Ken Livingstone’s actual tax rate (and how Guido Fawkes spun the truth)


by Sunny Hundal    
10:15 am - April 9th 2012

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On Thursday last week Guido Fawkes (or more likely his sidekick Harry Cole) published a chart purporting to show that Ken’s “effective tax rate” was 14.5%, compared to Boris Johnson’s 45.1%.

That’s an effective line. But it’s just wrong.

On maths, Guido can’t add up.

He wants to include a separate companies earnings- Silveta- as Ken’s earnings. Then he wants to compare this to the most favourable year for Boris Johnson, last year- the only year Johnson didn’t make take allowable expenses upwards of £6,000 and the 50p tax rate applied to him.

Over the 4 years the candidates actually agreed to publish, Boris Johnson’s income was £1,699,257 and his tax payable was £684,719. That’s an effective tax rate of 40.3%.

For Ken the relevant numbers were £342,041 in income and £113,861 in tax. That’s a tax rate of 33.3%. Once National Insurance payments are included the effective tax rate rises to 35%.

- On the law, Guido wants to include the earnings of a company of which Ken is a shareholder. “When Silveta’s numbers from all his media earnings are included…”.

This is nonsense. Legally, Silveta Ltd and Ken Livingstone are separate persons.

- On accountancy, Guido has got the basics wrong. The relevant point is that tax is paid on the income Ken receives, not the company earnings. Ken can’t pay income tax on money paid to Silveta – companies don’t pay income tax.

Profitable companies pay corporation tax on their profits. They pay that tax after meeting their expenses, including pay. Only then can they pay dividends. And the tax on dividends is deducted by the company from the recipient.

Ken’s tax rate is lower than Boris Johnson’s because his income has been lower – less in four years than Johnson earns in a single year.

It’s shame that the Guardian gave credence to this claim – though it was more amusing to watch Guido Fawkes wear that like a badge of honour (wasn’t the Guardian supposed to be a tax-avoiding hypocrite too?).

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About the author
Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Reader comments


Whether it is indeed “nonsense” hinges on whether the company is a tax avoidance vehicle. In any measure.

Legally, Silveta Ltd and Ken Livingstone are separate persons.

That’s rather the point isn’t it?

It is clear that the only function of Silveta is to minimise Ken’s tax bill so those figures would have to be included in any meaningful comparison.

Incidentally, you would be pushing the line that, by avoiding as much tax as possible, Ken is showing himself to be smarter than Boris and therefore better equipped for office.

He’s certainly gone up in my estimation.

He wants to include a separate companies earnings- Silveta- as Ken’s earnings.

Duh.

The desperation is amusing Sunny, but no-one has ever argued that Ken is evading tax. Merely that by funnelling his own earnings through a limited company he gets to control the amount of tax he pays, through avoiding NICs, by spreading income out over several years, and by paying dividends to his wife.

Silveta has no other business than as a services company – there is a legal distinction between Ken’s income and Silveta’s, but it’s a distinction without a difference. That’s fine, obviously, if it weren’t for the fact (how many times do we have to say this) that Ken has railed against exactly this sort of tax avoidance as being done by bastards who should lose the right to vote.

Done. Like. A. Kipper.

Firstly, I can’t help noticing that you give no links to the information that Ken has put out – that should be the starting point.

Secondly, as Pagar has pointed out, Silveta Ltd is indeed as separate entity, and has he also points out, that is the point. The company appears to have been set up purely as a tax avoidance measure. There is no reason at all why Ken couldn’t have simply acted as a sole trader, in which case he would have avoided all this. Silveta Ltd appears to have large amounts of cash in the bank – which, as company assets haven’t been taxed. What Ken now has to do, is simply pay himself the dosh as and when he decides it would be most advantageous to him – an option not open to most ordinary Londoners. The tax figure you come out with is the one paid on money taken out of the company. Let’s also remember that Ken’s wife is on the payroll too, and, because money can be transfered from husband to wife and vice versa without any tax liability… well, just use your imagination.

Fankly Sunny, this is a pretty shamefull piece of spin that does you no credit. A person with ethics would be trying to get political parties to select candidates with an ethical sense that refllects the parties own, rather than selecting candidates who practice a do as I say not as I do philosophy, and then spinning wildly.

Btw, that information lite graph reminds me of the ones the Lib Dems used to put on their leaflets – you haven’t been to a Lib Dem summercamp on dubious mathematical representation have you?

@3

Give one instance of where Livingstone has denounced someone who works through a limited company.

You can’t. There isn’t one.

[This is an exchange I've also had with Dan Hodges, who thought that a freelance worker meant Livingstone's wife. Hodges is another idiot who had believed Andrew Gilligan without question]

Working through a limited company – which tens of thousands of folks do, maybe more – is not tax avoidance. Limited companies are not “tax avoidance vehicles”. Someone setting up and working through a limited company when they have a number of income streams, and employ others, are doing exactly what HMRC want them to.

In support of this point, I would point anyone at this piece from City AM, not known as a hotbed of leftism or sympathy for the Labour Party:

http://www.cityam.com/forum/ken-livingstone-blameless-his-tax-planning

And the distinction between Livingstone’s income and Silveta’s is not “without a difference”. Heavens to Betsy, eh? But carry on spinning and believing what you want to.

7. White Trash

Splat -: “… that information lite graph reminds me of the ones the Lib Dems used to put on their leaflets”

LOL

Yes, “Only Ken can win here” so says Sunny, and just as unconvincingly.

It doesn’t matter what the facts are though.

You’ve been in politics long enough to know that once a bandwagon starts, the facts are irrelevant. Half the politicians who resign in disgrace didn’t do anything wrong, but the facts didn’t save them.

It is the perception of wrong-doing that matters.

The average person isn’t going to read your long-winded technical explanation.

The man on the Clapham Omnibus will read that Ken railed against tax avoidance, then routed his wages via a company. It looks dodgy.

The fact that his own statement showed a switch from income (which people understand) to dividends (which looks odd) really doesn’t help his cause.

In politics, as any experienced practitioner will tell you – if it looks dodgy, then you are doomed, no matter the facts of the matter.

Can I check a fact please?

According to Labour Uncut one of the key problems with Ken’s tax position is that he has organised his affairs in such a way to avoid paying NI but to still be eligible for some benefits.

http://labour-uncut.co.uk/2012/04/06/death-by-a-thousand-nics-beckons-for-the-livingstone-campaign/

Here you’ve mentioned on Ken’s tax rate “Once National Insurance payments are included the effective tax rate rises to 35%.”

So just as a matter of factual information can I ask – how much national insurance does Ken say he has paid? I have one source saying he’s paid none and this source is saying he did pay NI.

Thanks in advance.

Wow Snnny, this article is incredibly weak, even for you.

The point is that Ken has railed against tax avoiders, yet has acted in a very hypocritical manner and set up a company primarily as a vehicle to minimise his tax bill and thus avoid tax.

You can also estimate what Ken’s *effective* tax rate is, which is what Guido has done. If he had set himself up as a sole trader, not a limited company, and not use the company as a cash store and paid his wife etc, he would have actually paid a hell of a lot more tax. All Silveta’s earnings are from Ken, and especially in it’s first year of trading it’s easy to see what tax would have had to be paid were Ken not usin the company for tax avoidance purposes.

The problem isn’t that he has done it, it is the hypocrisy and the lies. I’m amazed you have the temerity and gall to defend such things Sunny, given how opposed to tax avoidance you are. You are one of the 99% I assume?

This a all a horrible distraction. yes, even lawful tax avoidance on the part of someone like Livingstone is deplorable. But there are far worse examples, and more important issues. And on behalf of the rest of the country outside of London: we don’t care.

Remember everyone, tax avoidance is perfectly acceptable as long as the right people are doing it.

It is only a crime if the wrong people are doing it.

Is it any wonder that Labour lacks credibility?

And the distinction between Livingstone’s income and Silveta’s is not “without a difference”.

Silveta’s income comes from sales of Livingstone’s book; Livingstone’s speaking fees; and other media income for Livingstone’s appearance. It’s legally different from Livingstone’s income, but, as I say, it’s a distinction without a difference.

And of course using a company is normal. But when it’s done by an individual to manage his income streams (rather than, for example, by a sole trader with a business) the primary reason for doing so is to reduce your tax liabilities. Reducing your tax liabilities by using a services company is specifically cited as tax avoidance by Richard Murphy. And he’s your guy, not mine.

And yes, CityAM is in favour of this sort of technique. It’s just that, traditionally, the likes of Livingstone and Murphy disagree. If you accept their analysis of this, is it also time to accept that the entire UKUncut campaign against Vodafone was a crock of shit? Or is the new definition of tax avoidance “when someone we don’t like does it?”

“Working through a limited company – which tens of thousands of folks do, maybe more – is not tax avoidance. ”

Rilly?

http://www.tuc.org.uk/touchstone/missingbillions/1missingbillions.pdf

A report from Richard Murphy for the TUC.

“Tax avoidance is the grey area between tax compliance and tax evasion. In
straightforward terms tax avoidance is trying to get round the law without breaking it.
When tax avoiding, a company seeks to ensure that one of the following happens:
a. Less tax is paid than might be required by a reasonable interpretation of the law
of a country.
b. Tax is paid on profits declared in a country which does not appear to be that in
which they were earned.
c. Tax is paid later than the profits to which it relates were earned.
d. Tax is paid by a person who did not really generate the income that they declare.
For example, income is quite often switched between members of a family to
ensure it is declared by the person with the lowest tax rate even though the
family member in question did not really earn the income in question.”

….
” How is tax avoided?
The ways in which tax is avoided differ slightly for companies and individuals. They
do, however, have many techniques in common. They seek to secure reduced tax
payments by:
1. changing the identity of the person undertaking a transaction

4. delaying recognition of a transaction

Examples of each, in turn, include the following:
1. putting a transaction that an individual might undertake into the name of
their partner or children or alternatively into a company or trust, or in the case of
a company choosing to create a separate subsidiary that enjoys a tax advantage
in a group of companies

3. paying the income of a director of a company as a share dividend rather than as
a salary so that National Insurance is not paid
4. using accounting rules to ensure that tax is delayed to a later set of accounts”
….

” What is the cost of individual tax avoidance?
This figure is best estimated by considering the main techniques that individuals use
to avoid tax. These are as follows.
1. Income is reallocated to a person or entity that has a lower tax rate than the
individual whose activity really generates the income. The people or entities to
whom the income is diverted might be:
a. other members of a person’s family e.g. a spouse or child

c. a company owned by the individual but taxed at lower rates than those they
might enjoy personally

…..

3. Changing the nature of a transaction so that it appears to be something different
from what it actually is. This is commonplace, the most popular tactics being to:

b. convert earned income into unearned income such as dividends to avoid
National Insurance charges that only apply to earned income

…….

Income shifting*
Income shifting happens in two ways. Either income is shifted from the person who
really generates it to someone else (that might be, for example, a member of their
family or a company they own) who will pay a lower rate of tax on it than they
would if they declared it on their tax return. Alternatively, income is shifted to try to
change employment income into investment income.

……

The other significant way in which a transaction’s nature is changed is to recategorise
it as investment income rather than as earnings from employment. The motive for
this is simple: investment income is not subject to National Insurance charges and
earnings from employment are. For those in employment this recategorisation is almost
impossible but for those who own their own businesses the process is relatively simple.
All they need do is not pay themselves a salary out of the companies they own in
exchange for the labour that they supply to it. The company is then recorded as making
a higher profit as a consequence and the dividends that they can then pay themselves
as shareholders out of that profit are considered investment income and not earnings
from employment. The result is that National Insurance charges are avoided.

…….

However, it is thought that there are at least 200,00019 (and maybe many
more) companies now registered in the UK that are owned and managed by the one
person who also generates all the income of the company who then substantially
rewards themselves by way of payment of a dividend to avoid the payment of National
Insurance Contributions that would arise. Assuming each of these persons has above
average income, because if they do not there is little or no incentive to incorporate
a company (it being easier to be self employed), the likely distribution from each
company might be as high as £50,000 a year, or £10 billion, a sum within the plausible
range. If this whole sum had been subject to the employer’s and employee’s National
Insurance Contributions avoided in each company, the figure lost probably exceeds
£9,000 per annum, or a total of £1.8 billion.

……

It is extremely hard for anyone to argue in favour of criminal behaviour, such as tax
evasion, but the measures dealt with here relate to legal, but ethically unacceptable
activities and debate is, therefore, inevitable.”

Now, we’ve got two things we can do here.

1) Accept Murphy’s, and the TUC’s, definitions of what are indeed tax avoidance and look at what Ken has done and say, yup, that’s tax avoidance all right. Naughty Ken.

2) Accept that what Ken’s done is right and just and is simply the organisation, as is the right of every citizen, to organise his affairs so as to reduce his tax bill. As a corollary to this we also have to accept that Murphy’s, and the TUC’s, definitions of tax avoidance are total bollocks.

A position that is not available to us is:

3) Murphy’s right but Ken’s not done it.

I take position 2). As it appears does Tim Fenton.

What about everyone else?

Umm. Policy, anyone?

This tax stuff is a simple distraction. Cameron says he wants to take apart the state “brick-by-brick” and yet people are whining about what tax politicians pay. This is exactly what happened over the MPs expenses. At the last election voters were fixated on that rather than the damaging policies that the Tories would force on us (which is happening now).

HMRC is part of “the state” and if Cameron wasn’t taking the state apart HMRC would be able to ensure that no-one – neither politicians, nor businessmen – would be able to avoid paying the tax they owe.

And remember that at the 2010 election Cameron did not promise to take apart the state. If he had said that, rather than using the daft term “Big Society” that no one understood, he would have lost big time.

Hey, children, look at that shiny thing over there!

It is policies that are important.

RE: this all being a distraction.

Yes, of course it is. London would always be better off with a Mayor who is a tax avoider with the best policies than someone with more personal integrity who’s policies made people worse off… so the whole question can be dismissed when you’re going to vote if you choose.

However, what it definitely *is* is a legitimate news story when you have a high profile public figure who has said one thing in public and done the opposite in his personal life.

In exactly the same way that when a politician cracks down on prostitution in public and uses prostitute in their private life or extols the virtues of traditional marriage while having a string of affairs it only becomes the public’s business because of the hypocrisy.

This is only a news story because of the way Ken has dealt with it, and no amount of pretending its just horrid right-wingers making something out of nothing will wash with the public. This is a distraction that need never have happened.

@13

This reply is lame, even by the usual low standard of right-wing trollery that on occasion fetches up here.

Richard Murphy is not “my guy”. He is an individual who takes his own view on taxation, and fair play to him for doing so. I have a lot of time for Richard, but he is not “my guy”. But nice try.

Working through a limited company is not done primarily to reduce one’s tax burden, and in some circumstances – like those of Boris Johnson, who doesn’t employ anyone – working as self-employed can work out attracting less tax (note use of word *can*).

Using a limited company when I began in the freelance market was not some kind of tax dodge – it was how you worked. Contracts were offered on a limited company basis. It was far more convenient for employers as it meant they didn’t have to deal with personal tax issues for freelances, and using a limited company was favoured by HMRC as it generally ensured staying within the law.

You concede that a limited company’s income is legally different to personal income, then pretend that it isn’t really. But it is different. The only reason you cling to the “it isn’t really” idea is spin. Nothing more.

And the citing of Vodafone is sheer desperation. What have the activities of Vodafone to do with whether or not someone works through a limited company? As I said, pretty lame.

18. White Trash

15 Richard Blogger -: “Hey, children, look at that shiny thing over there!
It is policies that are important.”

16 Jim Jepps -: “RE: this all being a distraction.
Yes, of course it is.”

Ummm, but wasn’t it Ken and the Left who started all this “distraction” about who pays how much tax in the first place?

Especially since the MPs expenses scandal, politicians and decision-makers need to be honest and fully transparent. We need to know that they are not hypocrites.

That’s not a “distraction” it’s basic.

@18

No, it was Andrew Gilligan.

The idea that Livingstone started it is yet more spin.

#18 white trash

That’s what I said in the rest of my comment. Come on old boy, it wasn’t that long!

21. White Trash

Er Jim you ended up with -: “This is a distraction that need never have happened”

To be fair old girl your comment was somewhat equivocal.

To repeat, this is not a distraction it’s basic.

@ Richard Blogger, Jim Jepps etc.

Ahhh. So Mr Livingstone’s tax affairs are a distraction. Interesting that this is the line he himself is pushing over at the Guardian today. So that’s it then, the party line has been decided.

Well, let me explain something to you. I can understand the views of Pagar and Tim Worstall on this matter, they after all are both people who hold convictions about small states and believe tax avoidance to be ethicaly sound – I do not. I really find the deep cynicism of a man who is prepared to condemn “rich bastards” and damn tax avoidance measures while practising them himself to be ethically beyond the pale. For you to try and defend this hypocrisy does you no favours either. People like me want to vote for candidates and parties with an understanding of the concept of ethics. For the last 20 years, voter turnouts have been declining partly because we voters have come to believe that politicians are in it for themselves. By giving your unwavering support to a man whose ethics are, financially at least, somewhat dubious, you give an impression that you condone such behaviour.

In short, you are helping me to decide what parties to campaign against in futire elections.

Oh, and Jim, I also note your assumptions on the gender of other commentors with some amusement.

@ Tim Fenton 19.

Funny, I was under the impression that Ken had made various comments about “rich bastards avoiding tax”. Any politician who makes statements of this nature should expect to have his affairs scutinised pretty closely by journalists

Failure to expect this is hubris – not a desirable characteristic in any politician.

Sigh… appear to be on the internet arguing with someone… oh well. Let me say it again in a different way.

I think the election should be about the issues that effect Londoners. Livingstone’s tax affairs is not one of them and as such is a distraction.

However it is entirely his own fault that it is in the news because he has made his tax affairs a matter of legitimate press interest through his previous comments that people should pay the “proper amount of tax” not squaring with the way he appears to have dealt with his own tax affairs.

Ken’s team may not wish this to be in the news any more, and it is pretty boring, but it is clearly in the public interest to investigate this apparent hypocrisy on the part of a senior politician.

So, as I said before, he *should* be called out on this hypocrisy but London deserves better than having to discuss this when there are so many important issues at stake in this election. If you want to interpret this as some sort of defense of Livingstone, well, the mind boggles.

“For Ken the relevant numbers were £342,041 in income and £113,861 in tax. That’s a tax rate of 33.3%. Once National Insurance payments are included the effective tax rate rises to 35%”

Ken’s 33.3% is just as bogus as Guido’s 14.5, as it involves counting effectively counting his corporation tax twice. Hard to complain about his opponent’s fuzzy maths when his own numbers are equally deceitful.

And Ken is too old to pay national insurance.

26. White Trash

Jim, not sure who you think you are arguing with. Who is “you” in your last comment, 24 on my screen?

Ken’s tax affairs are not a distraction in my view, they are just one, rightful, part of the overall picture of what’s being put forward to voters.

Jim -: ” it is clearly in the public interest to investigate this apparent hypocrisy on the part of a senior politician … he *should* be called out on this hypocrisy …”

Well we agree on this at least ;-)

The issue is not whether he has done anything illegal, the issue the hypocrisy and lies he has told.

“There is no reason at all why Ken couldn’t have simply acted as a sole trader, in which case he would have avoided all this.”

Absolute bollox, Splat. I’m a sole trader but all income is paid to my business first, then my earnings transferred to me once all business costs have been met.

In other words, precisely the same set up used by Livingstone.

@ Jimmy 25.

Not so. Ken turned 65 in June 2010, which means that as the current system stands, he gets away without paying. This though is on the grounds of being an employee or director of the company. If he was operating as a self employed sole trader, without ltd company status, he would have had to reach 65 before the start of the tax year in order to be exempt for that year.In other words, were he a sole trader, he would have had to pay class 4 contributions for the year 2020/11. This is one of the perks of being a Ltd company.

“Not so. Ken turned 65 in June 2010, which means that as the current system stands, he gets away without paying. This though is on the grounds of being an employee or director of the company.”

Not entirely true.

It is only employees’ NI that stops being paid at 65. Employers’ must still be paid. Thus Ken taking a £5,700 salary (the rate at which NI is credited as being paid but none actually is paid) and then the rest as dividends. Dividends not being subject to employers’ NI of course.

It doesn’t matter what the facts are though.

Right-wing commenters aren’t interested in the facts shocker.

@ 28 Richard.

Yes, as a sole trader the money is paid to your business, then expenses are removed, then you pay tax on the profit. No problem – nobody expects you to pay tax on your expenses. Legelly however, you ARE the company.Your earning are not transferred to you – they are yours all the time.When you talk about transferring money, all you are doing is transferring money from your business account to your personal account.This is not the same as transferring money between a company and yourself. That’s why you fill out one tax return – for you as a sole trader. That is what a sole trader is.

But that’s very different from running the money through a Ltd company. What happens then, is that the company – not you – owns the money. The company is a separate legal entity – that is why it is “Limited”. You would then be able to maximise your tax effectiveness by transferring the money from the Ltd Company to yourself in different tax years, regardless of the year in which the money was actually earned. This is something a sole trader can’t do.

That is the difference.

Imagine if the Conservative candidate for Mayor set up a company, put all his money through it and took his money out in such a way as to minimise the tax he paid. He then challenged his Labour opponent to publish all his earnings and subsequently refused to do so, knowing that this would completely scupper his campaign.

@ 30.

Thanks for the clarification Tim, though with the situation as you describe it, Ken is still clearly avoiding paying NI by the standards he appears to apply to other “rich bastards”.

It is very entertaining watching the left trying to justify Ken Livingstone’s tax affairs.

The ‘only’ mistake Ken made was to publically complain/ exclaim, in vehement tones, about people doing exactly what Ken has done . .

This makes him a hypocrite & provides a window into his soul. .

The British are not keen on hypocrites, which will be shown in May

36. White Trash

Sunny H, quote -: “It doesn’t matter what the facts are though”

Who said that?

Oh. LOL. It was Sunny.

@ Sunny

It doesn’t matter what the facts are though.

It looks to this reader as if the facts are pretty clear. Ken Livingstone applies different standards to himself than to others. End of.

Oh yeah, I’m no right winger – I’m a person who wants to see politicians who would like to help the public rather than themselves!

38. Dick the Prick

@33, exactly, although after the expenses scandal it seems that this is the 1st time anyone’s mentioned tax.

Thanks for the clarification Tim, though with the situation as you describe it, Ken is still clearly avoiding paying NI by the standards he appears to apply to other “rich bastards”.

Well, sorta and sorta not. If he’s been a sole trader then there wouldn’t have been any NI to pay.

And he could have paid his wife etc and no problems.

However, as a sole trader (although there is a get out clause for writers of books amazingly) he could not have delayed recignition of the income for tax purposes. That would have put him way up there in the higher tax bracket in that early year when most of the cash was made.

It really is swings and roundabouts this stuff.

Every time I read a Tory troll comment that suggests that Ken is a hypocrite I think “Pot, Kettle, Black.”

Its quite simple. Ken has followed the law as it stands. He has not gone to any great lengths to arrange his finances, he merely arranges his Tax in the same way that so many high earning Tories have done for years.

Its the Tories who are Hypocrites on this.

Which party recently had a fundraiser who was caught on film suggesting that arrangements could be made for Non-UK residents to Donate hundreds of thousands of Pounds to the their Party.

I think the Tories would be well advised to stay away from the issue of Tax arrangements.

41. Richard T

“he merely arranges his Tax in the same way that so many high earning Tories have done for years”

Quite possibly.

And if you can quote any of those high-earning Tories campaigning against perfectly legal tax avoidance mechanisms you might have a point.

@ Tim 39.

And he could have paid his wife etc and no problems.

He could have, if he could demonstrate that she had really done the relevant work. I believe that HMRC are getting a bit hot on this issue nowadays as far as sole traders go.

@ 40 Paul G

Every time I read a Tory troll comment that suggests that Ken is a hypocrite I think “Pot, Kettle, Black.”

The thing is though, many right winger types aren’t saying this. Quite a few are taking the Pagar and Tim Worstall line. As Pagar put it so clearly:

Incidentally, you would be pushing the line that, by avoiding as much tax as possible, Ken is showing himself to be smarter than Boris and therefore better equipped for office.

He’s certainly gone up in my estimation.

The people who are angriest are probably those on the left who believe in paying your fair share of tax, and who now see that left wing politicians are as eager to scam it as Conservative types. That the Tories will try to maximise their income should come as no surprise – they are after all only practicing what they preach. That politicians from the left should do such a thing is truly deplorable.

Nearly as deplorable as those supporters who try to excuse their low ethical standards.

BoJo’s tax affairs are a shambles. He should be disgraced for paying so much tax in such an inefficient way.

Watching right-wingers suddenly get obsessed about ‘hypocrisy’ is amusing, especially given their own candidate.

Here’s the point: most of you don’t understand the tax situation, so you’re happy to keep saying its hypocritical without understanding what it refers to.

Coming here and telling me I’m being silly is a waste of time – if you can find fault with the points above, then say them. Otherwise stop wasting my time.

“Here’s the point: most of you don’t understand the tax situation, so you’re happy to keep saying its hypocritical without understanding what it refers to.”

But Sunny, I do understand the tax situation. I’ve even had Dave Hill and Tim Fenton (!) using my explanation to show that no tax avoidance is going on.

Yet another of your writers here, Richard Murphy, has written long reports stating that this is indeed tax avoidance.

Now I insist that it isn’t: but the point I’d love to see someone trying to make is how that is compatible with all the guff that Murphy comes out with about how this sort of behaviour really is avoidance and dangit, something has to change!

Stuff you’ve readily enough printed in the past.

So, come on Sunny, this is a test for you. Avoidance or not avoidance in Ken’s case? Murphy’s definition of avoidance or Worstall’s?

Which?

If someone earns below the higher rate tax threshold do we expect them to pay at 40% because that would be a “good thing” to do?

If we receive a tax rebate, are we expected not to cash the cheque on the basis that somebody else might need the money more?

Let’s be clear what taxation is. It is a levy imposed by the state, not a contract that is freely entered into. The state creates rules to determine how much is due and, provided these rules are followed, it is not illegal, nor is it even a venal motivation for the taxpayer to minimise how much he pays.

The voluntary donation of money to someone else who needs it (providing it is still possible to find a charity the state is not running) is virtuous, both for donor and recipient. The consequence of redistribution by taxation is, by comparison, pernicious to both. For the donor, the deduction feels like theft whilst for the recipient the payment becomes an inalienable right.

Why should anyone, even Ken Livingstone, volunteer to be mugged for more than they have in their wallet?

48. White Trash

He he he, I love it, it’s actually the “right wingers” and “tory trolls” who are defending Livingstone on this one.

49. Conners76

Silveta is a personal services company. A personal services company is often used as a tax avoidance vehicle in cases where a client to whom you are providing services will accept invoices from a limited company rather than an individual.

The benefit is that a lot of company expenditure (office space, travel etc) can be deducted from the gross profit figure before corporation tax is charged on it. This leaves a reduced figure upon which 20% is charged.

You can then distribute the net profit as dividends. They will be taxed as income when you come to complete your self assessment down the line, but can you chose when to make dividends – i.e. in a tax year that suits you. And if family members are officers of the company you will also make dividends to them. If they are basic rate taxpayers their dividend will incur no tax liability. They can they pay the money back to you, avoiding tax on it beyond the 20% Corp tax that was previously levied. The suspicion (since he refuses to publish the relevant details and I understand his wife is an officer of the company) is that this is what Ken has done – he has filtered his money through his wife to avoid it being taxed.

It’s a perfectly legal way to run your tax affairs. However, it is by its very nature a tax avoidance strategy. Therefore, if you’ve publicly criticized other people for tax avoidance, you can expect a charge of hypocrisy if you use such a vehicle.

The most ethical way to operate through a personal services company is to treat yourself as an employee of the company. Then you pay income tax and NI, and you also pay Employer’s NI. I am a Conservative voter and this is what I do with my limited company because I want to make sure I am making an adequate contribution, particularly through National Insurance which funds the NHS. Then I still pay Corporation Tax on any profit that is left at the end of year. I could get away with all sorts of dodges but instead I choose to be able to sleep at night. It seems Ken doesn’t have the same conscience.

50. Leon Wolfeson

@2 – There are quite a few legal reasons to run even a single-person company, even before considering tax (especially insurance). Now, afaik, the situation is something which needs fixing, it shouldn’t matter HOW you receive income when it comes to the rate of tax you pay.

(Oh, certainly some different special allowances like innovator’s might apply, but there should be ONE tax scale)

But as of the present situation, Ken’s done nothing wrong. And I detest the man.

@15 – Quite.

To:
@41. Richard T who wrote
“And if you can quote any of those high-earning Tories campaigning against perfectly legal tax avoidance mechanisms you might have a point.”

I do not have HMRC records to hand.

Its possible that Cameron, Osbourne, Johnston etc have never had arrangements that have been designed to legitimately avoid paying tax.

They are all millionaires and in my experience millionaires have accountants that are paid to do just that.

And if they are willing not to criticise Livingstons arrangements, you may have a point. But it appears to me that several Conservatives are trying to highlight Livingston as a Hypocrite.

Worstall asks a pertinent question, Sunny.

Who is bullshitting on LC about Ken and the Art of Tax Avoidance: Murphy, or you?

It really is one or the other.

In your own time….

Whats the point?

He is still a hypocrite.

54. Quietzaple

Amusingly I gather Paul Staines’ company is registered abroad, but so as. To make libel actions harder, not for tax reasons.

I wonder if he will be taking up the alcohol consumptions of the candidates in view of his several convictions for drinking and driving?

As per the Guardian, which followed the rest of the foreign owned and/or led UK national media in 2010 in recommending the Tories or their Lib Dems, right wing bloggers try to distract from Ken’s better policies and superior record in office.

Nice they are rational about something.

Sunny re: Comment 45

“Coming here and telling me I’m being silly is a waste of time”

No it isn’t. It’s rather enjoyable to point out you are sending yourself up by coming to Livingstone’s defence.

I don’t think that the Sunny of old (pre-declaration as a Labour supporter) would have been so gullible to write this article.

56. Mighty Mouse

” And the tax on dividends is deducted by the company from the recipient.”

It most certainly is not. Tax is due on dividends for all but basic rate payers. If Ken were a higher or additional rate taxpayer in the year he received the dividends he’d have to pay tax on them:

http://www.hmrc.gov.uk/taxon/uk.htm#1

If one is going to go into bat against “right wing critics” one had better get one’s facts straight.

Working through a limited company is not done primarily to reduce one’s tax burden, and in some circumstances – like those of Boris Johnson, who doesn’t employ anyone – working as self-employed can work out attracting less tax (note use of word *can*).

I’m sorry, you’re arguing that by taking all his income as straightforward income, and paying income tax on all of it, Boris Johnson is paying less tax than if he set up as a limited company? Keep going kiddo, this is fascinating. The contortions you chaps are going through, and all in support of Ken Livingstone. Surely there are more worthy targets for this moist-tongued devotion?

“Amusingly I gather Paul Staines’ company is registered abroad, but so as. To make libel actions harder, not for tax reasons.”

I must admit I was never quite able to follow that logic. Why would a defamed person want to sue his company rather than him?

59. So Much For Subtlety

54. Quietzaple

I wonder if he will be taking up the alcohol consumptions of the candidates in view of his several convictions for drinking and driving?

You should be asking if Ken will – not that Ken has any convictions for drink driving I know of. Stains seems pretty consistent to me. Hypocrisy is not something that he can be accused of readily.

As per the Guardian, which followed the rest of the foreign owned and/or led UK national media in 2010 in recommending the Tories or their Lib Dems, right wing bloggers try to distract from Ken’s better policies and superior record in office.

Better policies and superior record? Thanks for the chuckle. But just remind me, isn’t the Guardian a foreign-owned newspaper these days? Didn’t they re-incorporate themselves in some tax haven or other? Which, by the way, had the pleasant side effect of avoiding tax.

The Guardian has been consistently on the wrong side of history. They cheered for the Soviet Union right up to the moment it collapsed and then mourned its passing. They gave their editorial page over to Islamists. But on reducing their tax liabilities they may have actually been on the winning side for once. Leftists in the UK largely say one thing and do another. The Guardian is no different. Nor is Ken.

Nice they are rational about something.

60. douglas clark

It appears obvious to me now that I should have insisted on being paid through a company rather than directly. Indeed the Trade Unions might not, now, be completely moribund, had they embraced this for all their members. The UK Tax Code is an utter farce when it comes to dealing with those of high net worth.

There are too many loopholes, from special deals for Russian oligarchs to EBT’s for overpaid footballers, to arrangements made to re-employ senior Local Government Officers.

It stinks.

The simplest solution to all of this is to give HMRC draconian powers over anyone earning over, say, £250,000 a year or is of otherwise high net worth. The basic assumption should be that they stole it. Any evidence given by a tax accountant should be considered prejudicial to their clients case. In fact tax accountants should be taxed at 200% of their income. They should be driven to find re-employment as something worthwhile, such as toilet attendants or litter pickers. They could probably find their skills in ‘being obsequious’
useful at last.

This has become a game between rich folk and HMRC. It is at our expense and it ought to be stopped right now. Because, in a mad, crazy way, I pay for this pretentious nonsense. And I ain’t rich. Every time one of these folk ‘get off’ is a defecit for the Exchequer and they fill it from the poor. Why the fuck should we pay for that? We are not Americans who believe the dream. We are just Brits that just bend a knee to our superiors who have better advice

I think we may be living in the early days of a Greek economy where avoiding taxes is the norm rather than the exception. At what point do you personally go, ‘fuck it, the game is not worth the candle, I want out of this straightjacket. I too am up for a bit of this tasty tax avoidance?’

Our heroes should be the people working in the ‘black economy’, for comparatively little money. They have at least woken up and smelled the coffee.

This government is close to breaking the consensus between them and us. That could be briefly stated as ‘don’t take the piss out of us’. Which is exactly what the cut from 50p to 45p was. They ripped us a new one, as they say. They did indeed take the piss.

I cannot credit how weak Milliband was. The correct arguement for an opposition to take was either:

‘Fair enough, you say we are all in this together. Yet you have demonstrated that we are not’.

Or

‘Set the taxes for the rich at 75% and make sure the weasels pay’.

What we had, instead, was a triangulation.

Labour would never have even existed if good people had triangulated the way the Labour Party now does. It is extremely sad seeing good people being compromised in this manner. I am not at all surprised that people voted for George Galloway. Because there was no other protest vote available. There is, frankly, nothing to choose between the Conservative/Liberal Alliance and the Labour Party. The electorate is pissed off with what the political parties offer.

Anyway, that’s what I think.

What a great Mayoral election this is turning out to be. No policies, no ideas, no looking forward, no hope and may the best LIAR win.

All this Mayoral election is about is Mud Slinging, dirty tricks and trying to make the other look dirty and corrupt.

If this is all they have to offer London may as well vote whether London needs a mayor or not.

These people in the Mayoral Race are most certainly taking the piss out of every Londoner’s intelligence. What a Diabolical Disgrace !

“Didn’t they re-incorporate themselves in some tax haven or other? Which, by the way, had the pleasant side effect of avoiding tax.”

Tax on what exactly?

63. Leon Wolfeson

@59 – I can’t agree with that level of intrusiveness. Moreover, HRMC have proven conclusively they don’t have a spine. The problem is the system.

So…let’s replace it with a new one in a year. The same basic rates as for salaries, but the principle that it doesn’t matter WHERE your income comes from, you should pay the same overall rate.

Then, any exceptions would have to be proposed and passed by economists as special cases, removing all the current exemptions. Some special allowances such as innovator’s would remain for some types of income, but the basic inequality would be removed.

“I think we may be living in the early days of a Greek economy ”

We’ve been there for quite some time with corporate tax evasion. Also because HMRC is spineless. And now the Tories have not only refused to shut down tax havens, they’ve undermined international efforts against them and cost this country billions by allowing easier evasion (and discouraging employment beyond a paper corporate HQ in the UK!)

64. douglas clark

Mr James,

Just out of curiosity, has either candidate released a manifesto yet? To be clear, on what Londoners could expect if they won? We, North of the Border, appear to have a similar deficit….

The devil is in the detail, isn’t it Sunny?

“On the law, Guido wants to include the earnings of a company of which Ken is a shareholder. “When Silveta’s numbers from all his media earnings are included…”.

This is nonsense. Legally, Silveta Ltd and Ken Livingstone are separate persons.”

Really? So explain to us, Sunny, who else’s earnings are part of Silveta’s turnover & profits other than Livingstone’s alone?

66. Leon Wolfeson

@65 – Argue with HMRC.

@66 Guido already did.

It did not end well.

68. Paul Newman

What interests I me in all this is the position of Mrs. Ken. I am trying to work out why I should not ask my employer ( and I probably could ) , to pay my salary as a fee to a consultancy owned by my wife and I.
We could delay earnings to avoid tax and so on but could I redirect my earnings so as to share them with my wife and thereby avoid higher rates , let us say , and perhaps keep our child benefit?
Actually my wife does own a Company we run for legitimate purposes. I would have supposed that when you took the money out it would still be income though. Would it be possible to pay her, shall we say ,a generous salary out of this Company for administrative duties which she might easily actually perform and thereby reduce our Liability to income tax , double the personal allowance and take a huge chunk out of our hideous tax bill.
Does Silveta pay Mrs. Ken , and why is she the part owner of a Company whose earnings are 100% Ken generated , what are they up to and can I do it ?
Do we know ?

( Can I do it is the main question here….)

69. Leon Wolfeson

@67 – Ssssh, that’s the point! :)

@ Paul Newman

Paul,

You could do what you’re proposing, but the question is whether you’d be caught by the IR35 legislation designed to catch “disguised employees”.

If you’re not a disguised employee your company would typically be paid by multiple clients in a given tax year, and you would be based at different locations. You wouldn’t be contractually answerable to a named “boss” onsite and you would tend to use your own equipment, e.g. laptop.

A key test is supposed to be substitutability. If you’re not a disguised employee you should be able to say to the client company that you can’t make it next month and your company is sending someone equally qualified in your stead. If they would be aghast at this it tends towards being caught by IR35 (although I don’t think many people regard this test as realistic).

If you have performance reviews, an open-ended contract or are the line manager for anyone else, you’re definitely an employee for IR35 purposes.

If you’re caught by IR35, billing through a limited company tends to be tax inefficient because your company has to pay 14% Employer’s NI on gross receipts above the NI threshold, and that’s separate from the income tax and Employee’s NI you pay as an individual.

However, there are some reliefs that make things a little less bleak in that scenario. The government allows IR35 contractors a flat, no-questions-asked 5% deduction from the gross receipts before you arrive at the “deemed employment income” figure. You can either find legitimate limited company expenses to spend that 5% on, or leave it in the company as profit, in which case you’ll only pay 20% tax on it at the end of the year (although you will also pay tax on the dividends when you distribute them).

You can also deduct all “Schedule E” expenses before you get to the deemed income figure. That includes all travel and all lunches. Clawing that stuff back can help a bit.

The thing is, even if you’re not caught by IR35, the limited company option is only really tax efficient if you are prepared to use it as a genuine tax avoidance vehicle by doing sneaky stuff like paying dividends to your wife. If you play it straight and you only pay dividends to yourself, you won’t save a vast amount of money because you’ll pay 20% Corp tax on the gross and then 22.5% on all dividends once you’ve reached the higher rate income tax band. It does mean you’ll pay no income tax at all on your first £42k though, and you’ll pay no NI on anything.

71. Quietzapple

Staines has organised his affairs to make suing him and possibly collecting tax from him difficult, Ken has organised his to give his wife, in effect made redundant by his and Labour’s loss 4 years ago, an income and inter alia reduce his tax burden.

The Guardian is as guilty as the rest of the foreign owned/led media of disregarding Britsin’s interests, supporting the Tories and their Lib Dems at election times, promoting the interests of foreigners at war with most UK residents, as do most on the UK left.

Right wingers cannot see the anti Labour woods for the trees. Without the help of the Left they’d have won insufficient votes for Cameron to hijack a whole parliament.

@ douglas clark 60

It appears obvious to me now that I should have insisted on being paid through a company rather than directly. Indeed the Trade Unions might not, now, be completely moribund, had they embraced this for all their members.

Actually, there is an interesting idea in here. Maybe those of us on the left should learn to think creatively.

Anyone know if it would be possible for trades unions to be limited companies with their members as the shareholders, and for the unions to sign contracts for work, what are now the empoyers would then pay money dorectly to the union, and the union could pay out money to the shareholders as dividend payments or whatever, enabling their members / shareholders to take advantage of the same tax loopholes that at present are only available to “rich bastards” like Ken?

Could Tim Worstall give us any free advice on this?

@ Splat 72

Trade Unions could certainly do it and I’m sure employers would like nothing more.

It would save them a fortune in National Insurance and there would be no relationship of employer and employee between them and the end workers, so they wouldn’t have to worry about any of those pesky things like employee’s statutory rights. They could sack anyone who had been there for any length of time and the sacked individual would have no legal comeback – no wrongful dismissal, no unfair dismissal: just out the door.

74. Robin Levett

@R #65:

The devil is in the detail, isn’t it Sunny?

“On the law, Guido wants to include the earnings of a company of which Ken is a shareholder. “When Silveta’s numbers from all his media earnings are included…”.

This is nonsense. Legally, Silveta Ltd and Ken Livingstone are separate persons.”

Really? So explain to us, Sunny, who else’s earnings are part of Silveta’s turnover & profits other than Livingstone’s alone?

Wrong question. Can Ken Livingstone spend Silveta’s money?

The answer is no. He can draw the money and spend it himself – but in so doing will be taxed on the drawing – and will be treated as doing so in respect of any Silveta cheque he draws that is not a proper business expense.

By simply aggregating Silveta’s income with Ken’s, and taking no account of the income tax that would be paid to get that income into Ken’s hands, the good Guido does indeed show his incompetence.

More generally at others in this thread (quoting Connors76 but others are under the same misconception):

The benefit is that a lot of company expenditure (office space, travel etc) can be deducted from the gross profit figure before corporation tax is charged on it. This leaves a reduced figure upon which 20% is charged.

The self-employed can also charge the cost of office space, travel, etc against income before paying tax – this isn’t an advantage of trading through a company, it’s an advantage of trading.

Wrong question. Can Ken Livingstone spend Silveta’s money?

I’m not sure that’s the right question though, is it? The question here is how much tax has Livingstone paid on his income, and the supplementary to that is how much would he have paid if he hadn’t structured his earnings through a personal services company. The difference between the answers being how much tax he has successfully avoided paying.

We’re dancing on the head of a pin here, because there’s never been any suggestion that any of this is in any way illegal. But the argument that there is a great fundamental, intrinsic difference between money paid to Ken Livingstone for Ken Livingstone’s media appearances, book sales, speaking fees etc, and money paid to Ken Livingstone’s personal services company for Ken Livingstone’s media appearances, book sales, speaking fees etc seems to me to be a bit of a stretch.

@Robin 74

Hi Robin,

You are right to pick this up: –

“More generally at others in this thread (quoting Connors76 but others are under the same misconception):

The benefit is that a lot of company expenditure (office space, travel etc) can be deducted from the gross profit figure before corporation tax is charged on it. This leaves a reduced figure upon which 20% is charged.”

Yes, operating as a sole trader allows you to make similar deductions and I could have made that point earlier.

However, it has no relevance at all to the tax avoidance that Ken has engaged in through Silveta. My understanding based on all information supplied is that he has done the following:

- treated employment income as non-employment income in order that it can be taxed at a lower rate or not at all

- allowed people (his partner?) who do not themselves generate income for the company to receive dividends at the same level as Ken himself?

That is my understanding based on various sources. Happy to be corrected if I am wrong about any of the above.

74. Robin Levett

I don’t believe it is the wrong question. Livingstone himself has said that the money coming into the company is money he’s earned from all sorts of sources, most notably for media appearances.

From an ethical and from an IR35 standpoint to it needs to be explained quite clearly by those seeking to justify Livingstone’s use of a service company as to whether shareholders or employees bring in any revenue or would be able to fulfill the services the company supposedly offers if Livingstone couldn’t. Would his wife or his economist be able to step in and do an after-dinner speech or a slot on Press TV in his place?

And if they wouldn’t be able to and if they’re not contributing to turnover, why should it be considered acceptable for his wife in particular to benefit in this specific fashion from his earnings and he from her tax allowances?

Companies of this type are sold quite openly as ‘tax efficient’ vehicles if you’re bringing in earnings above a certain threshold. As a freelancer I’m well aware of this.

I’m also well aware setting up a limited company isn’t illegal (although he could be operating in more than one grey area regarding IR35 & in indicating that his employee is working on re-election issues) but the issue that Hundal et al are desperate not to acknowledge is the sheer hypocrisy of his criticising ‘rich bastards’ who exploit ‘every tax fiddle’ when he is doing exactly the same thing. But that’s just a distraction, right?

Wrong – it’s the crux of the whole matter.

78. douglas clark

Conners 76 @ 76 surprisingly,

What I am pointing out is that what is sauce for the rich should be sauce for the gander. It seems to me that the super rich are advantaged when it comes to taxation. They get away with it and we don’t. I really don’t think that is at all fair.

You say:

re(l)ated employment income as non-employment income in order that it can be taxed at a lower rate or not at all.

Perhaps you could explain why you think that? Perhaps you see Ken Livingstone as exceptional? I don’t.

The point about all of this is that tax cheats are tax cheats, whatever their politics. It is pretty clear that those of us who pay through PAYE are being treated as mugs by those that don’t.

I only want a fair tax regieme. It is not obvious to me that we have one.

79. douglas clark

R @ 77,

It doesn’t matter what his sources of income are. What matters is what tax he pays. And, on that score, he appears to be a super rich bastard avoiding what most of us can’t. It is a moral point, really.

You say:

Companies of this type are sold quite openly as ‘tax efficient’ vehicles if you’re bringing in earnings above a certain threshold. As a freelancer I’m well aware of this.

Well, lets shut that disgusting ‘tax efficiency’ – otherwise known as a cheats charter – down.

It is just a way of excusing those that could pay tax from paying tax. Quite what the point of that is eludes me……

@ Douglas Clark 78

Hi Douglas,

To answer you question, the reason I think Ken treated employment income as non-employment income is because he used a personal services company to bill clients for work that’s wholly characteristic of personal services (DJ slot on LBC, print media columns etc), and he didn’t then pay income tax or NI on it. HMRC stipulates that personal services should be taxed as income.

But that aside I agree with everything you say.

I don’t think Ken’s exceptional, but he has been hypocritical. I would concede that his tax affairs aren’t very important, but this is a damn useful tool for compromising the campaign of a person wholly unsuited to any elected office.

In fact I think it’s done the job and it’s already game over for Ken. *Sits back smugly*

@ 79. douglas clark

Sorry to labour the point, but it does matter very much what ‘his’ sources of income are. He says the company is set up to manage his media earnings but then treats his wife as an ‘earner’ of said revenues also. Sunny & anyone else defending him is yet to answer the question as to whether his wife brings in revenue to the company. KL himself talks only of ‘his’ earnings.

When you say ‘Well, lets shut that disgusting ‘tax efficiency’ – otherwise known as a cheats charter – down.’ well that’s something IR35 is supposedly there to manage to some extent.

Accountants in my experience will leave IR35 awareness & compliance to their client – it’s a trap for the unwary. Whether Livingstone is unwary or aware & taking a calculated risk on this is not for me to say.

Adding your spouse as a shareholder is another issue, especially if their contribution to the company is dubious as I believe Emma Beale’s to be. It appears to be a case of ‘get you on the payroll/list of shareholders then we’ll cook up something you’re supposed to be working on’. Not an uncommon scenario at all.

@45

Oh dear Sunny, getting a bit much for you? You really must be in the bunker if you’re sneering that it’s Boris and the Tories who are looking bad over all this and Livingstone coming up smelling of roses. Your man has just spent the first five weeks of a two month campaign with nothing but shit poured over his head over his rank hypocrisy.

And before you have a good sneer like Livingstone in today’s Graun that “the Tories have got no policies so they can only attack my tax avoidance”, we’re happy to have that debate. Got an excellent response station leafleting this morning with leaflets saying his plan to pay for a Tube fare cut, the sixth-form booze-and-fags subsidy that is EMA, and a free holiday in Benidorm for every Londoner relies on a magic money tree that doesn’t exist.

@ 73 Conners76.

Thanks for clarifying that. So, there we have it. Tax avoidance scams such as Ken uses can’t be used by the little people. Only important folk like Ken can benefit from them. Can’t say that surprises me really.

The more I think about it, the more distateful Ken becomes. I mean come to think of it, why would I vote for a person who wrote a book with the title “If Voting Changed Anything They’d Abolish it”?

84. Save America

Free Ozzie Guillen, victim of Cold War propaganda

85. Geoffrey Bailey

Ken didn’t pay national insurance, he avoided it by taking dividends. He also paid his wife from his earnings to avoid higher rate tax. Typical of the NASTY Labour party.

86. Robin Levett

@r #77 et seq:

I don’t believe it is the wrong question. Livingstone himself has said that the money coming into the company is money he’s earned from all sorts of sources, most notably for media appearances.

And? The point is that for that income to get into Ken’s hands, he will have to pay tax on it. To add Silveta’s gross income to Ken’s personal income, and say that the only tax Ken has paid is that paid the money he has taken out, without accounting for the income tax he would have to pay to get the rest out, is dishonest or incompetent.

More generally; can someone please enlighten me as to the exact tax advantage Ken is deriving from this arrangement. So far as I can see, the only advantages he has, over being paid direct as a sole trader, are (i) the ability to shift his personal income between tax years and (i) being freer to split income between himself and his wife. As against that is the fact that he pays at least basic rate tax on all his income; and and he also pays NICs on all income at a higher rate than he would as a self-employed contracted-out sole trader.

Anything else?

More generally; can someone please enlighten me as to the exact tax advantage Ken is deriving from this arrangement.

Well, Ken himself acknowledged that he’d saved £50,000 through the arrangement. I suppose he ought to know.

86. Robin Levett

You’ve taken one small element of the point I was making & not considered the whole of it.

The point (do I really have to repeat this??) made is that the revenue of the company was earned by Livingstone alone. He gains an unethical (in my opinion as a limited company owner who doesn’t funnel company profits to relatives) tax advantage by then channelling it via a company to additional shareholders in addition to the other advantages (minimum salary & dividends, spreading the dividends taken etc). He’s attempted to justify it by trying to sell the notion of his wife being a contributor to the company and/or by his ‘employing’ her. It’s a very standard trick.

For Hundal to justify all this by trying to make a distinction between the company & Livingstone is disingenuous at best. He IS the company. He talks only of ‘my earnings’. His team talks of him as ‘the brand’.

Nobody else is earning the money going through that company. He shouldn’t be using anyone else’s tax allowances on it. He should be paying full whack of tax & NI if he doesn’t want to be labelled a hypocrite.

I’m actually starting to feel quite sorry for Ken today. The relentless kicking he’s taken for getting emotional viewing his PPB seems a bit much. I wonder if it might backfire on the Boris camp – there are still serveral weeks to go.

Maybe we should bring this back to policies.

90. Robin Levett

@R #88:

The point (do I really have to repeat this??) made is that the revenue of the company was earned by Livingstone alone.

He gains an unethical (in my opinion as a limited company owner who doesn’t funnel company profits to relatives) tax advantage by then channelling it via a company to additional shareholders in addition to the other advantages (minimum salary & dividends, spreading the dividends taken etc). He’s attempted to justify it by trying to sell the notion of his wife being a contributor to the company and/or by his ‘employing’ her. It’s a very standard trick.

And that is a point I’ve actually acknowledged in the post to which you are replying.

On the other hand, he is paying tax at at least basic rate on all his earnings; the profit Silveta makes is taxed at 20% up to £300k, and 28% above that. Companies don’t get personal allowances; if he took all the profit as dividend, he’d lost out to the extent of 20% on the personal allowance. Taking the first £5.7k as salary simply restores his personal allowance.

Others have pointed out that Silveta will have accounted for NICs at 14% on all its income; so Silveta is paying more NIC than Ken would have paid had he received the payments direct.

Paying one’s wife is something that works whether one operates through a company or not.

The tax position may or may not be beneficial to Ken; it appears to be beneficial, but that isn’t necessarily the case (which makes the idea that operating through a company is an obvious tax dodge somewhat doubtful). The two advantages are as I set out in the post to whichyou were replying – income-shifting between tax years, and income-splitting with his wife.

Just as important, however, is that as Silveta employs the staff (other than his wife) he has limited liability to his employees and more generally as an employer.

“Others have pointed out that Silveta will have accounted for NICs at 14% on all its income; so Silveta is paying more NIC than Ken would have paid had he received the payments direct.”

No, absolutely not.

Silveta will not have paid, accounted for, or even consiudered NI on any of its income. Because companies do not do that. NI is payable only and purely upon what is paid as wages to people.

Please, if you want to discuss tax matters, that’s just great. But please, please, do understand the tax system we have before you do so.

Not this ignorance, please. Because if people who discuss the tax system are this ignorant then what chance have we of getting a better tax system?

92. Charlieman

I find it uncomfortable when Livingstone and Johnson are called “Ken” and “Boris”.

I understand that is how they wish to portray themselves, but they are politicians who want to cuddle up to you. Call them by their family names or by their full names, not the cuddly ones. Would you cosy up to an estate agent or second hand car salesperson who you didn’t know? Unless you have a personal relationship with Livingstone or Johnson, call them Livingstone or Johnson.

@91. Tim Worstallt

“Silveta will not have paid, accounted for, or even consiudered NI on any of its income. Because companies do not do that. NI is payable only and purely upon what is paid as wages to people.

Please, if you want to discuss tax matters, that’s just great. But please, please, do understand the tax system we have before you do so.”

Before you start slagging off everyone other than Scandium speculators as idiots, make sure you are clear on this. Employers make secondary NI payments to all employees over the earnings threshold. Yes it is directly linked to the payroll costs of its staff, but it does not constitute part of the salary of the employee. So some of Silveta’s income will have been spent on paying secondary NI payments for its employees.

But you are right to challenge the claim over NI contributions by Silveta being more money to the exchequer. If Ken was employed direct, then those secondary NI contributions would be at roughly the same percentage rate, but be applied over the whole of his salary. They would have been payable by his immediate employer, in addition to the larger payment Ken would make as an employee.

94. Robin Levett

OK Tim; take me by the hand and lead me through the jungle of IR35.

Then answer the question I posed earlier; is there anything more by way iof tax advantage to operating through Silveta than (i) timing the tax paid on income and (ii) splitting income with his wife by way of dividend payments?

And what are the disadvantages of doing so? If Ken fails to meet the test of self-employment for the purposes of IR35, what tax would he pay, by comparison with what he would have paid had he received the incoem direct?

95. Geoffrey Bailey

If a director of a company chooses to pay dividends instead of salary NO national insurance whatsoever is payable by the company or the director receiving the dividend.

If he chooses to pay as a salary through the PAYE system both company (13.8 %) and individual (12 %) are payable. There is an upper threshold on the employee contribution but none on the company payment.

This is why so many people, including government consultants, set up service companies. Many people never pay any NI or very little but still use the heath service!

This is why the government has tried to clamp down on the practice via IR35 regulation but it has not been very successful

The best way forward is to get rid of NI and incorporate it into basic rate tax as proposed by George Osborne. It is a very unfair tax as the only people to pay it properly are those trapped in the PAYE system. For example someone living off investment income will never pay it!

Robin @94. The canonical article on this was written by Richard Murphy. Ignore the first £10000 being tax free that is no longer true. But the rest holds up pretty well.

http://www.guardian.co.uk/money/2003/feb/16/tax.observercashsection

“Before you start slagging off everyone other than Scandium speculators as idiots, make sure you are clear on this. Employers make secondary NI payments to all employees over the earnings threshold. Yes it is directly linked to the payroll costs of its staff, but it does not constitute part of the salary of the employee. So some of Silveta’s income will have been spent on paying secondary NI payments for its employees.”

No, some of Silveta’s *expenditure* will be on NI payments for its staff. None of its income would be. And yes, this is more than just trivial nitpicking. We do have taxes upon corporate income: VAT for example. We hve taxes on corporate net income: corporation tax. But NI is a tax on the expenditure on wages.

Tim
“…this is more than just trivial nitpicking”

– er, as I said they will need to spend some of their income on paying their companies wage costs (which includes Employer NI contribution). Unless there is a juicy asset that the company own which is being scavenged and spent on wage costs, then the income will be paying the wage costs.

So it is less than trivial nitpicking, I did not see anyone suggest that NI is charged on companies income (forgive me if they did).

The relevent argument is that the exchequer in fact would receive less NI payments overall with this arrangement than they would if Livinstone was employed direct.

98. Robin Levett

@Tim Worstall #96:

As I understand it, if Ken is treated for IR35 purposes as employed in employed earner’s employment Silveta is liable to pay employer’s NIC based on the earnings it receives; certainly HMRC thinks so – even if he’s not caught by IR35 for Income Tax purposes.

With that exception, the article by Richard Murphy accorded with my prior understanding; and given the removal of the former Corporation Tax small company allowance the CT payable (if money is paid out to Ken alone, in the tax year it is earned) is greater than the IT payable if he’d not operated through a company – so the income shifting and splitting are the sources of any savings to him.

@ Robin 78

Hi Robin

It seems clear Ken isn’t treating himself as caught by IR35. The info he released last week shows that the annual salary he pays is just over £5k – i.e. deliberately just below the NI threshold. That’s the standard trick when you’re a company director planning to distribute you company’s income as dividends, not salary: you just pay yourself a token salary that escapes all HMRC thresholds as an additional way of maximising your take home and denying the Revenue as much as you legally can.

Seems clear therefore that Silveta have not paid Employer’s NI for him.

If his wife and anyone else was a properly salaried employee the company may have paid NI for them. I doubt it though, because work such as transcribing his memoirs could be safely classified as one off project work and not disguised employment.

Not sure what you mean when you say: “if Ken is treated for IR35 purposes as employed in employed earner’s employment Silveta is liable to pay employer’s NIC based on the earnings it receives; certainly HMRC thinks so – even if he’s not caught by IR35 for Income Tax purposes.”

A company will only pay ever Employer’s National Insurance on an employee’s salary, and only on salaries above £7,488 a year.

Whether you’re caught by IR35 can change from contract to contract. You might do 6 months work in a given year which is caught, then 2 months work for someone else that isn’t. If that is the case you only have to make a deemed payment of income tax and NICs on the receipts that are caught.

100. buddyhell

The tax evasion/avoidance issue is a distraction and it serves Bojo the Clown well. Lynton Crosby knows his client has no policies or ideas and pushed the tax schtick to cover for Johnson’s evident dearth of substance. Clever but it doesn’t serve Londoners. Instead we’ll probably end up with four more years of drivel, nonsense and hot air…not to mention casual racism.

101. Conners76

P.S. Before someone moans about the following:

“A company will only pay ever Employer’s National Insurance on an employee’s salary”

..I should probably have said “earnings” rather than “salary” as an employer will pay on non-salary benefits.

Again, this will only be the case if their earnings are above the secondary threshold. The information Ken provided last week leaves no room for doubt that Silveta have not paid Employer’s NI for him, nor has he paid Employee’s NI.

102. Robin Levett

@Connors76 #99:

A company will only pay ever Employer’s National Insurance on an employee’s salary, and only on salaries above £7,488 a year.

That’s not quite what HMRC think:

What happens if the IR35 rules apply to my contract?

Your Personal Service Company/ partnership should operate Pay As You Earn (PAYE) and pay NICs on any payments of salary during the year in the usual way.

You may also have to pay an additional amount of tax and NICs, based on the payments received by your PSC or partnership for your services, at the end of the tax year or earlier, if you break your connection with the company or partnership during the year (see ‘Common questions’). Your PSC or partnership will also pay employer’s NICs on the same amount.

http://www.hmrc.gov.uk/leaflets/guide_limitcomp.htm

103. Conners76

@Robin 102

I don’t see your point, Robin?

The HMRC stuff you’ve quoted is consistent with what I’ve described.

Yes, if the work you do for a client through a personal services company is caught by IR35 then you, the managing director of the company, have to treat yourself as an employee – you have to treat all of the receipts from that contract (minus Schedule E expenses and a flat 5% off the top) as salary. You pay it to yourself, – your company’s employee – via PAYE. As any employer operating a PAYE scheme would, you, in your capacity as director and employer, deduct income tax and employee’s NI from the salary you’re paying and take responsibility for paying that on to HMRC.

However, separate from and in addition to the deductions made from the employee’s salary, the company also has to pay employer’s NI for the privilege of employing someone. What HMRC actually ask you to do in this situation is to make your deemed payment of all three types of tax – income, employee’s and employer’s NI – as one regular lump sum. I’ve just made such a payment today for the 22 April deadline.

You keep referring to IR35 but, – not meaning to seem rude, – I don’t think you understand how it applies. Ken hasn’t treated himself as caught by IR35, a fact that’s clear from that fact the only salary the company paid him in a given tax year was £5.7k.

Silveta have not paid any NICs on the money Ken brought in because, although he is an employee of the company, the company has paid him a salary below the NI secondary threshold. As a director you always do that using-up-your-tax-and-NI-free-personal-allowance thing even if none of your contract work for the year was caught by IR35.

104. Mr Eugenides

This is all very simple. Individuals and companies have every right to minimise their taxes using all legal means at their disposal.

When someone the Left doesn’t like does it, it’s “cheating the taxpayer”; when someone the Left does like does it, it’s a “distraction”.

See?

Looking forward to UK Uncut occupying Ken’s campaign HQ.

What? Oh.

105. Robin Levett

@Connors 76 #103:

The point is that if you are caught by IR35 for NIC purposes, the PSC pays employers NICs on all “the payments received for your services”, whether you take that money out as salary, as dividend, or even leave it in the company.

106. Conners76

@ Robin 105

No, once again that is *wrong*. You don’t understand IR35.

If a contract is caught by IR35, you are obliged to treat the receipts from *that contract* as salary, and therefore you will pay employer’s NI on them.

You will not, *absolutely not* have to pay employer’s NI on other money the company receives that is is not caught by IR35.

I repeat again that a director of a personal services company might work on a range of contracts in a tax year, some of which are caught by IR35 and some of which aren’t. *He will only have to treated as deemed income the receipts from the contract which are caught*.

But again, this is irrelevant to the Ken situation anyone as he hasn’t treat *any* of his contacted work as caught by IR35.

107. Robin Levett

@Connors76 #106:

You will not, *absolutely not* have to pay employer’s NI on other money the company receives that is is not caught by IR35.

Of course; but that isn’t the issue. I appreciate that IR35 is applied on a contract by contract basis (and indeed may apply for NIC purposes even where it doesn’t apply for IT purposes); but where a contract is caught by IR35 for NIC purposes, the PSC must pay employer’s NIC on any payments it *receives* under that contract *irrespective* of how, or whether, the worker takes the money out of the PSC. That contradicts your original claim that the PSC will only ever pay NIC on an employee’s salary, even with the nitpick correction which made clear you were talkign about any money the worker took out of the PSC.

But again, this is irrelevant to the Ken situation anyone as he hasn’t treat *any* of his contacted work as caught by IR35.

My point on this is a more general one. There is a feeling here that the only reason anyone uses a PSC is for tax reasons; and that using a PSC guarantees a tax advantage to the extent that simply using a PSC is grounds for criticism verging on opporbrium. Neither of those propositions is true.

If I employ someone, there are very good reasons irrespective of the tax position to do so through a “limited liability” company – the clue is in the name.

As for the tax position, there are potential tax advantages over simply operating as an unincorporated sole trader – if you want to shift income around between tax years, and if you want to income-split with relatives more than you can as a sole trader. There is also the NIC advantage of not paying NIC on dividends.

There are however actual and potential disadvantages. In a number of occupations, whatever the position for Income Tax purposes, you will be caught by IR35 for NI purposes. The effect of being so caught is that you end up bearing NIC at employer’s rates as well as employee rates. You could end up worse off -in tax/NIC terms – operating through a PSC than as a sole trader. It is not a no-lose situation; and it may be that someone will use a PSC even where it puts him/her in a worse tax position because of the advantage of limited liability particularly when dealing with employees.

It also costs more to operate as a PSC than unincorporated, simply to administer the structure.

Where this is relevant to Ken is that he does have employees. That alone arguably justifies using a PSC. The tax advantages then are just gravy; but in his line of work, he skirts close to being caught by IR35 for NIC purposes. His use of the PSC then is not risk-free since, once HMRC decides that one contract is caught, his/his accountant’s judgment on whether IR35 applies to his other contracts will be replaced by HMRC’s rather less liberal one.

108. Conners76

@ Robin 107

I don’t understand the distinction you make between IR35 giving rise to income tax liability and to NI liability. Because you have to treat the money as salary, one follows the other. National Insurance liability is incurred on salary and benefits paid to an employee and on nothing else. It will never arise separately.

This is also relevant to the point you make about having to pay NI on IR35 receipts whatever the company does with the money and “whether the worker takes the money out of the PSC”. The point is that the company doesn’t have a choice about what to do with IR35 money. It can’t leave it in the company account or pay it as dividends – it can only pay it as salary to the employee. Whatever it actually does with that money in practice and whoever it pays it to, it will owe HMRC PAYE deductions and employer’s NI on it just that same.

I am correct to say that a company will only ever pay ever pay NIC on an employee’s salary (and benefits) – the point is that IR35 receipts are deemed to be salary.

I don’t know if I have misunderstood your points or you have minsunderstood mine, or if we both understand each other perfectly well, but I do know that what I have written above is correct and anyone can verify it by speaking to an accountant.

I completely agree with everything you write after the second bit of my post you quote though – that’s wholly in line with my understanding and I think your assessment of why Ken may or may not have used a limited company is sound. Just one minor quibble though which is that again you talk about IR35 giving rise to NI liability as though that were separate from income tax liability. They both arise, together, from the fact the money is deeemed to be employment income.

P.S. Another reason why some people use PSCs is if clients won’t allow sole traders to bill them as individuals. The first time I set my company it was because the client would only pay to a corporate bank account, so I had no choice but to set my own company up or use an umbrella company.

109. Robin Levett

@Connors 76 #108:

Just one minor quibble though which is that again you talk about IR35 giving rise to NI liability as though that were separate from income tax liability. They both arise, together, from the fact the money is deeemed to be employment income.

The test is extended for NICs, and you may fall within the NIC test but not the IT test:

Extended rules for NICs purposes

The IR35 NICs legislation is slightly different from the IR35 tax legislation in that it is not just those engagements involving a hypothetical contract of service that are subject to it.

Some earners are treated as employed earners for NICs purposes although for tax they may be self-employed. This means that certain engagements may be within the NICs intermediaries legislation but not the tax intermediaries legislation. Occupations that may be affected include lecturers, teachers, instructors or those engaged in a similar capacity in an educational establishment; office cleaners and cleaners in any similar capacity; and entertainers. The same is true of those holding non-executive directorships via a service company.

http://www.hmrc.gov.uk/ir35/leg-applies.htm

Note the emphasised sentence.

110. Robin Levett

@Conners76 #108 (contd):

This is also relevant to the point you make about having to pay NI on IR35 receipts whatever the company does with the money and “whether the worker takes the money out of the PSC”. The point is that the company doesn’t have a choice about what to do with IR35 money. It can’t leave it in the company account or pay it as dividends – it can only pay it as salary to the employee. Whatever it actually does with that money in practice and whoever it pays it to, it will owe HMRC PAYE deductions and employer’s NI on it just that same.

The last sentence is correct; but not the preceding sentences. The company is not forced by HMRC to do anything with the money; the legislation simply says that whatever it actually does, it has to account for tax and NICs on the relevant receipts as if it had paid the money out as salary to the worker.

111. Conners76

@ Robin 109/110

Thanks for posting the extended NICs info. It is not something I was aware of, but it does make clear that NICs are tied to employment – “some earners are treated as employed earners for NICs purposes”, – which was my point, but probably not one worth me banging on about any further.

Re: your second post, I appreciate that no-one from HMRC is going to phone you up in the tax year and order you to distribute IR35 funds from your corporate account under a given label at a given time. But, as you readily acknowledge, they will certainly make you account for the income tax and NICs on it in due course, so I don’t get the distinction you’re trying to make?

Can you tell me what else you’d imagine the company doing with the money? You wrote earlier about the possibility of leaving it in the account or paying it as a dividend instead. Why would a company do that? It would be madness and they could end up being taxed on it all over again.

If you’re forced to treat a payment as a salary by dint of paying the relevant tax on it, why on earth would you not pay out the net salary and call it that?

I wonder if your view of this topic comes from reading in IR35 material that the receipts are “deemed” income and you make a payment on account “as though” it were income. But the distinction is artificial. It doesn’t matter what label you put on how you distribute the net figure. If you’ve been forced to treat it as a salary, it’s a salary, and furthermore if you’re running a payroll (which you are supposed to do when you get IR35 receipts) you will have to show in the employee’s P35 at the end of the year that you’ve paid them. Why would the company want to state that it hasn’t paid the salary owed, become a creditor of the employee and mess up its books?

My explanation of this stuff comes from doing my own accounts for my limited company and working in an IR35 capacity. I know how the revenue treats these payments when fed through a PSC and what hoops they expect you to jump through.

I think the distinction you’re trying to make is artificial. At the same time I recognise that this is getting very technical and probably not much fun for other readers, so I shall rest my case there!

All the best,

Conners

112. Robin Levett

@Conners76 #111:

Since no-one has piped up asking us to carry on this riveting conversation, I’ll keep this brief:

Can you tell me what else you’d imagine the company doing with the money?…they could end up being taxed on it all over again.

(i) Since an HMRC decision that IR35 applies is likely to be ex post facto, it will be likely to have already done something with it;

(ii) Since full tax and NI has already been paid on the income, any subsequent payment of the money would have no IT or NIC consequences.


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