I recently attended a conference at the Said Business School in Oxford, “celebrating” Fifty Years of Corporation Tax in the UK. Yes, that’s right, fifty years have passed since a special tax was introduced for companies. No, it doesn’t mean they weren’t paying any tax before, they just paid a different tax – what that tax was called I couldn’t possibly tell you, since I wasn’t in practise at the time.
This was the first tax conference I’d been to for a very long time. The last time was in 2003 in London, one of those conferences organised for tax practitioners by IBC or whatever they call themselves these days. This conference was held in Oxford – the first time I’ve attended the Said Business School, which I’ve passed on a number of occasions, since I live locally, and sometimes go day tripping to the City of Spires.
I must say I was a bit hesitant about going at first. For the topics really had more to do with tax policy than technical issues which would be the type of conference I used to attend when I was in the City. Has corporation tax been a success, does it have a future, how have small businesses fared?
My own experience is that of a tax practitioner, and secondly as a Professional Support Lawyer in the City. As a practitioner I would have a problem to solve, look at the legislation, work out what the answer was and that was it. And when it came to being a PSL – well, my job was to make sense of it all, and put it all in plain English for others to follow.
But questions of tax policy are clearly important, and practitioners would do well to pay attention. They give a big picture view of what it’s all about – for tax doesn’t exist in a vacuum, it has a wider purpose than simply to provide a source of problems for clients and their advisers to grapple with.
If you were to ask me whether corporation tax is working or not, I’m not sure I’d be able to answer. I don’t deal with such questions in my day to day life, so it made quite a jolt to the system when two of the speakers sounded quite pessimistic about it. Professor Michael Devereux’s assessment was “could do better” but Professor Peter Harris went the whole way and said that we’re all doomed!
Doomed? But I’ve been working with corporation tax for more than 15 years. Seemed fine to me at the time. But then again, I’m not looking at the big picture – it has worked well for me because after 15 odd years I am beginning to understand it at last and can solve problems. But that doesn’t necessarily mean that I understand the issues that the tax policy experts are looking at.
You should be able to access the talks online, and there is also a set of conference videos for those who couldn’t attend.
The importance of the corporate vehicle
Perhaps the most interesting topic for me was Edward Troup’s talk: “Tax reforms and democratic constraints”. Not the most eye catching title, but we were taken on a little historical tour of the way companies developed from the mid 19th century when the great Gladstone was Chancellor, the man who was Prime Minister umpteen times and who also played a major role in introducing the joint stock company to this country.
(I remember Gladstone and Disraeli from my history lessons at school. My teacher told us that these two were giants compared to Margaret Thatcher and Michael Foot, who he dismissed as mere pygmies! Did you know Gladstone was a Tory before he became a Liberal?)
One person from the audience asked why tax companies at all? Why not just tax the shareholders? After all, companies are just a legal fiction – ultimately, behind all the companies and institutional investors in the world such as pension funds, investment trusts and the like – the ultimate investors are people.
Part of the answer is that the company makes an ideal collection point since this is where the profits of the enterprise are all focussed. It is similar to the way in which PAYE works – it is more cost efficient to collect the tax from a single employer, who provides the payslip and does all the other admin that needs to be done. Furthermore, how does one tax shareholders on profits that don’t go into their pockets, but are retained by the company for further investment?
But while it is true that the ultimate investors are people, there are very good reasons for investing a company with its own legal personality. Perhaps this is best explained by an example.
Imagine a big company like Shell Oil (strictly speaking it is Royal Dutch Shell, but I grew up with the Shell sign and the slogan “You can be sure of Shell!”) Just think about all the things that it does, and ask yourself: “Would I be able to do this on my own?”
I wouldn’t know how to drill a hole in the ground and collect the black stuff that gushes out (though not much gushes out these days). How to transport it to the refinery, how to arrange the shipping, how to distribute it and sell it on to the customers. Did you know that the extraction of oil from the Canadian oil sands, requires heavy duty trucks to shift all that material? Each truck is as big as a house, and each wheel – of which there are eight – costs $60,000. That makes around $500,000 just for the wheels!
How could I possibly go into the oil business? I don’t have the time, I don’t have the expertise and I certainly don’t have the money.
Actually I do have the money. Not a lot – certainly not enough to buy me one of those giant Caterpillar trucks. But, by combining my resources with a group of other people – a very large group, for my resources are quite small – I can have a stake in a major oil company.
And this is exactly what the corporation allows ordinary people like me to do. We – the shareholders – subscribe for shares in the company, which then uses our money to hire staff, buy equipment, and to do all the necessary activities that makes it into a big multinational corporation. It is the corporate vehicle that makes contracts, signs the relevant insurance policies, and if things go wrong, it is the company – not the shareholders – that gets sued.
In short, the company is a proxy for its shareholders, providing them with opportunities which would otherwise be unavailable to them as individuals. And it isn’t just large businesses that benefit – the corporate structure is just as well suited to small businesses, being a focal point for attracting investors and providing an efficient way to access finance, whether by way of bank lending, a share flotation or via the tax advantaged Venture Capital Schemes.
The corporate vehicle is a very versatile creature indeed.
Who was at the conference?
This was a very well attended conference, with a lot of big names in the tax world taking part. You can find a full list of attendees in the conference booklet which can be downloaded from the conference site.
And who did I meet at the conference? Yes, I know, we’re all told that you’ve got to do some “networking” at these events, and if you don’t know how, you have to go on a special networking course where they tell you what you’re doing wrong…
I wasn’t really expecting to meet many people myself. For various reasons I have been away from the tax world for a number of years – it’s only through Tax Notes and my online presence at linkedin and twitter that I’ve managed to reconnect with my fellow professionals.
So it was a pleasant surprise to meet a few of my fellow twitterers for the first time in the flesh (yes, “twitterers”, I’m not going to use the word “twit”). And also a very pleasant surprise to meet people who’ve read the articles on this site!
One of these people was Max Schofield. Max is an aspiring lawyer who has just finished a stint as a Tax Editor at Bloomberg, and is currently looking for a pupillage at the Bar. (You can read Max’s article on the recent EU ruling on the illegality of the UK’s reduced VAT rates on energy savings materials here.)
I also met two of my old bosses, John Avery Jones who was chairing the first session, and Philip Ridgway, two well known names in the tax world.
Philip is the person who actually recruited me into the tax profession. I actually started out as a commercial litigator, and at the time I first met Philip in the interview room, I was acting for one of the Guinness defendants in a case against the Bank of England. I was taking a risk in changing career, but years later, I realise that Philip was also taking a risk on me. For which I am very grateful indeed.
Odd thing about Philip. Out of all my old bosses, he’s probably the only one I keep bumping into, though the last time we met was in 2006. I’ve bumped into him on the street, I’ve seen him at one of the Deloitte alumni events, he was even one of the speakers at that last conference I attended all those years ago! And yet he always seems to remember me and says hello.
And very pleasantly surprised I was when he spoke approvingly of Tax Notes, and especially mentioned the articles on entrepreneurs’ relief. Frankly I didn’t realise that he’d read any of them. So if someone like Philip says a kind word, it must mean that the time I have spent on this site has not been completely wasted and that the articles I write have some value to my fellow tax professionals.
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