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Treasury accountants may face corporation tax challenges as profitability rises

26/01/15

Most kinds of UK companies have become more profitable, official data has confirmed.

Most kinds of company in the UK have seen profitability rise in recent months, new data produced by the Office for National Statistics (ONS) has revealed.

The ONS has calculated that private non-financial corporations saw net rates of return rise from 11.6 per cent in the second quarter of 2014 to 12 per cent in the third quarter of last year. This type of company saw profitability drop as low as 8.8 per cent in 2009.

Manufacturing companies were also up, with a 0.1 per cent third quarter increase to 10.9 per cent, the best margin since 2002, while the figure for service companies was 16.8 per cent, the best ever return since the survey began in 1997.

However, UK continental shelf companies saw net rates of return drop to 13.9 per cent, down 3.3 per cent since the previous quarter and the lowest figure yet recorded. Given the subsequent oil price falls, this figure many have worsened considerably since.

By contrast, non-continental shelf companies enjoyed 12 per cent returns, matching the previous high back in 1998.

For the most profitable companies, this could mean much higher corporation tax bills, notwithstanding cuts by the government in the rate of this levy. That may tempt some to attempt to find ways of avoiding such payments, a significant challenge those taking up treasury tax jobs will be keen to meet.

The issue of large companies seeking to avoid UK taxation has been given plenty of attention from the government, media and the public alike, with multinationals like Starbucks, Google and Amazon all being widely criticised for the way they have used tax loopholes to shift profits away from the countries where they were made, in order to declare a loss or no better than break-even figures, thus avoiding tax.

As a result, governments across the G7 have been working to find ways of establishing international agreements that outlaw such practices.

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