Today – kicking and screaming, hours behind all the other candidates, initially trying to “wriggle out” of it – Ken (drum roll) published some figures on his tax. Unlike all the other candidates, who have disclosed their earnings and tax in full, Livingstone’s numbers raise rather more questions than answers. His reluctance is incredibly telling. This might just be his 2012 “Lee Jasper moment,” a turning-point in the campaign, the equivalent of that day in March 2008 when leaked “honey-glaze” emails claimed the scalp of the then Mayor Ken’s sleazy race adviser.
All afternoon, there’s been a Twitterspat over what tax rate the figures show Ken paid – 36 per cent, claims the New Statesman; 14.5 per cent, say others, less than a City Hall cleaner. The first figure is clearly absurd – even in the first year he’s given us, 2007/8, when he was taxed (as Mayor) under PAYE, he didn’t pay that much. The second is closer, but probably wrong, too.
We can’t in fact say exactly what tax rate Ken has paid – he hasn’t given us enough information – but what we can say is that since losing the mayoralty he has paid a substantially lower rate than any of his rivals, and a substantially lower rate than the vast majority of ordinary Londoners whose votes he’s seeking.
What the advocates of 14.5% forget is that Ken has (I hope) paid at least 21 per cent in corporation tax on his earnings – or at least, on that part of his earnings which he hasn’t set as “expenses” against tax. That’s the whole point of channelling everything he makes through a personal service company, Silveta, rather than paying income tax (up to 50%) on it in the normal way.
He does also pay further (income) tax when he takes money out of Silveta in dividends, but at a much lower rate than normal – effectively 25% – and he avoids National Insurance (up to 9%) altogether. He can split his earnings with his wife (a 50% shareholder in Silveta), even though the money was earned entirely by him, saving yet further tax. And as he’s already admitted, he’s also held a large sum of money earned in one year as a cash pile in the company, taking it out as dividends in smaller chunks over several years to avoid higher-rate tax.
I cannot make head or tail of the figures given by Ken today for how much tax he has paid. There is one column for “corporation tax paid on dividends.” But there is no corporation tax on dividends. Maybe he means income tax, which is payable on dividends? But the figures shown are less than the income tax that would be due on the dividends Ken shows.
There is another column simply headed “income tax paid.” In some years, again incomprehensibly, this is as much as five times more than the amount of actual employment income he declares! I’ve simply ignored these no doubt deliberate attempts to muddy the waters and used the full range of information in the public domain instead.
The key to knowing Ken’s effective tax rate is four things: how much he has earned; how much he has charged in tax-deductible expenses; how much he has taken out of the company in dividends; and how much his wife has taken out of the company in dividends. The figures he’s published are completely unhelpful and/or untruthful on three of these four things.
Ken claimed today, for instance, that he earned only £21,645 from employment in 2008/9, the first year after he lost the mayoralty. However, the Silveta accounts, published at Companies House, show it received a total of £232,550 – all from Ken’s employment – in 2008/9. Because this was the first year of the company, we can be sure that all this was money earned from Ken’s employment, not carried over from previous years.
Over the three years 2008/9 to 2010/11, the accounts show that a total of £755,776 passed through the company. This is described in the accounts as the “amounts invoiced during the period, exclusive of VAT.”
Corporation tax on this sum (21% at the time) would have amounted to £158,712, assuming that Ken set no expenses at all against his taxable earnings. In fact, as he has himself said, he has set substantial expenses against his earnings – including two staff to work on his election campaign, not an allowable expense. His figures today provide no information on how much he claimed in expenses. But the two staff alone were registered at the Electoral Commission as a non-cash donation from Silveta to the Labour Party worth £19,200 in a single quarter – potentially £77,000 a year.
The key admission in today’s figures is how much Ken has taken out of Silveta in dividends – a total of £125,555 in the three years. He would have effectively paid a further 25% in tax on this sum – a total of £31,388. Ken is again silent today on how much Mrs Livingstone took in dividends but I’m assuming that it’s exactly the same amount as him – a reasonable assumption, given that she is an equal shareholder in the company. As a basic-rate taxpayer, she would have paid nothing in tax on those dividends – effectively a £31k saving for him.
If Ken had claimed no expenses, his tax on his earnings of £755k would therefore have been £190,100 – 25 per cent. His actual tax will be lower because of the expenses, of course. If the campaign staff, for instance, were employed for the whole of the 2010/11 tax year (they may well not have been, to be fair) and set against income they alone would have brought his tax bill down by £16,170 and his tax rate down to 23 per cent.
My best guess, then, is that Ken’s effective tax rate is somewhere in the low to mid twenties – little more than half that paid by Boris Johnson. If the expenses are really huge, it could indeed be down towards the teens. I will continue to press for further and better particulars.