Ken Livingstone on tax avoidance: everyone in my position does it

Ken takes a call from his accountant

Ken looked distinctly uncomfortable on the BBC’s Andrew Marr show this morning after my revelation in today’s paper that he has channelled a further £238,646 of personal earnings through his tax-avoidance vehicle, Silveta Ltd. The figure, from Silveta’s 2010/11 accounts – published on Friday at Companies House – takes the total amount Ken has channelled through this route to £755,778 in three years. Talk about bringing down the system from the inside, Ken! After I first revealed it two weeks ago, the arrangement has been causing increasing disquiet, public and private, among his supporters, some of whom have urged him to pay back the money he has saved.

Livingstone’s defence today was that putting his earnings through a company – paying 20 per cent corporation tax instead of up to 59 per cent income tax and National Insurance – was something that “everybody else who has a small business” did, and to suggest otherwise was a “smear campaign.” But Ken isn’t really a “small business” – he’s a sole trader, or freelance. And most freelances and sole traders declare their earnings on a tax return and pay income tax in the normal way. That, indeed, is the main purpose of tax returns.

Nor, of course, have most other small businessmen, genuine or not, denounced tax avoiders as “rich bastards” who should “not be allowed to vote.”

Ken also claimed that “at the end of the day I end up paying the same amount of tax as I would do if I’d taken the money out myself in income tax.” This is again false. Ken has piled up significant amounts of cash in Silveta, something he himself described as a “tax avoidance option.” It is true that if Ken did take money out of the company, as dividends, he would have to pay income tax on it. But he would still make substantial savings. Income tax is levied at a substantially lower rate on company dividends (effectively 25% for higher-rate taxpayers) than on employment income.  Ken doesn’t have to pay National Insurance at all, which is normally levied at up to 9 per cent on the self-employed until the end of the tax year in which their 65th birthday falls – 2010/11, in Ken’s case.

He can split his earnings 50-50 with his wife, who owns half of Silveta, even though they were earned entirely by him, benefiting from the fact that, as a basic-rate taxpayer, she pays no tax at all on company dividends. He could potentially channel the company’s funds into pensions or pay himself “interest-free loans”from it.

Most of all, he can set potentially vast “company expenses” against Silveta’s profits to massively reduce his tax liability. Ken said today that as well as paying his wife as a “company expense,” he had used untaxed company funds to pay staff for his mayoral campaign. He had, he said a “talented economist to sit down and spend a lot of time going over the [City Hall] books. I’ve got people handling the media. I employ at the moment two people.”

As Guido Fawkes has pointed out, this could constitute a registrable donation to his campaign which Ken appears not to have registered. But there is something potentially even worse for Ken. Under the rules, any expenses a company sets against profits for tax purposes have to be “wholly, exclusively and necessarily” incurred for the purposes of the company. As Ken himself has said, the purpose of Silveta is to handle his earnings from speechmaking, broadcasting and so on – not to support his re-election campaign.

Is Ken abusing the rules on company expenses and effectively getting the taxpayer to subsidise his campaign team? That would be pretty serious, don’t you think?

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s