Westminster Accounts: Lib Dem leader and ex-cabinet minister among MPs ‘avoiding taxes’ on second jobs

Published

2 years ago

January 12, 2023

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Two dozen MPs since 2016 have been paid for second jobs through personal service companies they have set up, a Sky News investigation has found.

It means these MPs can exploit the fact that tax rates on companies differ from those on employment, enabling them to reduce their tax bills on second jobs.

This practice is legal and common in certain industries, but some MPs appear to have taken further steps to reduce their taxes on non-parliamentary earnings.

Lib Dem leader Sir Ed Davey is one of 12 MPs to have received earnings from second jobs via companies owned partly or solely by their spouse, an arrangement accounting experts have said is often used to reduce taxes.

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Sir Ed and his wife also appear to have taken advantage of a loophole that allows reduced tax rates to be paid on money taken out of a company when it’s closed. More than £100,000 was sitting on the balance sheet of the company through which Sir Ed received payment for five second jobs held between 2017 and 2022, before the company was liquidated earlier this year.

Ex-cabinet minister Ranil Jayawardena, another to receive earnings from second jobs via a company owned with his wife, claims to have been doing two separate roles with the same company at the same time between 2017 and 2020 – an arrangement that may have afforded him further tax benefits.

Sky News spoke to more than half a dozen tax and accounting experts who confirmed that, while all payments are likely lawful, MPs can use these methods to reduce taxes on their earnings from second jobs.

Use of personal service companies enables taxes to be minimised

By setting up companies through which they offer their consultancy services – known as personal service companies – MPs pay corporation tax and dividend taxes on their non-parliamentary work, rather than income taxes, as they do on their MP salary.

In receiving money this way, some MPs can reduce their tax rate by around 5% on their additional jobs, depending on how much they’re earning.

But using these companies enables additional ways through which taxes can be minimised.

Giving spouses or other family members a salary or shares in the MP’s business can further reduce tax bills. If the family member is a basic rate taxpayer, they would pay tax rates almost four times lower on dividends received from the company than an MP, who are higher rate taxpayers.

Of the 24 MPs using these companies, 12 list a family member as a shareholder or director.

But perhaps the biggest tax benefit when using a personal service company comes when earnings from second jobs are built up in the company before it is closed down and liquidated.

Under these circumstances, tax rates on additional earnings for MPs – who pay 40% tax on the upper end of their £84,144 MP salary – can be as low as the 10% capital gains tax rate paid on assets when a company is closed.

Three MPs have liquidated companies through which they were receiving their second earnings and two of these – Sir Ed Davey and Robert Butler – had significant amounts of cash on the balance sheet when the companies were closed.

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Energy Destinations Ltd, the company Sir Ed’s earnings were paid into, was closed in June this year with £103,717 of assets distributed upon its liquidation. The company was previously transferred from Mr Davey to his wife in 2017, but he continued to receive more than £350,000 in payments from second jobs into the company until earlier this year.

‘It’s perfectly legal, but is it fair?’

HMRC introduced rules in 2016 to stop the practice of opening and closing companies as a means of obtaining relief.

The tax break can still be used however as long as the business owner doesn’t open a new company within two years doing similar work.

Ian Dickinson, tax director of UHY Hacker Young, said of people taking active steps in this way to reduce taxes on their work:

“It’s within that parameter of tax avoidance, which is perfectly legal, but is it fair?

“If you’ve got people exploiting the rules trying to pay as little as possible, using convoluted structures, that are well known but beyond the remit of the normal person, it just doesn’t sit right.”

Experts have criticised the wider system that encourages these arrangements. Judith Freedman, emeritus professor of taxation law and policy at the University of Oxford said: “We have a poorly designed tax system. We should be taxing people operating through different legal forms in far more similar ways.

“There’s the fact that you can convert your labour income into capital. That’s a problem. There’s the fact that you can income split. That’s a problem. And there’s the fact that you don’t pay any national insurance on dividends. That’s a problem”.

MPs run the risk of breaking the rules

A spokesperson for Sir Ed said: “All of Ed’s business was entirely in keeping with the rules, and he has been fully transparent about it.

“Money that his wife earned also went into the company. All capital gains tax due on the proceeds will be paid.”

People close to Sir Ed were also keen to point out that the Liberal Democrat leader’s earnings helped fund care for his disabled son.

While the use of personal service companies to manage second-job earnings is legal, there is one area where tax experts have told Sky News that some MPs could be running the risk of breaking rules.

It relates to whether MPs’ second jobs are considered consultancy roles or whether they are deemed employment by a company. If the latter, additional taxes are likely due when receiving earnings through their own companies.

Three MPs – Mark Pritchard, Ranil Jayawardena, and Ed Davey – have taken on jobs that HMRC considers employment – non-executive directorships – while still receiving fees for these jobs through their companies.

It is possible to make a voluntary declaration to HMRC to ensure the correct taxes are paid on these jobs, but experts said that people typically rarely do so when receiving fees via a company. In these circumstances the company is an “unnecessary structure”, according to employment status expert Rebecca Seeley-Harris, although there is no evidence to suggest these three MPs have not made the required voluntary declaration.

‘A dangerous operation’

Former environment secretary Mr Jayawardena had a particularly unusual arrangement, where he appears to have done two different jobs for the same company at the same time between 2017 and 2020.

His personal service company received share options valued at £20,000 per year from pharmaceutical company PepTCell Ltd in return for providing “a non-executive director for approximately four days a year”, according to his entry in the register of members’ financial interests. Companies House filings confirm Mr Jayawardena was a director of PepTCell.

But Mr Jayawardena also declared a second role as a strategic consultant with PepTCell at the same time, with his own company again receiving share options valued at £20,000 in return for four days work per year.

Ms Seeley-Harris noted that an arrangement like this would need to have clear delineations to ensure there weren’t tax issues, but that the nature of the two roles made this difficult.

“If you’re both a consultant and a non-executive director (NED), the consultant work has to be an entirely different piece of work. So you can’t give strategic advice to a company that you’re a non-executive director of, where your job as an NED is to give strategic advice.

“I’m surprised in this day and age that the accountants aren’t advising them that they can’t do that, it’s such a dangerous operation.”

Mr Jayawardena didn’t respond when asked for comment by Sky News.

UK

Mpox: More cases of new Clade 1b strain detected in UK

Published

7 hours ago

November 4, 2024

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Mpox: More cases of new Clade 1b strain detected in UK

More cases of a new strain of mpox have been detected in the UK, officials say.

Last week, the UK Health Security Agency (UKHSA) said a single case of the mpox virus variant Clade 1b had been confirmed in London.

The agency has now announced a further two cases have been detected.

The two patients are household contacts of the first and are currently under specialist care at Guy’s and St Thomas’ NHS Foundation Trust in London, it added.

“The risk to the UK population remains low,” the UKHSA said.

“There has been extensive planning under way to ensure healthcare professionals are equipped and prepared to respond to any further confirmed cases.”

The UKHSA’s chief medical adviser, Professor Susan Hopkins, said: “Mpox is very infectious in households with close contact and so it is not unexpected to see further cases within the same household.

“The overall risk to the UK population remains low. We are working with partners to make sure all contacts of the cases are identified and contacted to reduce the risk of further spread.”

The first case detected in London last week was a person who had been on holiday in Africa.

They developed flu-like symptoms more than 24 hours after returning to the UK and later developed a rash which worsened in the following days.

The agency said contacts of all three cases are being followed up on and would be offered testing and vaccination as needed.

What are the symptoms of mpox and how is it passed on?

Common symptoms of the disease include a skin rash or pus-filled lesions, which can last between two to four weeks. It can also cause fever, headaches, muscle aches, back pain, low energy and swollen lymph nodes.

Mpox, and the Clade 1b strain, is usually passed on by close physical contact, contact with infected animals, or sexual transmission.

The UK has a stock of mpox vaccines and last month announced more were being procured to support a routine immunisation programme.

UK

Valencia floods: British couple Don and Terry Turner found dead in their car after going missing

Published

10 hours ago

November 4, 2024

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Valencia floods: British couple Don and Terry Turner found dead in their car after going missing

A British couple have been found dead in Spain after being caught in the floods last week, their daughters have said.

At least 217 people have died after heavy rain in eastern Spain caused flash floods, with thousands of cars left wrecked in the streets and an unknown number still missing.

Ruth O’Loughlin and Renee Turner told Sky News their parents Don, 78, and 74-year-old Terry Turner, from Pedralba, about 20 miles (33km) west of central Valencia, went missing during the floods – only for their bodies to be found in their car days later.

An FCDO spokesperson said it is “supporting the family” and is “in contact with the local authorities”.

It comes as a red alert warning of “extreme danger” from torrential rain has been issued for Barcelona today, with 180mm of rain set to fall in 12 hours according to the national weather agency Aemet.

Speaking to Sky News, Ms O’Loughlin said she last spoke to her mother on Monday last week, and a day later saw her messages to Mr Turner were not delivering on WhatsApp.

After seeing reports of the floods, she tried to contact her father and again received no response, before her nephew rang on Thursday to say her parents were reported as missing.

Despite social media campaigning and calls to the British Consulate, Renee Turner said it was Saturday when they found out Mr and Mrs Turner had died.

“My sister and I both got a phone call to say that they’d been found in their car, and unfortunately they had died,” she said.

Ms O’Loughlin added: “We’d got told they’d nipped out for gas, as they do.

“Obviously, they weren’t aware of how bad the area was, and their friend said they were aware [the couple went out] as they used to talk all the time.

“And then they didn’t come home.”

Renee Turner insisted both Mr and Mrs Turner would have “without a doubt” heeded flood warnings, but told Sky News “there was no alert”.

“My parents would not have been out,” she added. “We are so angry at the slackness of the Spanish authorities in that respect.

“Not just our mum and dad [have died], there’s hundreds of people, hundreds, and they have to be held accountable for that.”

In their hometown of Burntwood, Staffordshire, Ms O’Loughlin said “everybody knows my mum and dad”. As kids, she recalled how people would come over when Ruth was baking.

She added that Mr Turner “was the clown – everyone loved Dad… he made our childhood absolutely wonderful,” before saying that when they moved to Spain, “everyone knew them there”.

Terry volunteered at a local dog rescue centre and adopted two kittens, Ms O’Loughlin said, which are currently being looked after by the couple’s friends in the area.

“We sort of knew [they were dead] because we knew that our mum would have done anything to get back to those pets,” Ms O’Loughlin added.

Both Renee Turner and Ms O’Loughlin had wanted to move their parents back to England, and the couple had been expected to return home permanently soon.

“We had plans,” Ms O’Loughlin said. “Mum was desperate to come back. She’s a shopper, she missed Morrisons.

“We were looking at maybe getting a bigger house and moving mum and dad in with us. We could keep our eye on them, we could make sure they were okay.

“The thought of that: My mum said to me that ‘that’s more than I could ever wish for’.”

Foreign Secretary David Lammy expressed the UK’s condolences on X, saying: “The UK government expresses its heartfelt condolences to those affected by the tragic floods across Spain – our thoughts are with those that have lost their lives, their families and all those affected. I have offered the UK’s full support to my friend @jmalbares.”

Meanwhile, the local government in Catalonia warned of “continuous and torrential” rain in two regions today, saying people should avoid travel and stay away from streams and ravines.

Authorities told those nearby the “extreme danger” warning issued for the Barcelona region: “Do not travel unless strictly necessary.”

Authorities have also suspended train services in northeast Catalonia on request from civil protection officials.

UK

University tuition fees to increase in England for first time in eight years

Published

10 hours ago

November 4, 2024

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University tuition fees to increase in England for first time in eight years

University tuition fees in England will increase for the first time in eight years, the education secretary has announced.

Fees have been frozen at an annual level of £9,250 since the 2017/18 academic year.

Education Secretary Bridget Phillipson said the maximum cap will now rise in line with inflation from April 2025.

That will increase the cost of tuition to £9,535 next year – a rise of £285.

Politics latest: Badenoch announcing shadow cabinet

Ms Phillipson also announced a rise in maximum maintenance loans so they will now increase in line with inflation, giving an increase of £414 a year to help students with living costs.

The education secretary tried to ward off any panic from students as she said: “I want to reassure students already at university when you start repaying your loan, you will not see higher monthly repayments as a result of these changes to fee and maintenance loans.

“That’s because student loans are not like consumer loans, monthly repayments depend on earnings, not simply the amount borrowed or interest rates – and the end of any long term, any outstanding loan balance, including interest built up, will be written off.”

She said the decision had not been easy but added: “It is no use keeping tuition fees down for future students if the universities are not there for them to attend, nor if students can’t afford to support themselves while they study.”

Sir Keir Starmer had pledged to abolish tuition fees when he stood to be Labour leader in 2020.

However, the prime minister rowed back on that promise early last year, saying it was no longer affordable because of the “different financial situation” the country was in, and he was choosing to prioritise the NHS.

He said Labour would set out a “fairer solution” for students if they won the election – which they did with a landslide in July.

The change comes as universities have been dealing with a funding crisis, largely driven by a huge drop in overseas students.

Rules brought in by Rishi Sunak’s government made it harder for international students, who pay higher fees than British ones, to bring their families with them to the UK.

Universities have been pleading for more investment, but Ms Phillipson said recently institutes should seek to manage their own budgets before hoping for a bailout from the taxpayer.

When she was in opposition, she also touted the idea of reducing the monthly repayments “for every single graduate” by changing how the loan is paid back.

Writing in The Times in June 2023, she said: “Reworking the present system gives scope for a month-on-month tax cut for graduates, putting money back in people’s pockets when they most need it.”

However, the idea did not make it into Labour’s 2024 manifesto, which only says that “the current higher education funding settlement does not work for the taxpayer, universities, staff, or students”.

It adds: “Labour will act to create a secure future for higher education and the opportunities it creates across the UK.”

Independent MP Zarah Sultana, who lost the Labour whip after rebelling over the two-child benefit cap, called the latest development “wrong”.

“It’s time to abolish tuition fees and cancel student debt because education is a public good, not a commodity,” she posted on X.

‘Maintenance loans bigger issue’

Money saving expert Martin Lewis earlier explained how higher fees will not necessarily lead to students facing higher yearly repayments, as that “solely depends on what you earn not on what you borrow”.

In a thread on X, he said a more damaging policy was the Tories’ decision last year to drop the salary threshold at which repayments must be made – from £27,000 to £25,000 – and increase the time to clear the loan before it is written off, from 30 to 40 years.

He said: “Increasing tuition fees will only see those who clear the loan in full over the 40yrs pay more. That is generally mid-high to higher earning university leavers only, so the cost of increasing them will generally be born by the more affluent.”

University fees of £1,000 per year were first introduced by the Labour government in 1998, going up to £3,000 in 2006.

The coalition government then tripled the amount to £9,000 in 2012, sparking a huge backlash, particularly against the Lib Dems who had vowed to scrap fees in the 2010 general election campaign.

Since then, there have been further changes to student finance such as the abolition of maintenance grants and NHS bursaries, moving student support increasingly away from non-repayable grants and towards loans.