Asda and Morrisons paid zero corporation tax last year, as new documents have revealed that buyout firms are minimising tax by supplying their companies up with debts.
According to The Times, over the past decade before they were bought out by their current private equity owners, Asda paid £1.2 billion in corporation tax and Morrisons paid £836 million.
But since their buyouts, their profits have been reduced to losses, mostly due to the large interest payments on the new debt.
In comparison, Tesco and Sainsbury, corporation tax of £247 million and £120 million respectively last year. Britain’s current rate of corporation tax rose from 19% to 25% this year.
Accounts filed by Asda at Companies House this month showed its finance costs, came to £395.5 million, pushing Asda to a £74 million pretax loss.
Meanwhile, Morrisons forked out £406 million on financing costs, which contributed to a £1.3 billion pretax loss.
Asda was acquired in 2021 by the billionaire Issa brothers, who made a fortune in petrol forecourts, and London-based private equity firm TDR Capital for £6.8 billion – leaving them with £4.8 billion of debt.
It comes Asda and Morrisons came under fire by the Competition and Markets Authority (CMA) this month, after significantly increasing their profit margin targets on fuel.
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Additionally, Asda’s co-owner Mohsin Issa declined to address the watchdog’s findings last week, as he insisted that the supermarket’s pricing strategy “has not changed”.
Richard Murphy, professor of accounting at Sheffield University’s management school, told The Times: “Why is the government effectively giving an enormous subsidy to the owners?
“They could change the rules so that the offset of interest against profits is only allowed if the expenditure actually benefits the business,” he said.
An Asda spokesman commented: “Last year Asda chose to reduce its profitability and invest significantly to support customers during the cost-of-living crisis.
“Asda’s operating profit declined by 25 per cent and the business earned only 1.7p for every pound spent with it”.
