Energy Giant Centrica Pays No U.K. Tax, Hikes Prices

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By Ben Stupples

Centrica PLC, Britain’s largest power and gas supplier, paid no U.K. corporate tax during the first half of 2017 as it hit households with a double-digit price hike for electricity.

Tax relief on U.K. losses from the company’s Exploration and Production (E&P) business resulted in a U.K. corporation tax rate of zero percent, Centrica said in its half-year results, published August 1. The group tax rate for the company, which has operations in Ireland and the U.S., was 29 percent.

In an Aug. 1 email, a Centrica spokesman told Bloomberg BNA that the company’s E&P business was profitable overall. But “it was loss-making in the U.K. and tax relief given for E&P losses is at a higher tax rate than the tax for the U.K. consumer businesses,” he said.

The disclosure from Centrica, one of the U.K.’s “big six” household energy suppliers, comes as it announced a 12.5 percent rise in electricity prices from Sept. 15. The Windsor-based company has been selling electricity at a loss during the past year and will still be “materially cheaper” than its main rivals, Chief Executive Officer Iain Conn told reporters in a post-results conference call.

U.K. Tax Loss Reform

It also comes as the U.K. seeks to limit the amount of tax relief on losses for large companies.

Companies face a 50 percent cap on the amount of losses they can carry forward from a previous year to reduce their tax bill under measures set to be introduced in the Summer Finance Bill.

The law will impose an annual allowance of 5 million pounds ($6.6 million) for tax relief and hits the top 1 percent of companies in the U.K., according to a December 2016 government policy paper.

Her Majesty’s Revenue and Customs, the U.K.’s tax authority, published July 31 draft guidance for public consultation on the loss relief reform. The government will include the new legislation in the Summer Finance Bill, set to be introduced after U.K. Parliament’s summer break, HMRC said.

Under the legislation, companies will also have more flexibility after the measure’s April 1 enactment date as any loss in a subsidiary can be used across a business group’s total taxable profits.

Heather Self, a U.K. tax partner at London-based law firm Pinsent Masons LLP, told Bloomberg BNA by telephone Aug. 1 that the measure will boost the cash flow of HMRC’s corporation tax receipts.

“This slows the rate at which companies can use losses,” she said. It also risks “penalizing companies recovering from a period of losses and adds complexity” to the U.K.’s tax system, she added.

New Investors Benefit

But Nick Blundell, a corporate tax partner at accounting firm RSM UK Group LLP, said the corporate tax loss relief reform will be a potential boost to any company looking to invest in the U.K. for the first time.

The changes are “pretty good for new investors into the U.K. as they mostly relate to historical losses,” he told Bloomberg BNA by telephone Aug. 1. “Our loss rules in the past have always been quite archaic and the easing of those rules make losses more flexible for companies’ future use.”

The measure will raise 1.4 billion pounds by 2021, according to the government’s policy paper.

Half-Year Earnings Rise

In its Aug. 1 results, Centrica’s adjusted earnings fell 11 percent from a year earlier to 449 million pounds, while group revenue rose 7 percent to 14.9 billion pounds. The half-year results are “solid” amid reduced demand for energy due to warm weather, Conn said in a statement.

With assistance from Mathew Carr (Bloomberg) and  Jessica Shankleman (Bloomberg).

To contact the reporter on this story: Ben Stupples (Bloomberg BNA) in London at bstupples@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com (Bloomberg BNA); Lars Paulsson at  lpaulsson@bloomberg.net (Bloomberg)

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