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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SNP questions PM on Westminster Accounts
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.
World
‘Sixteen killed’ in strike on Gaza hospital as Israel says it hit ‘Hamas command centre below’
At least 16 people have been killed and 70 others were injured at a hospital in Gaza following an Israeli strike, according to the health ministry.
Nine missiles hit the European Hospital and its courtyard in the south of the Palestinian territory, officials said.
Israel said it had hit a “Hamas command centre” beneath the hospital in Khan Younis.
Hamas denies exploiting hospitals and civilian properties for military purposes.
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The scene after the European Hospital was partially damaged following Israeli airstrikes. Pic: Reuters
Earlier, a well-known Palestinian photojournalist died following a separate attack on the Nasser Hospital, also in Khan Younis, said the ministry.
Hassan Aslih had been accused by Israel of working with Hamas and was recovering from an earlier airstrike.
Aslih, who has hundreds of thousands of followers on social media, was said by the Israelis to have recorded and uploaded footage of “looting, arson and murder” during Hamas’s 7 October 2023 attack into Israel that triggered the war in Gaza.
Aslih was one of two patients who died in Tuesday’s strike on Nasser Hospital, said the health ministry. Several others were wounded.
Mourners carry the body of Palestinian journalist Hassan Aslih. Pic: Reuters
Dozens of people were being treated on the third floor of the hospital building, where the missiles struck, Reuters said, quoting Ahmed Siyyam, a member of Gaza’s emergency services.
The Israeli military said it “eliminated significant Hamas terrorists” in Nasser Hospital, among them Aslih, who it said had “operated under the guise of a journalist”.
Footage showed heavy damage to one of the hospital buildings, including to medical equipment and beds inside.
At least 160 journalists and media workers have been killed in Gaza since the start of the war, according to the International Federation of Journalists.
Gazan officials accuse Israel of deliberately targeting journalists. Israel denies this and says it tries to avoid harm to civilians.
Aslih, who headed the Alam24 news outlet and had previously worked with Western news outlets, was recovering after being wounded last month in a deadly strike on a tent in the Nasser Hospital compound.
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Meanwhile, President Trump has spoken on the phone to Edan Alexander after he was released by Hamas on Monday, as part of ongoing efforts to achieve a permanent ceasefire with Israel.
The 21-year-old was believed to be the last living American hostage in Gaza.
Some 1,200 people were killed and 251 taken hostage in the 7 October attack on southern Israel, according to Israeli figures.
Israel’s response has killed more than 52,000 Palestinians, according to local health officials, and destroyed much of the coastal territory. Gaza’s health ministry records do not distinguish between civilians and combatants.
An aid blockade since March has left the population at critical risk of famine, according to the World Health Organisation, which warned on Tuesday that hunger and malnutrition could have a lasting impact on “an entire generation”.
Donald Trump has said the US will lift long-standing sanctions on Syria and signed a $600bn (£450bn) deal with Saudi Arabia as he visited the nation as part of a tour of the Middle East.
The US president revealed the US plans to lift sanctions on Syria following talks with Saudi Arabia‘s Crown Prince Mohammed bin Salman and Turkish leader Recep Tayyip Erdogan.
Mr Trump was speaking at the US-Saudi investment conference during a four-day trip to the region.
Analysis: US-Saudi relationship feels tighter than ever as Trump signs flurry of deals
The comments follow Air Force One being escorted by Royal Saudi Air Force F-15s as it approached the kingdom’s capital, with Mr Trump welcomed by the crown prince, Saudi’s de facto ruler, as he stepped off the plane.
President Trump said the relationship between the were nations were “stronger and more powerful than ever before”, adding it would “remain that way”.
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‘Largest defence cooperation agreement’
Mr Trump and Prince Mohammed signed several agreements aimed at increasing cooperation between their governments, including a commitment to $600bn in new Saudi investment in the US – though Mr Trump said a trillion dollars (£750bn) would be even better.
The US also agreed to sell Saudi Arabia an arms package worth nearly $142bn (£107bn), which the White House called “the largest defence cooperation agreement” Washington has ever done.
Royal Saudi Air Force F-15s provide an honorary escort for Air Force One. Pic: AP
In his speech, President Trump also urged Iran to take a “new and a much better path” and make a new nuclear deal with the US.
Speaking at the conference, Mr Trump said he wants to avoid a conflict with Iran but warned of “maximum pressure” if his olive branch was rejected.
Pic: AP
“As I have shown repeatedly, I am willing to end past conflicts and forge new partnerships for a better and more stable world, even if our differences may be profound,” he said.
“If Iran’s leadership rejects this olive branch… we will have no choice but to inflict massive maximum pressure, drive Iranian oil exports to zero.”
He added: “Iran will never have a nuclear weapon. But with that said, Iran can have a much brighter future, but we’ll never allow America and its allies to be threatened with terrorism or nuclear attack. The choice is theirs to make.”
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Normalising relations with Syria
Mr Trump said he would ease US sanctions on Syria and move to normalise relations with its new government ahead of a meeting with its new leader Ahmad al Sharaa on Wednesday.
The Syrian president was formerly an insurgent who led the overthrow of former leader Bashar al Assad last year.
Mr Trump said he wants to give the country “a chance at peace” and added: “There is a new government that will hopefully succeed. I say good luck, Syria. Show us something special.”
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The US leader also said he hoped Saudi Arabia would soon join the Abraham Accords and recognise Israel “in your own time”.
Saudi Arabia has argued its recognition of Israel would be tied to the establishment of a Palestinian state along the lines of Israel’s 1967 borders.
Mr Trump will travel to Qatar and the United Arab Emirates over the next three days.
In today’s Saudi Arabia, convention centres resemble palaces.
The King Abdul Aziz International Conference Centre was built in 1999 but inside it feels like Versailles.
Some might call it kitsch, but it’s a startling reflection of how far this country has come – the growth of a nation from desert bedouins to a vastly wealthy regional powerbroker in just one generation.
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Trump signs deal with Saudi Arabia
At a bar overnight, over mocktails and a shisha, I listened to one young Saudi man tell me how his family had watched this transformation.
His father, now in his 60s, had lived the change – a child born in a desert tent, an upbringing in a dusty town, his 30s as a mujahideen fighting the Soviets in Afghanistan, his 40s in a deeply conservative Riyadh and now his 60s watching, wide-eyed, the change supercharged in recent years.
The last few years’ acceleration of change is best reflected in the social transformation. Women, unveiled, can now drive. Here, make no mistake, that’s a profound leap forward.
Through a ‘western’ lens, there’s a way to go – homosexuality is illegal here. That, and the murder of Saudi journalist Jamal Khashoggi, are no longer openly discussed here.
Bluntly, political and economic expedience have moved world leaders and business leaders beyond all that.
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Trump visit is ‘about opulence’
The guest list of delegates at the convention centre for the Saudi-US Investment Forum reads like a who’s who of America’s best business brains.
Signing a flurry of different deals worth about $600bn (£451bn) of inward investment from Saudi to the US – which actually only represent intentions or ‘memorandums of understanding’ at this stage – the White House said: “The deals… represent a new golden era of partnership between the United States and Saudi Arabia.
“From day one, President Trump‘s America First Trade and Investment Policy has put the American economy, the American worker, and our national security first.”
Pic: AP
That’s the answer when curious voters in faraway America wonder what this is all about.
With opulence and extravagance, this is about a two-way investment and opportunity.
There are defence deals – the largest defence sales agreement in history, at nearly $142bn (£106bn) – tech deals, and energy deals.
Underlying it all is the expectation of diplomatic cooperation, investment to further the geopolitical strategies for both countries on key global challenges.
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In the convention centre’s gold-clad corridors, outside the plenary hall, there are reminders of the history of this relationship.
There is a ‘gallery of memories’ – the American presidents with the Saudi kings – stretching back to the historic 1945 meeting between Franklin D Roosevelt and King Saud on board the USS Quincy. That laid the foundation for the relationship we now see.
Curiously, the only president missing is Barack Obama. Sources suggested to me that this was a ‘mistake’. A convenient one, maybe.
It’s no secret that the US-Saudi relationship was at its most strained during his presidency. Obama’s absence would give Trump a chuckle.
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From Monday: Why does Saudi Arabia love Trump?
Today, the relationship feels tighter than ever. There is a mutual respect between the president and Saudi Crown Prince Mohammed bin Salman – Trump chose Saudi Arabia as his first foreign trip in his last presidency, and he’s done so again.
But there are differences this time. Both men are more powerful, more self-assured, and of course the region has changed.
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There are huge challenges like Gaza, but the two men see big opportunities too. A deal with Iran, a new Syria, and Gulf countries that are global players.
It’s money, money, money here in Riyadh. Will that translate to a better, more prosperous and peaceful world? That’s the question.
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