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Cash Flow & Forecasting Finance General HM Revenue & Customs, VAT & PAYE Insolvency Rescue, Restructuring & Recovery Turnaround

Why would any business pay more tax than it needs to?

The subject of tax payment cannot avoid being a political football, especially as an election approaches.
But if there is to be a genuine debate, and genuine clarity about what each political party actually stands for on tax and businesses then there needs also to be clarity about what is and is not legal.
Tax evasion is illegal, tax avoidance is not.
Given that all benefit from the “public goods” such as education and transport infrastructure, and these have to be paid for, no business or indeed no one I know would quarrel with paying a fair amount of tax.
But beyond that it could be argued that a company’s directors have a duty to minimise their business tax bill in order to maximise profits, in other words to avoid paying taxes they don’t have to. That is why people use accountants and other financial advisors.
It is fair enough for politicians to want to close loopholes that allow large corporations to “game” the system and avoid paying their fair share.
However do we really want a tax regime that rests on politicians telling us how much income we are permitted to have, as the Labour Party seems to want to when attacking tax avoidance? Surely that is perilously close to communism?
The press isn’t immune as turnover is often cited instead of profits when referring to tax.
What we would all like to see is a taxation system that prevents tax avoidance by corporations using offshore accounts to keep more than their fair share of profits while still benefiting from the public goods that allow them to operate profitably in the UK.

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Private Equity, investment and retail

 

Earlier this year we asked whether Private Equity should be involved in High Street retail after several well-known chains had indicated their intention to float on the Stock Market.

They included Fat Face (77% owned by PE firm Bridgepoint), Card Factory (owned by PE firm Charterhouse) and Poundland (76% owned by Warburg Pincus).

Several of these IPOs have now taken place, and one has been cancelled.  Fat Face has withdrawn its proposed IPO after deciding that it would be unlikely to raise money at the level it had hoped.

This was after shares in Card Factory fell 10% a week after its launch and Pets at Home losing 3% since its float in March 2014, and despite Fat Face having increased sales to February 2014 by 8.2% following the previous year’s pre-tax losses.

Plainly PE investors are adopting a more cautious approach to the old financially driven model for realising value. The old model often involved a public to private acquisition, repaying private equity owners by loading the company with debt, and then flipping it back into public ownership.

While the prospect of a quick exit has focused the attention of Private Equity owners on public markets, all too often the valuations don’t leave much for new shareholders. The recent decline in shares shortly after being floated is a reminder of the old model that made Private Equity owners so wealthy, often at the expense of public owners who sold cheap and bought back expensive.