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Anorak | So is Thames Water tax dodging or not?

So is Thames Water tax dodging or not?

by | 11th, June 2013

THERE are a few alarm bells ringing about this story. Here’s the Mail’s take :

Britain’s biggest water company paid no corporation tax last year despite imposing inflation-busting price rises on millions of customers.

Thames Water made profits of £549million last year after sales rose six per cent to £1.8billion.

But the Australian-backed group, which serves nine million customers in London and the Thames Valley, paid nothing in corporation tax – and even received a £5million tax credit.

No, really, no. That just doesn’t pass the laugh test. A company that has its prices controlled by the government (OK, the water regulator) just isn’t going to be making a net profit of 30% of sales. Simply not feasible.
Here’s where the error is:

The group also spent £400million in interest payments for its £8.4billion debts

Interest on hte debts you’ve got from spending all that money on pipes and reservoirs and pumping stations is indeed an expense of the company. Everyone gets to do this: if you run a business, even one that’s not a limited company, then the interest on loans is indeed an expense of that company or business.
And for a utility like a water company then yes, there will be great big debts. Because that’s what the business is. The water does fall free from the sky after all. What you’ve got to do is build the girt big system of pipes and lakes to get it to people in their bathrooms. Which takes billions of quid to do and then you get the money back over the next 30 to 50 years.
Net profits are therefore not that £550 million number but more like £150 million. And then there’s this bit:

Mr Baggs said:

‘We have not paid much corporation tax in recent years because the Government’s tax system allows us to delay, not avoid, payment of tax based on how much we invest.

‘Because we are investing £1billion a year from 2010 to 2015, more than any water firm in the UK’s history, we are able to defer a lot of tax payments to future years.”

That’s what’s called capital allowances. And there’s no way at all you can have a tax system that doesn’t include these. Say you spend

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Posted: 11th, June 2013 | In: Money Comment | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink

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