Ken, scourge of “rich bastard” tax avoiders, believer that “everybody should pay tax at the same rate on their earnings and all other income,” was pressed on the BBC tonight about my story that he avoided at least £50,000 in tax in 2009 alone by channelling his earnings (£232,000 that year) through a personal company, Silveta Ltd, with himself and his wife as the sole shareholders.
Under this arrangement, he paid corporation tax (20-21%) on the £232k instead of income tax (40% at the time). Ken claimed to the BBC today that he was “not avoiding tax” because he paid further tax on any money that he drew out from the company. However, this statement has been contradicted from Ken’s own lips.
Ken has been accused of tax avoidance in the past. In 2000, before first being elected mayor, he channelled his non-parliamentary earnings through a company called Localaction. There, too, he paid corporation tax, rather than income tax, on it. His defence at the time was much the same – he’d paid further amounts in income tax on what he drew out of the company.
“It is only a tax avoidance option provided you’re not drawing the money out,” he said (Sunday Times, 23 January 2000.)
This “tax avoidance option” is, in fact, precisely what Ken is doing now. In 2009 and 2010, the only years for which Silveta’s accounts are available, he has drawn out little, if any, money from the company. By June 2010, the last date for which figures are available, he had piled up a cash mountain in the company of £320,000.
By the way, Ken’s claim that he is not avoiding tax if he draws money out of the company is not true, either. You do indeed have to pay income tax on company dividends – but at a far lower rate than normal. National insurance (effectively another form of income tax, levied at up to 12% on the rest of us) is not payable at all. So even if you add the corporation tax and the dividend income tax together, you are still paying quite a lot less than some poor sap (such as myself or, well, most people) who is on PAYE, or a freelance who submits a tax return for his earnings in the normal way.
All that is even before Ken’s ability to split his company’s dividend 50-50 between himself and his wife, as joint owner of Silveta, even though all its money was earned by him. He can use Mrs L’s tax allowances and her status as a basic-rate taxpayer to make yet further lovely savings!
And in yet another money-saver, it appears that Ken has been paying his wife – from company funds – to act as his PA and ammanuensis for his autobiography. “I don’t think anyone pays tax on the money they pay other people to work for them,” he claimed today. That’s a typically slippery formulation, if I may say so, Ken. When I pay, say, my cleaner, or plumber, I do so from income on which I have already paid my full share of tax. When you pay Mrs L, it sounds like you are paying her from untaxed (or partially taxed) income, treating her services as “company expenses” and setting them against tax, further reducing your already shrunken bills.
As several of my commenters have said, I hope UK Uncut’s reading all this. Some form of direct action against this particular tax-avoiding member of the “1 per cent” would seem due.