Trade welcomes Chancellor's tax and rates measures

Booksellers have welcomed the news that business rates will be reviewed and a 25% tax will be imposed on multinationals' profits from UK economic activity.

In the Autumn Statement yesterday (3rd December) the Chancellor George Osborne revealed that multinational companies like Amazon, Google, Apple and Starbucks, which “artificially shift” profits out of the country, would be taxed 25% of their profits from economic activity in the UK from April 1st 2015.

Called the Diverted Profits Tax, the Treasury will require multinational companies to provide details of revenue, profit before income tax, income tax paid and accrued, total employment, capital, retained earnings and tangible assets, as well as details of their economic activity in the UK, so it can calculate the level of tax the Treasury is owed.

Amazon has been heavily criticised in recent years for paying a low level of corporation tax – just £4.2m last year – on very high UK sales - £4.3bn last year, due to a complicated tax structure in which the company registers UK sales in the low tax haven of Luxembourg.

The 25% tax on profits is 4% higher than the current UK corporation tax rate of 21%, which implies Osborne hopes companies will cease to use the complex tax structure and pay country-by-country instead.

Amazon’s tax arrangements have sparked widespread condemnation, from politicians like MP Margaret Hodge who called on people to boycott the company, to Francis and Keith Smith, the owners of Warwick and Kenilworth Bookshops, who handed in a petition to 10 Downing Street in protest about the set-up.

Hodge, also chairman of the Public Accounts Committee, has grilled the company, along with Starbucks and Google, in the House of Commons over its tax arrangements, calling it “immoral”.

Tim Godfray, c.e.o. of The Booksellers Association (pictured), said he “applauded” the coalition government for taking steps to try and tackle the unfair situation and paid tribute to Hodge for first putting the issue into the spotlight.  “It is encouraging to see politicians of all parties aware of these  inequalities and taking steps to try and improve the situation,” he said. “But with this 25% tax on UK profits, will HM Treasury now be able to prevent companies from over charging entities in higher tax countries to reduce taxable profit and completing a transaction in a lower tax country, different to the country which the business relates to?”

He added the trade body was  “disappointed” Osborne did not address tax breaks and subsidies many multinational companies receive in the UK to open warehouses in his speech, “which benefit one area but ultimately cost jobs and revenue in other areas of the UK economy, notably on the high street.”

James Daunt, m.d of Waterstones, said of the new profits tax “clearly the principle is a very sensible one and it makes for a level playing field and a level playing field is a good idea.” While Sam Husain, c.e.o of Foyles, also said he “welcomed” it. Amazon has not replied to requests for comment.  

However, high street retailers were even enthusiastic about the chancellor's pledge today to launch a review of business rates, even though it will not be completed until 2016, well after the next general election.  “The business rates review is long overdue because retailers’ jobs are being lost and high streets and being decimated,” Daunt said. “It is a huge tax on the high street retail world which online retailers don’t have to pay. The main benefit of a review is we would get regeneration in many of our deprived high streets in the country. We rely on our neighbours as much as we do ourselves and they depend on us. It might not make such a difference in Lemington Spa or London, but it will in the likes of Bolton, Bury, and in Middlesborough,” for example.

Foyles c.e.o. Sam Husain said: “The business rates system is 400-years-old now and it is about time it was reviewed. The big concern is that they are not applied fairly. You get slapped with a charge for rates which could be exceptionally high and then you have to appeal against it. Decisions vary by council, but some can take years to come through. It is a huge burden for years and many small retailers cannot cope for that long.” When asked what he would like the review to contain, Husain said business rate appeals should be resolved within three months and local councils should take on responsibility to ensure the mix of shops on high streets was appealing, like shopping centre landlords do.

Nikki Kastner, co-owner of Clapham Books in London, said reducing the amount of business rates she paid six months ago saved her business. The bookseller moved from Clapham high street around the corner to 26 The Pavement, which reduced her business rate bill by one third. “Our rate and rent combined is now the same cost as just our rent in the last premises. We are now on a firm footing again where we can stock our shop properly and don’t have a panic when the rent bill comes in every quarter. It has made a huge difference, so the news the business rates will be reviewed is very welcome news for retailers.”

The Chancellor also revealed he would double small business rate relief to April 2016 in the Autumn Statement and  increase business rate discount from £1,000 to £1,500 per premises. He said he would also extend the 2% cap on business rates, all of which the BA said was welcome. Meanwhile, Godfray said he was “delighted” the business rates review was set to happen after years of campaigning for it. “We recognise that recommendations concerning a new business rates model won’t be made until the 2016 budget – and then there will be considerable debate before implementation," he said. "So this won’t be a quick fix.  However, we hope that when it comes, the review will lead to a fundamental reform that will reduce the overall burden of taxation on high-street bookshops; provide flexibility, so that business rates are able to adapt with changes in the economic climate; provide incentives; and ensure that business rates should be equitable across industries.”