Ken Livingstone will need a better defence against HMRC investigation than this

Ken’s tax troubles – unlike his tax bill – continue to grow. As we report today, the legendary progressive was taken to court twice in the 1990s for non-payment of taxes and now faces a new HMRC investigation into his “exotic” (Nick Clegg) current tax arrangements. KenCo has been setting his election expenses against tax, effectively getting the taxpayer to subsidise his campaign. This, not surprisingly, is against the rules.

In a fascinating sign of the panic the story is causing in Camp Ken, their first action when I put it to them yesterday was to leak a “pre-buttal” to Sunny Hundal, the sole blogger still bravely left on the burning deck of Ken’s tax arrangements. Give that man a (posthumous) VC! KenCo claims, through Sunny, that since he hasn’t filed his 2011/12 accounts yet, he can’t be accused of setting disallowable expenses against tax. Let me point out, as gently as I can, that Ken’s official campaign started in September 2010, within the scope of the accounts he has filed. And that Ken has at least three times  in the last week alone (here, here and here) explicitly admitted setting campaign expenses against tax.

Sunny also accuses me of making up a figure of £775,778 for Ken’s total earnings. I live in hope that he will actually look at the accounts at some point.  If he does, he will find a line each year saying that “the turnover shown in the profit and loss account represents amounts invoiced during the period,” ie the year. The £775k figure was produced by adding together these “amounts invoiced.”

Sunny’s also claimed that I’ve been “lifting out-of-context quotes posted by the [tax avoidance campaigner] Richard Murphy on [his] blog” in the story. Richard’s quotes in the story aren’t in fact the same as those he posted, and aren’t out of context – for the simple reason that I didn’t lift them from anywhere; he actually gave them to me over the phone when we spoke on Friday. I’ve also been attacked for citing a figure for tax avoided – a highly conservative £50k – which has been accepted even by Ken himself.

The transparent dishonesty and desperation of these attempts to attack the story will surely have the opposite effect to that which KenCo intends. It is all starting to remind me of the Lee Jasper affair, when instead of dealing with the issue Ken took refuge in denial and smearing the messengers.

Here’s the letter from Matthew Elliott of the TaxPayers’ Alliance that has gone to HMRC:

I write to request that HMRC conduct an investigation into whether Mr Ken Livingstone, through his company Silveta Ltd, has been setting disallowable expenses against tax.

HMRC rules state that to be set against tax, company expenses must be “wholly and exclusively incurred for the purposes of the trade.”

In response to publicity about his channelling his earnings through Silveta, Mr Livingstone has stated that he has employed three people, two of whom remain currently employed.  Mr Livingstone has made clear that he treats these expenditures as allowable expenses. On BBC London’s Vanessa Feltz show on Friday, 16 March, he said:

“I’ve formed a company, and you have company expenses, travel, research and you employ people. And I’ve employed three people at different times over this last four years. And after you’ve had all those expenses, then the money you pay yourself I’ve paid tax on.”

One of the people he employed, he made clear, was an economist to work on his re-election campaign. He said: “Literally you can’t, if you’re running for mayor, off the top of your head come and say I’m going to cut the fares – you need to employ someone to go through their [TfL’s] books. I got a really well-established economist who’d worked in the public and private sectors, who spent a long time ploughing through – imagine the size of the accounts of TfL – who cam back and said, yes you can make a fares cut. It takes time to do that and you need to employ people to do it.”

In an interview on BBC Radio Five Live, Pienaar’s Politics, on Sunday, February 26, Mr Livingstone said: “The other thing is I’ve used that [company money] to pay for people to work on the campaign for mayor.”

In an interview on the Andrew Marr show, BBC One, on Sunday, March 11, Mr Livingstone said: “I employ people. I mean that fare scheme we’ve come up with, it took someone, a talented economist, to sit down and spend a lot of time going over the books. I’ve got people handling the media. I employ at the moment two people.”

Mr Livingstone has declared to the Electoral Commission a donation to the Labour Party of staff time worth just over £19,000. His campaign states that this is for three months’ work of two staff. This implies that the staff were paid a total of £76,000 on a full-year basis.

It is my belief that the employment of an economist to come up with policies for Mr Livingstone’s re-election campaign and the employment of “people handling the media” for the campaign cannot be expenses incurred “wholly and exclusively” for the purposes of Silveta’s trade.

HMRC rules are clear that the purpose of the company is a matter of fact, determined by the revenues it raises and the objects set out in the Articles of Association. Silveta Ltd’s Articles of Association state that the Company’s objects are:

(a)     (i) To carry on business as a general commercial company.

(ii) To carry on any trade or business whatsoever and to do all such things as are incidental or conducive to the carrying on of any trade or business by it.

(iii) To undertake all or any of the following objects.

None of the following objects (b)-(z) specify political campaigning, the promotion of candidates, or anything related to the London Mayoralty or tube fares. Nor, clearly, can a political campaign be defined as a trade or business. [NB: he has since amended object (a) but still without any mention of political campaigning, the promotion of candidates, or anything related to the London Mayoralty or Tube fares.]

Silveta Ltd’s purpose is, as Mr Livingstone has stated, to handle his own personal earnings from “after-dinner speaking, TV stuff and all that” and not to further his re-election campaign. There is no evidence that Silveta Ltd received any revenues from its analysis of City Hall’s books, or the promotion of Mr Livingstone as mayor.

It appears clear to me that the salaries of a media assistant and an economist/policy adviser are not allowable expenses under HMRC rules.

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