Accountants defend their tax record

Madeline Ratcliffe
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Powell said the US recovery had boosted the UK as well
As Big Four accountancy firm PwC publishes its annual report Madeline Ratcliffe talks to chairman Ian Powell.

PWC, ONE of the world’s largest financial services companies, will today report their full year profits increased by six per cent, to £818m, reflecting a policy of growth and investment over the last eight years.

The Big Four firm said revenues in all four departments – assurance, tax, deals and consulting – were up, and it had managed to shake-off a number of potential problems including the introduction of mandatory audit rotation for listed EU countries, and sharp criticism from the House of Commons Public Accounts Committee over its tax practice.

In February MPs accused the accountants of “promoting tax avoidance on an industrial scale,” which the company vigorously denied. Chairman Ian Powell told City A.M.: “We try to be transparent on our own tax arrangements and we advise business to be transparent in the way that they report their tax. We do draw to our clients’ attention the reputational issues as well.

“But as long as countries are using tax to make their own country more attractive for business investment you will see tax arbitrage (capitalising on the difference), you will see big companies looking at the international aspect of tax to move their operations round the world.

“I think people would like to see a simplification of the tax system, I think that would enhance trust. We are engaging with the politicians in terms of the discussion around that.”

He also pointed out that the firm paid over £1bn in taxes to the Exchequer this year, and for the last four years has disclosed the effective rate of tax for the partners, which is about 48 per cent this year.

At least 80 per cent of the firm’s clients have UK headquarters.

Powell said he was especially proud of the way the firm had handled the recession, and that the company’s growth for the year to 30 June was a direct result of “investing throughout the crisis, not going for short-term profit, really thinking about long-term growth. We held our nerve, and recruited, and accepted stable or very slow growth.”

He added such a strategy was largely possible because of PwC’s size and market position, which afforded a freedom that is not an option for many listed companies.

This long-term strategy continues. Although profits were slightly ahead of expectations, Powell said of the company's forecast for next year: “we will continue to invest in the business by promoting and recruiting people, so this coming year we won’t budget for significant growth, we would budget for long term investment.”

It represents a cautious optimism which Powell says he has seen for UK firms, largely due to the increasing strength of the US economy, which has driven confidence and material gains here. This is why the firm’s M&A business is “particularly buoyant,” unusually alongside growth in business recovery operations too, which provides debt and restructuring advice, and so tends to be counter-cyclical.

One set of statistics less heartening was the number of female to male partners at the company, at 17.1 per cent. The firm has led the way in publishing gender pay statistics, and is not afraid of advocating for changes to the law to force all companies to do so. PwC’s own gender pay gap is 15.3 per cent, compared with the national average 19.1 per cent. One of its strategies to reduce this is a 30 per cent quota – the minimum number of female promotions to partner.