From The Daily Mail:
George Osborne today called on the Labour party to pay £1.5million in tax allegedly avoided on a donation.(1) The Chancellor entered the row over shares given to Labour by businessman John Mill, who claimed it was a 'tax efficient' arrangement agreed with senior Labour Party officials.
Labour leader Ed Miliband also faced questions about the affair, insisting the party would pay tax on any dividends it received.(2)
Mr Mills revealed his £1.65million donation to Labour in January this year was made in the form of shares in his shopping channel company JML. He said the 'tax efficient' arrangement was agreed with senior Labour Party officials.(3)
Tax experts said he would have had to pay almost £1.5million in tax if he had made the donation in cash. They suggested Mr Mills would have had to earn £3.1million before tax to afford to make his donation in cash, with £1.46million going to HM Revenue & Customs.(4)
Alternatively, if he had made the donation via a single cash dividend it would have attracted dividend tax at 30.5 per cent, leaving a bill of almost £725,000.(5)
1) Nope.
The man wanted to donate shares in his own company, worth £1.65 million to Labour. He did not want to donate £1.65 in cash to Labour. Assuming that he qualifies for Entrepreneur's Relief (s169H TCGA 1992 onwards) on the shares, a straightforward disposal (gift or sale) would prima facie attract capital gains tax at ten per cent, so the maximum liability would be £165,000. Even if he doesn't so qualify, the capital gains tax would be a maximum of 28% on the gain (which will be slightly less than £1.65 million, as the shares must have a base cost).
I can only assume that he and the Labour Party signed a holdover election under s165 TCGA 1992, which means that the transferee is treated as not having made a capital gain at all.
The downside of this is that the transferee inherits Mr Mill's original low base cost. If and when the transferee (the Labour Party) sells the shares, then their capital gain (and the tax thereon) is correspondingly higher (probably at the mainstream corporation tax rate of 20% or 21%). NB, the relief cannot be claimed if the transferee is a company, s165(3) TCGA 1992.
So if Georgon Osbrown - who is the Chancellor of the Exchquer and has plenty of experts to advise him - had said that it was a bit underhand of Mr Mill and the Labour Party to sign the holdover election, and that he ought to cough up £165,000, well fair enough. But he didn't even bother asking, so he's clearly an idiot.
But rules is rules is rules and the capital gains holdover relief is, by and large, a good rule (it supposed to make it easier for business owners to pass on the business to the next generation, which seems fair enough to me). If Osbrown decides to amend the rules so that e.g. gifts to non-individuals are excluded from the relief, again, fair enough.
2) Nope.
The Labour Party is - for tax purposes - an unincorporated association, which are taxed as if they are companies (s1121 CTA 2010). In other words, dividends it receives from another UK company (or, since 1 July 2009, any legit company, s931B CTA 2009) are simply not taxed on the recipient. Admittedly, dividends are paid out of post-corporation tax income, so they are not strictly speaking "tax free" income, but the Labour Party will certainly not be paying tax on the dividends.
So it was a shit riposte and is clearly untrue. He didn't bother checking either.
3) Fair play. The man owns shares in his own company and can do with them what he likes. If he wants to give some to the Labour Party, that's his call. I see no moral or legal argument to say that he should enter into other transactions, such as paying himself a dividend or a salary bonus first and giving the net amount after tax to the Labour Party.
4) True but completely irrelevant, see (3). And the calculation is wrong anyway. If Mr Mills wants £1.65 million as a net cash bonus, the total gross bonus would have to be £3.1 million, his income tax/NIC bill would be £1.46 million and there would be another £430,000 Employer's NIC on top.
5) Also true, but completely irrelevant, see (3).
-------------------------------
Unlike most people, I am not just a "tax expert" but was also Treasurer of a large UK party (UKIP, as it happens) for a couple of years. What my advice boiled down to in such situations is that it is as a rule cheaper for a company to make donations than for the shareholders to make donations.
In the instant case, the shares themselves are of little importance to Labour - what they want is the dividends. So my original advice still stands - instead of a shareholder giving Labour the shares (which raises all sorts of issues, see above) and then paying them dividends out of post-tax profits, the shareholder could have just organised it that the company makes donations to Labour out of post-tax profits and a) nobody would bat an eyelid and b) the shareholder still controls the shares, if he falls out with the party, he just stops the company from making the donations, end of.
I feel old
50 minutes ago
18 comments:
As you were focused on "facts" can I say that the Grant Shapps "Micheal Ashcroft, never heard of him" comment surely deserves some sort of prize.
"Conservative Party chairman Grant Shapps said the donation deal demonstrated the Labour leader’s ‘rank hypocrisy’.
He added: ‘In public he slams tax avoidance, yet behind closed doors he’s happy to rubber-stamp whopping donations from tax avoidance schemes.’"
I love your little detailed tax fiskings. But more importantly it just shows how the web allows the proles to get at all the lies told by these idiots. What you (we?) need is a bigger audience.
L, thanks. And we have a HUGE audience, we have the whole internet to rant at, and this here blog gets 500 - 1,000 visits a day fairly regularly, problem is, people aren't interested.
On the one hand, they all say that the politicians are liars, but that's only until a politician comes along with a lie that reinforces their prejudices. And then all of a sudden, the pol's are telling the God's honest truth and I am dismissed as a madman.
MW - Dunning Kruger? Ich auch. My whole life has been bedevilled by the DK effect. I reckon that it is deliberate policy to badly educate the proles. 'They' have been reading '1984' and 'they' think it's a manual not a caution.
If you can't see the hypocrisy of a political party that has been banging on about how perfectly legal tax arrangements for corporations are somehow morally suspect then itself receiving a large donation in the most tax efficient (but totally legal) manner possible, then I think you are perfectly qualified to be a politician.
L, yes.
S, if you can't see the hypocrisy of a politician from one party accusing a donor to the other side of avoiding £1.5 million in tax when as a matter of fact he has not avoided one penny in tax - and dare to lecture me otherwise - then maybe you are suffering from the Dunning-Kruger effect?
The fact that Labour are Home-Owner-Ists to the core and thus hypocrites - a bit like you - is a separate issue, and as you will no doubt have noted, I pointed out that Miliband is a liar and an idiot for claiming that the Labour Party will pay tax on the dividends.
So you are the politician, not me. I'm just stating the actual facts here, make of them what you will.
Labour have accused Google et al of avoiding tax by simple dint of arranging their affairs entirely in a legal way. They are demanding Google actively do things to pay more tax than they do now, such a route advertising revenue through the UK rather than Ireland for example. There is no legal reason for Google to do this, other than to pay more tax. Just as there is no reason for John Mill to sell some of his shares, pay CGT on that sale, and give the Labour Party the cash, other than such a course of action would result in HMRC getting extra revenue.
Just as Google 'could' arrange their affairs is a way that would result in higher tax payments, so John Mill 'could' have donated to the Labour Party in a way that meant he (or they) paid more tax. If John Mill is both legally and 'morally' correct in his actions, then so is Google et al, and the Labour party should shut the f*ck up about tax being a moral issue.
S, so are you saying that Mr Mill should have arranged the donation in the LEAST tax efficient way possible, rather than just doing the obvious thing - giving them the shares - which triggers no tax liability?
And if I were you, don't talk about Google's tax affairs unless you actually understand them (which you don't).
Clearly, Google are taking the piss by routing sales through Ireland (I think this is a VAT thing, not a corproration tax thing) but I don't criticise them for this, never have done. You're the one who mentioned Google.
So what this all boils down to is that you are the biggest tax evader and private tax collector of all (a large landowner), and to distract people's attention. you are pointing the finger at Labour or Google or whoever.
What I'm saying is that if Google et al are being told by the Labour Party to arrange their affairs in a less than tax efficient manner (which they are - Margaret Hodge and Ed Milliband have been very vocal on the issue, berating Eric Schmidt the other day about it), then it is highly hypocritical of the Labour party to think that they shouldn't get criticised for arranging their own affairs in the most tax efficient manner possible.
And I perfectly understand the Google/Amazon/Starbucks/Ebay tax positions thank you - Google routes all its ad revenue through Ireland because corporation tax is 12.5% there vs over 20% here, Amazon routes all its sales via Luxembourg because its VAT rates are lower, and corporation tax rates are lower too (or used to be until recently), Starbucks UK pays a large licencing fee for the right to use the US Starbucks brand, as well as purchasing all its coffee via a Swiss Starbucks subsidiary and also has significant borrowings, thus meaning it actually makes very little profit in the UK. Ebay uses Luxembourg for the same reasons Amazon do. Amazon, Google and Ebay take advantage of EU tax rules that allow incorporation in one EU country, and profits from sales to all the others will be taxed in the one country of incorporation. And warehouses don't count as being 'present' in a country for tax purposes, so Amazon are free to have warehouses in the UK, and deliver the goods from them, but route all the sales via Luxembourg.
Those are the laws of the EU and the UK, and all those companies abide by them 100%, so should not be criticised in any way whatsoever. If you don't like the laws criticise the politicians who wrote them - ie in this case the Labour party.
S, why do keep talking about Labour's phantasy tax policies and Google? Starbucks? What on earth do they have to do with the post?
For the umpteenth time - Labour did not do any "arranging" or "tax avoiding" whatsoever. Political parties are not taxed on donations.
The man wanted to give them some money out of his company, which he can do quite easily at zero tax cost. There is nothing artificial or contrived about it. He has simply not avoided one penny in tax, not by any man's standards and if you say otherwise you are a complete and utter twat
The point was that as soon as people start talking about tax - and that includes you - they show themselves up to be complete idiots or liars or both. In your case probably liar rather than idiot, to be fair.
It would be better if you read up about the Labour Party case rather than insult me. The donor in question has admitted himself that the Labour party were involved in the setting up of the deal, in order to make it as tax efficient as possible. (http://www.bbc.co.uk/news/uk-politics-22793181). He specifically states that their legal people checked it all over to make sure it was OK. And he has avoided tax. He could have achieved exactly the same stated aim (that of giving the Labour party a regular income stream) by just giving them a donation every year out of his taxed income. The effect to Labour would have been exactly the same, it would just have cost the donor extra in income tax payments. So the deal was structured in a way that meant he didn't lose out (but HMRC) did. Which is highly hypocritical given the Labour party's stance on other peoples perfectly legal tax affairs. Its not that the deal done by John Mill is in any way dodgy, or immoral, it isn't. Its the fact that the Labour party are against such tax planning when others do it, but not when they or their donors are involved.
S, you started off by insulting me, so I thought I'd continue in that vein.
Yes, Labour - like the Tories and like you - are complete Home-Owner-Ists and Socialists and total hypocrites. I'm not defending them - read the post.
And yes, I personally see no particular reason to criticise the tax 'planning" carried out by Google et al. And I am not attacking them.
But that does not detract from the fact that no tax has been evaded here. I refer you to the last paragraphs of my actual post and invite you to actually try and read and understand them.
I have been in their position and my advice would have been exactly the same. It's basic middle of the road sensible tax advice.
Finally, there is a huge difference between DOING SOMETHING to minimise an ACTUAL tax liability, and NOT DOING SOMETHING which would lead to a higher liability for the same basic transaction.
In this case, he falls clearly into the "not doing something stupid" camp, and not the "doing something too clever by half" camp.
"Finally, there is a huge difference between DOING SOMETHING to minimise an ACTUAL tax liability, and NOT DOING SOMETHING which would lead to a higher liability for the same basic transaction. "
Not really. When one is faced with a situation that has multiple ways of achieving the same aim, one always makes a conscious decision in favour of one over the others, usually the one that involves the least tax. So one is always 'doing something' to minimise tax liability, unless by chance your preferred option is also the most tax efficient.
In this case his aim was to give the Labour Party a fixed regular income in the future. Given that aim, he could have achieved it in several ways, with no practical difference for the Labour party as recipients. He could have just written a cheque for the amount every year and that would have been that. Instead he has set up a complicated transfer of beneficial ownership (and retained rights over any future sales) of some shares, so they can have the dividends as income instead. THE ONLY REASON FOR HIM TAKING THIS OPTION WAS TO SAVE HIM TAX.
There was no other reason. Are you honestly suggesting that if a cash donation had resulted in a lower tax bill than a share transfer that they would still have gone ahead with the share scheme for some reason, because it had such obvious other advantages? If so, what are they?
S: "In this case his aim was to give the Labour Party a fixed regular income in the future."
Agreed. And for the severalth time, the obvious way of doing this is for his company to make the donations out of post-tax profits. Lots of companies make political donations (yes the practice itself is corrupt but the tax rules are perfectly clear). And all the large parties receive such donations.
This is quite simply not tax avoidance by any definition, not even by your or Labour or the Tories' twisted definitions.
You are now pushing the hard-socialist line that it is every man's duty to structure things in such a way as to pay the maximum amount of tax on their incomes and assets. In which I heartily disagree. Land rents are the only thing which belong to the whole of society and should be taxed. In which you heartily disagree.
Tax avoidance (or clever tax planning or evasion or whatever) is doing what you were going to do anyway and ending up with THE SAME income or assets but LESS tax.
In this instance, he and his company together have ended up with LESS income and assets and THE SAME amount of tax as if he had done nothing.
"Are you honestly suggesting that if a cash donation had resulted in a lower tax bill than a share transfer that they would still have gone ahead with the share scheme for some reason, because it had such obvious other advantages?"
Donations to political parties do not result in a tax bill, full stop. There is no tax relief for the donor and the party does not pay tax on the receipt (despite what Red Ed says).
"the obvious way of doing this is for his company to make the donations out of post-tax profits. Lots of companies make political donations"
But Labour aren't receiving a political donation from his company are they? They're receiving dividends as beneficial owners of shares in the company, just as all the other shareholders will. Its NOT a donation, its a dividend. Presumably if the company was to make a political donation all the other share holders would have to agree, as the donation would be reducing the funds then available to pay them dividends. Maybe the other shareholders aren't Labour supporters, and said they didn't want any of their funds going to Labour, who knows?
"You are now pushing the hard-socialist line that it is every man's duty to structure things in such a way as to pay the maximum amount of tax on their incomes and assets"
Absolutely NOT!!!! My point for umpteenth time is that the above is the Labour Party's line on tax, but that it seems to have no problem with one of its donors doing the precise opposite (very sensibly trying to minimise his tax liability). Holding two such incompatible attitudes shows rank hypocrisy, which has been my point from the very beginning.
S,
1. you clearly don't know much about tax avoidance then, if you think that making yourself poorer and paying the same amount of tax = tax evasion.
2. Had Mr Mill made this type of donation to any other political party would you have called it tax avoidance? No, probably not. Stick to facts, not your personal prejudices (I'd have though you quite liked Labour, with them being such Homeys and all).
FFS. 'I' am not calling what Mr Mill has done tax avoidance. However if one applies the Labour party's principles that it has demanded others live up to (Google et al) then yes, it is tax avoidance by their own standards. So they are hypocrites for demanding behaviour from one group of people, but not from another person when they stand to benefit from his largesse.
And I would have thought that an accountant would have a better concept of the difference between tax avoidance and tax evasion than your first point indicates you do. A point that isn't even correct, as by giving the shares away he is poorer, yes, but also has less income from dividends so will pay less income tax.
S, it's only do-gooders and meddlers who waffle on about the finer distinction between evasion and avoidance and so on. I couldn't give a toss about fancy terminology, I stick to FACTS.
And seeing as you are such an expert on Labour tax policy, can you point out to me where they said if a businessman wants to donate money to a party - or indeed enter into any transaction - he has to do it in the stupidest and least tax efficient way possible, rather than in the simplest and most obvious way?
"also has less income from dividends so will pay less income tax"
Well that's not avoidance, evasion, clever tax planning or anything else then, is it? Not by your standards, my standards or by Labour's standards.
Unless of course you can point me to where Labour said "We will tax people as if they were earning more than they are and were structuring everything in a really stupid way"
Post a Comment