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Google, Amazon, etc: blame tax laws, not the taxman or taxpayer

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News broke recently that Amazon pays just £2.4m tax on £4.2 billion sales. Meanwhile, the public accounts committee hauled Google in to explain its tax position. With corporation tax, the primary problem is not the players (companies) or even the referee (HMRC), but instead, those who create the rules (politicians).

People are angry about tax, legitimately so.

Most people and companies pay the tax that they are required to. We might not like it. We may complain. We all have opinions on the scope of government and how it could become more efficient. Nevertheless, we are happy to benefit from secure borders, a healthy, educated, law-abiding population and relatively good infrastructure.

People can rightly condemn the ethics of companies that aggressively avoid tax. Regardless, tax avoidance is legal within certain limits.

The big four accountancy firms, PricewaterhouseCoopers, Ernst & Young, Deloitte and KPMG, deserve some criticism for enabling aggressive tax avoidance. Parliament reported, “The four firms employ nearly 9,000 people and earn £2 billion from their tax work in the UK, and earn around $25 billion from this work globally […] In the area of transfer pricing there are four times as many staff working for the four firms than for HMRC.”

People are justified in condemning HMRC for entering into backroom sweetheart deals with major corporations that let them off their tax obligations.

All the parties above deserve a kicking from members of the public for their lack of ethical constraint. It is rich for the media to condemn them when everyone from the Guardian through News International (the Sun and Times) and the FT has a level of engagement with tax havens or partnerships with businesses that use them.

However, the fundamental problem is not companies, tax accountants or HMRC, but those who create the rules in which all businesses operate. Rather than kicking the parties above, we should be kicking the parties in the Houses of Parliament.

If you create a legal system that allows complex tax avoidance schemes to flourish; if you operate a revolving door between tax accountants and tax policymakers; if you underfund HMRC so it cannot operate or investigate abuse effectively; do not be surprised if companies avoid tax.

The combined turnover of UK businesses at the start of 2012 was £3,100 billion and corporation tax was £44 billion.

In effect, the tax on all UK business turnover is just over 1.3%. Amazon paid only 0.06% of its turnover or a tiny fraction of everyone else’s. Amazon’s ability to undercut traditional retailers seems to be more down to how little tax they pay rather some brilliant business model or leadership.

But what is the solution is here?

The government could massively beef up HMRC and use the law as it stands. In 2011, HMRC budget was £3.8 billion and it raised £474 billion in tax receipts. That is not a bad return on investment. It might be worth increasing that by a few million to secure more of the tax revenue that is aggressively avoided.

You could move tax on corporations from flexible profit to actual sales. Scrapping corporation tax and increasing VAT, an unavoidable tax on sales, would be one way to do this but might dampen the fragile economy. VAT is also highly regressive, as it tends to hurt the poorest most.

– VAT 2012-2013 receipts: £101 billion at 20% rate

– Corporation tax 2012-2013 receipts: £41bn at 23% rate

– VAT goes up to 28.1% – or less if spread over products and services that are currently zero-rated

– Corporation tax falls to 0%

– Tax receipts are £142 billion – assuming no demand impact

You could lower corporation tax massively and apply it to turnover rather than profit

– Corporation tax 2012-2013 receipts: £41 billion at 23% rate

– £3,100 billion combined turnover of 4.8m businesses taxed at just 1.3%

– Tax receipts are £142 billion

Both the above approaches would have significant fallout and unforeseen consequences among the accusations of naivety. They would not work for companies that make a loss.

Of all these, we prefer strengthening HMRC and giving it the resources to investigate and prosecute companies that avoid tax.

Relentlessly closing loopholes and creating a principles-based system would also make sense. If it looks like tax avoidance and common sense says it looks like tax avoidance, it is probably tax avoidance.

If our membership of the EU is going to harmonise anything, it should not allow EU tax jurisdictions like Luxembourg to have a headline corporation tax rate of nearly 29% but then charge only 5.7% on intellectual property and royalties – one of the biggest areas of transfer pricing. VAT differentials are also used.

Finally, if companies avoiding tax annoys you, boycott them. According to ActionAid, only two FTSE 100 firms do not use offshore subsidiaries to avoid tax, and a quarter have headquarters located offshore.

The last culpable party in this is us as consumers. If we choose not to shop at those who avoid their responsibilities to society, they will soon change their ways. In the meantime, we will give a big boost to competition, which is good for everyone.

Further reading:

Corporations and tax avoidance: the time is right for investors to push for change

Charities used in offshore tax avoidance scam

Aggressive tax avoidance keeps on hitting the headlines

MPs deem global companies’ tax avoidance as ‘an insult to British businesses’

The joy of tax

Simon Leadbetter is the founder and publisher of Blue & Green Tomorrow. He has held senior roles at Northcliffe, The Daily Telegraph, Santander, Barclaycard, AXA, Prudential and Fidelity. In 2004, he founded a marketing agency that worked amongst others with The Guardian, Vodafone, E.On and Liverpool Victoria. He sold this agency in 2006 and as Chief Marketing Officer for two VC-backed start-ups launched the online platform Cleantech Intelligence (which underpinned the The Guardian’s Cleantech 100) and StrategyEye Cleantech. Most recently, he was Marketing Director of Emap, the UK’s largest B2B publisher, and the founder of Blue & Green Communications Limited.

Economy

How Going Green Can Save A Company Money

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going green can save company money
Shutterstock Licensed Photot - By GOLFX

What is going green?

Going green means to live life in a way that is environmentally friendly for an entire population. It is the conservation of energy, water, and air. Going green means using products and resources that will not contaminate or pollute the air. It means being educated and well informed about the surroundings, and how to best protect them. It means recycling products that may not be biodegradable. Companies, as well as people, that adhere to going green can help to ensure a safer life for humanity.

The first step in going green

There are actually no step by step instructions for going green. The only requirement needed is making the decision to become environmentally conscious. It takes a caring attitude, and a willingness to make the change. It has been found that companies have improved their profit margins by going green. They have saved money on many of the frivolous things they they thought were a necessity. Besides saving money, companies are operating more efficiently than before going green. Companies have become aware of their ecological responsibility by pursuing the knowledge needed to make decisions that would change lifestyles and help sustain the earth’s natural resources for present and future generations.

Making needed changes within the company

After making the decision to go green, there are several things that can be changed in the workplace. A good place to start would be conserving energy used by electrical appliances. First, turning off the computer will save over the long run. Just letting it sleep still uses energy overnight. Turn off all other appliances like coffee maker, or anything that plugs in. Pull the socket from the outlet to stop unnecessary energy loss. Appliances continue to use electricity although they are switched off, and not unplugged. Get in the habit of turning off the lights whenever you leave a room. Change to fluorescent light bulbs, and lighting throughout the building. Have any leaks sealed on the premises to avoid the escape of heat or air.

Reducing the common paper waste

paper waste

Shutterstock Licensed Photo – By Yury Zap

Modern technologies and state of the art equipment, and tools have almost eliminated the use of paper in the office. Instead of sending out newsletters, brochures, written memos and reminders, you can now do all of these and more by technology while saving on the use of paper. Send out digital documents and emails to communicate with staff and other employees. By using this virtual bookkeeping technique, you will save a bundle on paper. When it is necessary to use paper for printing purposes or other services, choose the already recycled paper. It is smartly labeled and easy to find in any office supply store. It is called the Post Consumer Waste paper, or PCW paper. This will show that your company is dedicated to the preservation of natural resources. By using PCW paper, everyone helps to save the trees which provides and emits many important nutrients into the atmosphere.

Make money by spreading the word

Companies realize that consumers like to buy, or invest in whatever the latest trend may be. They also cater to companies that are doing great things for the quality of life of all people. People want to know that the companies that they cater to are doing their part for the environment and ecology. By going green, you can tell consumers of your experiences with helping them and communities be eco-friendly. This is a sound public relations technique to bring revenue to your brand. Boost the impact that your company makes on the environment. Go green, save and make money while essentially preserving what is normally taken for granted. The benefits of having a green company are enormous for consumers as well as the companies that engage in the process.

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Energy

5 Easy Things You Can Do to Make Your Home More Sustainable

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sustainable homes
Shutterstock Licensed Photot - By Diyana Dimitrova

Increasing your home’s energy efficiency is one of the smartest moves you can make as a homeowner. It will lower your bills, increase the resale value of your property, and help minimize our planet’s fast-approaching climate crisis. While major home retrofits can seem daunting, there are plenty of quick and cost-effective ways to start reducing your carbon footprint today. Here are five easy projects to make your home more sustainable.

1. Weather stripping

If you’re looking to make your home more energy efficient, an energy audit is a highly recommended first step. This will reveal where your home is lacking in regards to sustainability suggests the best plan of attack.

Some form of weather stripping is nearly always advised because it is so easy and inexpensive yet can yield such transformative results. The audit will provide information about air leaks which you can couple with your own knowledge of your home’s ventilation needs to develop a strategic plan.

Make sure you choose the appropriate type of weather stripping for each location in your home. Areas that receive a lot of wear and tear, like popular doorways, are best served by slightly more expensive vinyl or metal options. Immobile cracks or infrequently opened windows can be treated with inexpensive foams or caulking. Depending on the age and quality of your home, the resulting energy savings can be as much as 20 percent.

2. Programmable thermostats

Programmable thermostats

Shutterstock Licensed Photo – By Olivier Le Moal

Programmable thermostats have tremendous potential to save money and minimize unnecessary energy usage. About 45 percent of a home’s energy is earmarked for heating and cooling needs with a large fraction of that wasted on unoccupied spaces. Programmable thermostats can automatically lower the heat overnight or shut off the air conditioning when you go to work.

Every degree Fahrenheit you lower the thermostat equates to 1 percent less energy use, which amounts to considerable savings over the course of a year. When used correctly, programmable thermostats reduce heating and cooling bills by 10 to 30 percent. Of course, the same result can be achieved by manually adjusting your thermostats to coincide with your activities, just make sure you remember to do it!

3. Low-flow water hardware

With the current focus on carbon emissions and climate change, we typically equate environmental stability to lower energy use, but fresh water shortage is an equal threat. Installing low-flow hardware for toilets and showers, particularly in drought prone areas, is an inexpensive and easy way to cut water consumption by 50 percent and save as much as $145 per year.

Older toilets use up to 6 gallons of water per flush, the equivalent of an astounding 20.1 gallons per person each day. This makes them the biggest consumer of indoor water. New low-flow toilets are standardized at 1.6 gallons per flush and can save more than 20,000 gallons a year in a 4-member household.

Similarly, low-flow shower heads can decrease water consumption by 40 percent or more while also lowering water heating bills and reducing CO2 emissions. Unlike early versions, new low-flow models are equipped with excellent pressure technology so your shower will be no less satisfying.

4. Energy efficient light bulbs

An average household dedicates about 5 percent of its energy use to lighting, but this value is dropping thanks to new lighting technology. Incandescent bulbs are quickly becoming a thing of the past. These inefficient light sources give off 90 percent of their energy as heat which is not only impractical from a lighting standpoint, but also raises energy bills even further during hot weather.

New LED and compact fluorescent options are far more efficient and longer lasting. Though the upfront costs are higher, the long term environmental and financial benefits are well worth it. Energy efficient light bulbs use as much as 80 percent less energy than traditional incandescent and last 3 to 25 times longer producing savings of about $6 per year per bulb.

5. Installing solar panels

Adding solar panels may not be the easiest, or least expensive, sustainability upgrade for your home, but it will certainly have the greatest impact on both your energy bills and your environmental footprint. Installing solar panels can run about $15,000 – $20,000 upfront, though a number of government incentives are bringing these numbers down. Alternatively, panels can also be leased for a much lower initial investment.

Once operational, a solar system saves about $600 per year over the course of its 25 to 30-year lifespan, and this figure will grow as energy prices rise. Solar installations require little to no maintenance and increase the value of your home.

From an environmental standpoint, the average five-kilowatt residential system can reduce household CO2 emissions by 15,000 pounds every year. Using your solar system to power an electric vehicle is the ultimate sustainable solution serving to reduce total CO2 emissions by as much as 70%!

These days, being environmentally responsible is the hallmark of a good global citizen and it need not require major sacrifices in regards to your lifestyle or your wallet. In fact, increasing your home’s sustainability is apt to make your residence more livable and save you money in the long run. The five projects listed here are just a few of the easy ways to reduce both your environmental footprint and your energy bills. So, give one or more of them a try; with a small budget and a little know-how, there is no reason you can’t start today.

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