Buried on page 79 of the Budget document today (page 78 of the PDF) is a fascinating paragraph, 2.207. Next year, it says, “the Government will introduce a package of measures to tackle [tax] avoidance through the use of personal service companies. This will include… requiring officeholders/ controlling persons who are integral to the running of an organisation to have PAYE [income tax] and National Insurance contributions deducted at source by the organisation by which they are engaged.” My italics.
What this could mean, in other words, is that the tax avoidance method which Ken Livingstone and others have used is going to be closed. Ken, famously, has his six-figure income from the likes of LBC, Iran’s Press TV and after-dinner speaking paid not to him directly but to a personal service company, Silveta, of which he and his wife are the sole directors and shareholders. This allows him to pay corporation tax at the small company rate of 20% rather than income tax at up to 50%. He has to pay income tax when he takes money out of the company, but at a reduced rate, and escapes NI altogether. He can also save huge amounts by splitting his income with his wife, as joint shareholder, even though it was earned entirely by him. He has also admitted using the company to spread income earned in one year over several years to avoid higher-rate tax, not something that us PAYE wage slaves can do.
From next year, if I read this correctly, it looks like LBC, the Iranians and the rest could have to take income tax and NI off before they pay Ken’s company, thus completely obviating its purpose. The accountant and tax avoidance campaigner Richard Murphy, to whom I pointed this paragraph out today, describes it as a “potentially enormous change” with huge implications for small business which will see a “massive shift” away from personal companies to self-employment.
There is still some ambiguity in this paragraph – which appears to be the only statement the Government has made on this subject today, though a consultation exercise is promised. The key vagueness lies in the phrase “integral to the running of an organisation.” This might simply mean those, like the head of the Student Loans Company, who channel through a company their income from what is effectively an employment relationship with a single organisation and not those, like Ken, who have a range of clients. But the word “organisation” could mean the service company itself.
With its usual Olympic-class hypocrisy, the Ken campaign has today been lashing Boris Johnson as a “campaigner for the 1 per cent” on account of his opposition to the 50p tax rate. In an interesting acknowledgment of Ken’s vulnerability, they used David Lammy MP for the attack, not Livingstone. But David Cameron nailed it rather well at PMQs when he said that “The difference between Boris and Ken is that Boris pays his taxes, and Ken doesn’t.”
Ironically, for all Labour’s attacks, the Budget may have nailed a genuine member of the tax-avoiding 1 per cent – Ken Livingstone himself. Perhaps the Government might even have moved because of the publicity about Ken. Perhaps for the first time in his life, Ken has done the ordinary taxpayer a favour.