Westminster Accounts: Lib Dem leader and ex-cabinet minister among MPs ‘avoiding taxes’ on second jobs
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.
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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”.
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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.
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‘Ban MPs from working second jobs’
‘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.
Ukrainian soldiers encircled by Russian forces in the key eastern city of Pokrovsk have started surrendering, the defence ministry in Moscow claims.
But Ukraine‘s military has pushed back on the report by the TASS state news agency, saying the situation is “difficult and dynamic”.
Kyiv has also claimed its positions in some districts of Pokrovsk have improved despite its city being infiltrated by Russian troops.
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Ukraine is increasing its number of assault troops in the area, the 7th Rapid Response Corps said on Facebook.
And Ukrainian troops are also working to cut Moscow’s military logistics routes, it added.
The Russian defence ministry also said its forces defeated a team of Ukrainian special forces that headed to Pokrovsk in a bid to prevent Russian forces from advancing further into the city.
‘Footage of Ukrainian troops after surrendering’
It later posted videos of two Ukrainian troops who, it claimed, had surrendered.
The footage showed the men, one dressed in fatigues and the other in a dark green jacket, sat against a wall in a dark room, as they spoke of fierce fighting and encirclement by Russian forces.
The videos’ authenticity could not be independently verified, and there was no immediate public comment from Kyiv on the Russian ministry’s claims.
Ukrainian police officers on patrol in Pokrovsk. File pic: Reuters
Ukraine’s President Volodymyr Zelenskyy has previously acknowledged that some Russian units had infiltrated the city. But he maintained that Ukraine is tackling them.
He said Russia had deployed 170,000 troops in Ukraine’s eastern Donetsk province, where Pokrovsk is located, in a major offensive to capture the city and claim a big battlefield victory.
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‘Operation to destroy enemy forces’
Ukraine’s army chief Oleksandr Syrskyi said on Saturday the situation in Pokrovsk remained “hardest” for Ukrainian forces, who were trying to push Russian troops out.
But he insisted there was no encirclement or blockade as Moscow has claimed.
“A comprehensive operation to destroy and push out enemy forces from Pokrovsk is ongoing. The main burden lies on the shoulders of the units of the armed forces of Ukraine, particularly UAV operators and assault units,” Mr Syrskyi said.
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Why is Pokrovsk important?
One of Moscow’s key aims has been to take all of Ukraine’s industrial heartland of coal-rich Donbas, which comprises of the Luhansk and Donetsk provinces. Kyiv still controls about 10% of Donbas.
Capturing Pokrovsk, which Russian media has dubbed “the gateway to Donetsk”, and Kostiantynivka to its northeast, would give Moscow a platform to drive north towards the two biggest remaining Ukrainian-controlled cities in Donetsk – Kramatorsk and Sloviansk.
‘Key Russian fuel pipeline struck’
Meanwhile, Ukraine’s military intelligence, known as HUR, has said its forces have hit an important fuel pipeline in the Moscow region that supplies the Russian army.
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Dramatic drone rescue in Ukraine’s kill zone
In a statement on Telegram, HUR said the operation late on Friday was a “serious blow” to Russia’s military logistics.
HUR said its forces struck the Koltsevoy pipeline, which is 250 miles long and supplies the Russian army with gasoline, diesel and jet fuel from refineries in Ryazan, Nizhny Novgorod and Moscow.
The operation, which targeted infrastructure near Ramensky district, destroyed all three fuel lines, HUR said.
The pipeline was capable of transporting up to three million tonnes of jet fuel, 2.8 million tonnes of diesel and 1.6 million tonnes of gasoline annually, HUR said.
Russia ‘targets gas production site’
Also overnight, Russia launched an attack on a gas production site in Poltava, in central Ukraine.
A fire broke out, the local administration said, but no injuries were reported.
Kyiv condemns ‘nuclear terrorism’
Ukraine’s foreign ministry has condemned Russian strikes this week on substations powering some of its nuclear plants.
It accused Russia of carrying out “targeted strikes on such substations” which “bear the hallmarks of nuclear terrorism”.
Elsewhere, a civilian died and 15 more were injured on Saturday morning after Russia struck the Mykolaiv region in southern Ukraine with a ballistic Iskander missile, local official Vitaliy Kim said.
A child was among those hurt in the strike, he added.
World
‘We have no food, no water… it feels like the wilderness’: The communities shredded and still stranded by Hurricane Melissa
The death toll in Jamaica after Hurricane Melissa could rise, with certain communities still marooned from the rest of the island, according to the police chief for the worst-affected area.
Coleridge Minto, superintendent of police for St Elizabeth Parish, told Sky News that his area has recorded six deaths directly related to the hurricane.
“We are hoping there is no more,” he said. “The reality is we have not yet communicated with all our station commanders in some of the other areas and so as soon as we have those reports, we could be hearing of other injuries, other situations that we were not privy to at this moment.”
The UK has pledged a total of £7.5m to assist the Caribbean’s recovery from the hurricane. Aid flights have been arriving over the past couple of days into Jamaica’s two international airports, but it’s not getting to where they need it the most.
Black River has been described as ground zero after Hurricane Melissa swept through it
In the town of Middle Quarters, close to where the hurricane made landfall, Vivienne Bennett is sitting, propped up against a house without a roof. Her right hand is wrapped in a kitchen towel. “I lost my finger in the hurricane,” she says, showing me her finger which is exposed to the bone. “I opened the door of my house to try and escape, and the wind slammed it back and cut my finger off.”
She asks me for painkillers and says she doesn’t have any medication to stave off infection. I ask if she has seen any government aid. “No,” she replies, “we haven’t seen anybody yet, so we’re trying to get some help. I need to get to a hospital but I don’t know how because all the roads are blocked.”
The situation is growing more dire by the day
Her daughter, Leila, has a baby and other children are playing nearby. “We have no nappies, we have no food, we have no water,” Leila says, “it feels like the wilderness here now.”
The road leading to Black River, the town authorities are referring to as “ground zero” for this disaster, is difficult to pass, but not impossible. A journey from the capital, Kingston, that would usually take two hours, now takes six. We drive through murky floodwater, a couple of feet deep, and through an avenue of twisted bamboo stalks.
On arrival, it’s a desperate scene. People here seem almost shell-shocked, still processing what has happened to them, unsure what to do next. One man walks past our cameraman and holds his hands in the air. “Jamaica needs help,” he says, “it’s been mashed up.” I ask what help he needs. “We need houses, food and water,” he replies.
Black River was once a wealthy town, the first in Jamaica to have electricity. But the storm has laid waste to the main street. The 300-year-old church, the seafront restaurant, the pharmacy, the Chinese supermarket, the whole town has been shredded.
A group of people sit at a bus stop on the seafront surrounded by huge rocks washed up by a 16-foot storm surge. “It’s a disaster, a disaster,” one woman calls out to me.
With communications still down across most of the island, people here have been unable to contact friends and family for five days now.
Black River has been described as ground zero after Hurricane Melissa swept through it
A woman called Inkiru Bernard, who is Jamaican but lives in New York, has been in touch with our team and asked us to try to find her 67-year-old mother, who lives in Black River. She’s not heard from her since the storm.
When we arrive at the address she provides, her mother, Inez McRae, is sitting on the porch. She shows me around what remains of the house where she weathers the storm. The roof is entirely gone, everything is sodden and thick with mud.
“But I’m alive,” she says, “I’ve been spared.” When Inkiru finally sees her mother on a video call, she cries with relief. “Oh mummy,” she says, “I’ve been so worried.”
Ms McRae is thankful of having ‘been spared’
Tanks have been positioned on the main street in Black River and soldiers patrol it after shops and businesses were looted.
The police chief for this area, Coleridge Minto, says he understands the desperation but is urging people to be patient.
“We can appreciate that persons are trying to grab things,” he says, “persons are devastated, but we want to ensure that we maintain law.”
Army helicopters were flying over the disaster zone and some aid is now arriving into Black River. But with other villages still largely cut off from the rest of the island, this situation is growing more dire by the day.
Driving through western Jamaica, it’s staggering how wide Hurricane Melissa’s field of destruction is.
Town after town, miles apart, where trees have been uprooted and roofs peeled back.
Some homes are now just a pile of rubble, and we still don’t know how deadly this storm has been, although authorities warn the death toll will likely rise.
A total of 49 people have died in Melissa’s charge across the Caribbean – 19 in Jamaica alone.
Roads are still flooded in Jamaica
The storm has blown over telephone poles, which are blocking the roads
My team and I headed from Kingston airport, towards where the hurricane made landfall, referred to as “ground zero” of this crisis.
On the way, it’s clear that so many communities here have been brought to their knees and so many people are desperate for help.
We drive under a snarl of mangled power lines and over huge piles of rocks before reaching the town of Lacovia in Saint Elizabeth Parish.
The hurricane stripped the entire roof off this church
Many children live in homes with caved-in roofs
At the side of the road, beside a battered and sodden primary school, a woman wearing a red shirt and black tracksuit bottoms holds a handwritten sign in the direction of passing cars.
“Help needed at this shelter,” it says. The woman’s name is Sheree McLeod, and she is an admin assistant at the school.
She is in charge of a makeshift shelter in the school, a temporary home for at least 16 people between the ages of 14 and 86.
I stop and ask what she needs and almost immediately she begins to cry.
The primary school that has been housing those with no other place to stay
‘No emergency teams’
“I’ve never seen this in my entire life,” she says. “It’s heartbreaking, I never thought in a million years that I would be in the situation trying to get help and with literally no communication.
“We can’t reach any officials, there are no emergency teams. I’m hoping and praying that help can reach us soon.
“The task of a shelter manager is voluntary and the most I can do is just ask for help in whatever way possible.”
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Before and after images show hurricane’s destruction
What we know from the ground following the devastation
Sheree McLeod pleads for help for those sheltering at the school
At least 16 people currently live at the school, which is being used as a temporary shelter
Sheree shows me the classroom where she and 15 other people rode out the hurricane which she says hung over the town for hours.
They had just a sheet of tarpaulin against the window shutters to try to repel gusts of more than 170mph and a deluge of rain.
They took a white board off the wall to try to get more shelter.
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Hurricane Melissa was ‘traumatising’
“It was very terrible,” Sheree says. “We were given eight blankets for the shelter and that was it, but there were 16 people.
“Now all their clothes and blankets that they were provided with got damaged. Some people are sleeping in chairs and on wooden desks.”
Her plea for help is echoed across this part of Jamaica.
Toppled-over chairs and rubbish line a classroom in the school
The water tank at the school has run out
As we’re filming a pile of wooden slats that used to be a house, a passing motorcyclist shouts: “Send help, Jamaica needs help now.”
The relief effort is intensifying. After I leave Sheree, a convoy of army vehicles speed past in the direction of Black River, the town at the epicentre of this disaster.
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Diggers work to clear debris from the road late into the night. Ambulance sirens also grow more regular as the day goes on.
Help is coming and for many here, it can’t come soon enough.
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