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UK Water Company Under Fire Over Corporation Tax

By Amanda Banks,, London

14 June 2013

The largest water company in the UK, Thames Water, has come under fire after explaining that its taxable profits have been "substantially reduced" by capital allowances, with the result that it paid no corporation tax on GBP145m pre-tax profit last year.

The company's accounts – which include interest paid on loans from a Cayman Islands subsidiary – have been described as "extraordinary" by one Member of Parliament, and they were published as the head of water industry regulator Ofwat complained of "morally questionable" financial arrangements in the industry.

The figures appear in a business review, in which Thames Water appears to anticipate criticism. The company states: "HMRC's capital allowance regime permits companies to delay the payment of corporation tax, not avoid it, by providing accelerated tax relief for capital investment." It goes on to explain that it has invested GBP1bn each year in assets, with the result that it currently has a deferred tax liability of GBP961.2m. The review adds in the past year Thames Water has paid GBP150m in other taxes, and that expenditure with suppliers and contractors "generates substantial additional tax revenues in the wider economy."

However, Simon Hughes MP, who is Deputy Leader of the Coalition Government's Liberal Democrat Party, has called for the Treasury, the National Audit Office, and the regulator to investigate, and he noted that bills to consumers have increased by 7 percent. Last year, Hughes claimed that his office and a newspaper had uncovered "widespread corporate misbehavior" in relation to the sector's tax arrangements.

Thames Water has denied that subsidiaries in the Cayman Islands are a tax-avoidance measure. The company's finance director was quoted as saying that they exist "purely to comply with UK company law requirements for the acquisition financing structure."

TAGS: tax | tax avoidance | interest | corporation tax | Cayman Islands | United Kingdom | offshore | services

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