.uk/business/second-home-loophole-fears-yorkshire-holiday-lets-get-ps30m-virus-grants-2841487

41Thousands of small B&Bs need your help, B & B Association, https://myemail.constantcontact.com/Thousands-of-small-B-Bs-are-being-denied-access-to-Covid-19-Grants-and-need-URGENT-help.html?soid=1101682021428&aid=OLm6mQYkeTQ

42Accountancy firms weigh up reputational risk of furloughing staff, Financial Times, 07 April 2020,

43UK accounting industry cuts partner pay and furloughs staff, Irish Times, 16 April 2020, https://www.ft.com/content/65d8e851-5e33-4a2d-a814-a4c27f949dd3 https://www.irishtimes.com/business/financial-services/uk-accounting-industry-cuts-partner-pay-and-furloughs-staff-1.4230354

44Most law firms furloughing staff despite staying profitable, The Telegraph, May 26th 2020 – https://www.telegraph.co.uk/business/2020/05/26/law-firms-rush-furlough-staff-despite-expecting-stay-profit/

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Supermarkets to receive billions from government coronavirus package

27th March 2020 by George Turner

The coronavirus outbreak will not be easy for anyone – but there is no doubt that some industries and businesses are set to do well from the widespread social changes that the crisis demands.

One of those industries is our supermarkets. No one can deny that supermarkets are doing an exceptional, difficult and vital job keeping the country supplied during the crisis.

However, the empty shelves seen across the country are not a sign that people have stopped buying food. Quite the opposite. UK supermarkets are currently seeing levels of demand usually experienced around Christmas as households face the prospect of two weeks’ isolation if anyone in the home gets a cough. This is not just a case of Christmas come early. Christmas is coming again and again and again. High volumes have been paired with higher prices as companies remove multi-buy deals to discourage panic-buying.

This is unlikely to be just a coronavirus blip. Social distancing measures may need to be maintained for some time after the outbreak is tamed, meaning that people are likely to be spending more time at home. The shift to home working for millions of people is also likely to persist for some time, as many companies that have been forced to build an infrastructure to allow home working will be more relaxed about their employees doing so in the future.

All of this will mean that in the long term, supermarkets are likely to make significant gains from the coronavirus outbreak. This is probably the last industry right now that needs a bailout – however, they are about to receive a cash bonanza from the government.

One of the big items of spending the government has announced in response to the pandemic been the business rates holiday for all retailers. The holiday applies to all retailers, whether or not they have been forced to close during the outbreak.

According to The Grocer, superstores and hypermarkets pay a total of £2.68bn in business rates a year. Add to this an extra few hundred million paid by smaller stores and the total bill hits £3bn.

The industry is concentrated, with a few companies making up a large percentage of shop space. The largest, Tesco, claims to pay around £700m in business rates a year. A week ago, Sainsbury’s put out a stock market announcement welcoming the Chancellor’s announcement on business rates, pointing out that the company paid £500m in business rates on its shops. Shares in the company were up over 10% on the news. The stock-market announcement said that the company was awaiting details of the scheme, however, it seems certain that they will qualify with the Chancellor stating in his first coronavirus update:

“We’re abolishing business rates altogether this year if you are in hospitality, retail and leisure.”

The amount of money this represents is mind boggling. To put it into context, Tesco made pre-tax profits of £1.6bn last year. A business rates holiday of £700m represents 50% of their total profit. For Sainsbury’s their business rates bill is more than double last year’s pre-tax profit of £239m.

Until now, the response of the government to the immediate crisis has been to throw money at entire sectors of the economy. Given the speed at which the government has to react to events, that is to some extent understandable.

However, there are risks to this approach and some significant questions which will need to be worked through. Does such broad intervention by the government, by rewarding both winners and losers, lead to economic inequalities being exacerbated?

Providing such broad interventions is easier and quicker to administer, but it is expensive. As the bill for the coronavirus continues to mount, will the public continue to support the government if they feel that their tax money is being spent on companies that are set to do very well out of this?

Should the government be asking for more in return for businesses that receive support? In the supermarket sector, should there be an obligation to use at least some of the support they receive to help stock foodbanks for example?

The business rates holiday was announced at a time when the government probably thought that the limit of their intervention on social distancing would be to tell people to wash their hands and avoid the crowds.

Now that the entire county has been put in lockdown, with all but “essential” retailers being told to close their doors, it may be a better idea for the government to take a more targeted approach, with support being directed towards businesses forced to close, whilst those that remain open and thrive continue to pay business rates in the normal way.

This research featured in The Times. Our Director has had an op-ed on the issue published in The Guardian.

Photo by John Cameron on Unsplash

Covid 19 – Pope says tax avoiders have committed “murder”

25th March 2020 by Alex Dunnagan

In an interview last week with the Italian daily “La Repubblica”, Pope Francis held tax dodgers partially responsible for the struggle Italian health services are now going through in trying to deal with covid.1 The coronavirus has hit Italy the hardest, with close to 7,000 deaths at the time of writing, more than double that of any other country.

As health services are being overwhelmed around the world, and members of the Vatican staff test positive for the virus, Pope Francis backed a prominent journalist’s complaint that tax avoiders are partly at fault for the current healthcare crisis.

Speaking over the phone while isolating in the Vatican, Pope Francis said he was “very impressed” by an article by journalist Fabio Fazio.2 The Pope went on to quote from the article in saying:

“He is right, for example, when he says: “It has become evident that those who do not pay their taxes are not only committing a crime, but murder: if there are not enough hospital beds or respirators, they too are partly to blame”. I was very impressed by this”.*

Italian Treasury estimates believe tax evasion costs the state some 107.5 billion euros a year3. An annual report by the European Commission has Italy’s VAT gap, sometimes referred to as a compliance gap, at 24% in 2017, the most recent year for which statistics are available. Italy’s gap is one of the highest in Europe – the UK’s for example sits at 11%.4

Pope Francis has been vocal on tax issues in the past, referring to “tax havens for private and corporate profits” as recently as February of this year.2

In response to the Pope’s interview, Fazio tweeted that he was overcome with emotion, and that Pope Francis invited all of us not to waste this difficult time but to use it to look at ourselves and renew ourselves

These testing times may well leave behind a different world politically and economically. Whether or not it will be a better one, only time will tell.

Photo by Sins S on Unsplash

 

*Translators note:  Fabio Fazio’s words on tax avoiders and evaders appeared as one of 15 points in an article entitled “The things I am learning”. The full text in Italian of point 7 is as follows:

7. È diventato evidente che chi non paga le tasse non commette solo un reato ma un delitto: se mancano posti letto e respiratori è anche colpa sua.

We have translated “delitto” as “murder”. “Delitto” in Italian can refer to a number of serious crimes, including murder, it is sometimes translated as “felony”. The word “reato” is also translated as a crime, but in the more general sense. Reuters, when reporting on the Pope’s citation of the article used this distinction in their translation. “It has become evident that those who do not pay taxes do not only commit a felony but also a crime”.

We do not feel this translation works in British English. The world felony denotes a subset of crime, so a felony can not be “also” a crime. The word felony is also not in common usage in Britain. The Cambridge Italian-English Dictionary defines “commettere un delitto” as “to commit a murder”. Given the context, of this article and the use of the verb “commette” in the original article, we felt that the translation – “not only committing a crime, but murder” was the correct translation in English. Translation by George Turner.

 

 

1 Pope Francis on Coronavirus crisis, La Repubblica, 18 March 2020, available here: https://www.repubblica.it/vaticano/2020/03/18/news/coronavirus_pope_francis-251572693/?ref=search

2 Things I’m Learning, La Repubblica, 16 March 2020, available here: https://www.repubblica.it/cronaca/2020/03/16/news/le_cose_che_ho_imparato-251384470/?ref=RHPPTP-BH-I251364842-C12-P22-S2.4-T1

3 Report on the Economy Not Observed, 2018, Italian Treasury Report, available here: http://www.mef.gov.it/documenti-allegati/2018/aggiornamento_relazione_2018_x27_novembre_2018x-finale.pdf

4 Study and Reports on the VAT Gap in the EU-28 Member States, European Commission, 2019, available here: https://ec.europa.eu/taxation_customs/sites/taxation/files/vat-gap-full-report-2019_en.pdf

5 Pope Francis: Tax cuts for the rich and tax havens are structures of sin, Rome Reports, 05 February 2020, available here: https://www.romereports.com/en/2020/02/05/pope-francis-tax-cuts-for-the-rich-and-tax-havens-are-structures-of-sin/

6 @Fabfazio tweet, 18 March 2020, Twitter, available here: https://twitter.com/fabfazio/status/1240196888701415424?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1240196888701415424&ref_url=https%3A%2F%2Fwww.repubblica.it%2Fspettacoli%2Fpeople%2F2020%2F03%2F18%2Fnews%2Fcoronavirus_fabio_fazio_intervista_papa_francesco-251595266%2F


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