Trump tax hits profits of Shell and Barclays
Short-term impact will see two of UK’S biggest firms receive a multibillionpound dent to their books
Two of Britain’s biggest companies have warned that tax reforms in the US will result in a multibillion-pound hit to their earnings. Barclays and Shell said the Tax Cuts and Jobs Act, which will result in corporate tax rates falling from 35pc to 21pc, meant profits would be dented in the short term as they recalculated deferred tax assets.
TWO of Britain’s biggest companies have warned that tax reforms in the US will result in a multibillion-pound hit to their earnings.
Barclays and Shell used the first day of trading since the festive break to signal the likely impact of the Tax Cuts and Jobs Act, which was signed into law in the US on Dec 22, as UK markets were shutting for the Christmas break.
The measure, enacted by president Donald Trump, will result in corporate tax rates falling from 35pc to 21pc, a move that the two FTSE 100 companies said they expected to be favourable in the long term.
However, the reforms are likely to have a heavy short-term impact by putting a major dent in profits, as companies have to recalculate the deferred tax assets – credits for having overpaid tax in previous years – that they have built up on their balance sheets. Barclays said the law would mean it would take a £1bn charge to profit after tax for the year.
In its last annual results, Barclays posted a post-tax profit of £1.6bn after adjustments.
The bank also warned that its Common Equity Tier 1 (CET1) measure – a cushion of financial reserves brought in to help make banks more resilient after the financial crisis – would fall by 20 basis points as a consequence of the act. In its annual results Barclays said it had a CET1 level of 12.4pc, almost three times the required 4.50pc.
Barclays warned that other parts of the act could also affect its performance, pointing to the “Base Erosion and Anti-abuse Tax” measures, which are intended to stop international companies abusing the new legislation, which it said could “significantly reduce the benefit” of the lower tax rate. Shell echoed Barclays, saying it expected the changes to be positive in the longer run, but that they would reduce performance in the near term. The energy giant warned that on the basis of its third-quarter results, it would take a non-cash charge on earnings of between $2bn (£1.5bn) and $2.5bn when it reports its fourth-quarter earnings in February.
Posting its third-quarter results in November, Shell said it had $3.7bn in earnings on a current cost of supply basis including identified items.
It is not just Uk-listed companies that are likely to take a hit. Bank of America has indicated that it will take a $3bn charge, and Credit Suisse has raised the prospect of it being in the red for a third year running after warning it is likely to face a charge of Sfr2.3bn (£1.7bn).
President Trump has described the act as a “monumental” achievement and a “Christmas present” for the US’S middle classes, with top income tax rate likely to fall from 39.6pc to 37pc. However, it has also faced heavy criticism, with the tax reduction expected to add $1.5 trillion to the US national debt, which already stands at $20 trillion.