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TWS and Tax

OK, perhaps not the most interesting subject but am I alone in feeling uneasy that the TWS will now be paying less (or virtually no) corporation tax?

The Annual Review and Financial Statements make very interesting reading. https://www.thewinesociety.com/annual.

The financial performance of the Society has been nothing short of spectacular but I was drawn to the comments around tax.

Ken Brown’s comments include this:-
“As the result of this review, which included lengthy correspondence with HMRC, and a detailed analysis of HMRC guidelines The Society has concluded that it should prepare its accounts on the basis that it carries on a mutual trade with its members for tax purposes. As such the surplus arising from the mutual trade will fall outside of the scope of UK corporation tax”

The impact of this is that despite profits for the latest trading year increasing nearly fourfold to £7.5m, TWS appears to be actually due £11k from HMRC. It paid £399k the previous year.

This is clearly within the rules but is it the most socially responsible position? This at a time that the UK needs strong levels of tax receipts to fund the huge amounts of expenditure and debt taken on board to cope with the Covid costs. I would be interested to hear the views of other members.

I suppose if you take the opposite view to mine, one would ask why this change in filing was not applied beforehand and has the Society been over paying tax?

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I found this interesting as well. Personally, I take no issue with it but I do understand how many members may be uncomfortable with it. I hope it will be explained in more detail at the AGM, as well as why this has not been the case in the past.

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Might it seem that our previous auditors were not doing as good a job as they might have been? :dragon:

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I hear you, however profit tax was never the biggest tax line in the accounts anyway. VAT is the main one, with £22m paid for 2020. That is up over £5m on 2019 which is more than 10x the reduction in the profit tax.

Given that TWS is not aiming to make a profit, the appearance of a larger profit this year is something of an unusual event. In more normal times, assuming we return to those, profits are likely to be lower, and the potential profit tax due would be more modest too.

So this change will probably not make a huge impact in % terms on the amount of tax paid by TWS.

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Tax should be paid where tax is due.

If it’s not due then I don’t think TWS has a moral or social responsibility to pay it.

Whether TWS has been overpaying in previous years is another question.

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On the moral side, also worth highlighting the (voluntary) repayment of COVID furlough scheme money and early repayment of COVID duty- and VAT-deferal. Both of which are, for me, the right things to do and show TWS in a good light.

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Spot on with your comment.

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This is the key comment for me, HMRC have been engaged. Everything is done in line with guidelines so they are carrying out their social, moral and legal responsibilities.

This is a not for profit so any profit made goes back to either paying employees (tax and NI), supporting more producers or by keeping prices low, which often makes people buy more (VAT). HMRC may end up with more in the long run if their guidelines say it’s the right approach to take.

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Excellent thread. Was the compensation levels of senior management and directors disclosed anywhere?

Yes, on page 14 here

Edit - Although on closer inspection that is committee members rather than for example CEO i.e. Steve Finlan.

I wonder if the increased profit will lead to any changes? lower prices/margins? More staff? Any service changes? Faster IT investment?
I presume the new warehouse is fully funded and then some looking at their bank balance so they can’t really justify many years in a row of this kinda bonanza.

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I have no unease in TWS not paying CT where none is legally due. As a mutual, it doesn’t aim to make, or more accurately, maximise profit, but equally, IMO, it has a duty to maintain a strong balance sheet as it doesn’t have the same recourse to shareholders and debt markets as a plc. Therefore, a modest surplus is to be welcomed, as is a strong cash position given the likely IT and infrastructure costs coming down the line.

Nor do I want to see TWS pursue top line growth for its own sake, or expand membership unsustainably fast, one might argue that the last year may have stepped across that line a bit…

At least this is a change from complaining that the DB pension scheme is going to bankrupt TWS! I see that a significant cash payment was again made to reduce the deficit here which is welcome acknowledgement of responsibilities to staff and former staff, but does leave me with some slight concerns about how effective liability risk management has been here.

I also think that the issue of why the mutuality tax status hadn’t been pursued earlier may be one for the tax advisers rather than the auditors, though accepting that it may be the same firm!

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TWS is entitled to so arrange its affairs as to minimise the amount of tax due. Any members who feel they have benefitted unduly are at liberty to make voluntary donations to HMRC.

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During my training the mantra drummed into staff was the correct tax at the correct time. The rules dictate the outcome, follow them then the correct tax is paid. I can’t argue that they are not overly complex. For anyone complaining about multi nationals not paying their fair share, the usual example is the next day delivery company that sells everything, I am sure they pay everything that they are legally obliged to. Don’t blame the players, blame the game is a phrase I heard often. The answer is simplify the rules and close the loopholes.

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Correct of course, but the white elephant in the room is surely that the tax system needs updating in many instances - I’m talking in general terms here, and not specifically in relation to TWS - and many legacy tax incentives/rules of yesteryear are no longer acceptable/applicable, but remain ‘available’.
One simple example I come across routinely when cycling around the Chilterns is the fact one can buy a perfectly habitable multimillion mansion, raze it the ground (foundations removed or not depends on the local council) and replace it with a single new dwelling and enjoy a VAT-free new build whereas a standard renovation is subject to your standard VAT rate. It makes no sense, not just from a tax point of view, but particularly from an environmental angle.

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You say that, but I was talking to someone the other day who wanted to pay HMRC some money that they thought was owing, but HMRC didn’t agree and “wouldn’t accept” the payment!

I don’t see that it’s the job of the tax system to deal with such cases!

I have no issue with this - provided that the case for it is watertight. If HMRC contested the decision at some future point, and won their case, they would claw back all the unpaid tax for previous years.

My point is that a legacy tax incentive which was originally introduced to increase housing stock is now arguably mis-used and left ‘available’. The ‘tax system’ is a result of political decisions and that’s of course where changes should be contemplated.

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There is a difference in thinking you owe HMRC some tax when HMRC thinks you don’t and making a “donation” to the Exchequer.