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Sunday, 26 February 2012

Gilligan’s Ken Tax Story Is A Disgrace

[Updates, two so far, at end of post]

This morning, Telegraph readers were able to read exclusively about the supposed hypocrisy of rotten leftie Ken Livingstone avoiding paying his taxes. This was just what the campaign of occasional Mayor Alexander Boris de Pfeffel Johnson wanted, and was eagerly trailed by his deeply unpleasant campaign manager Lynton Crosby, though dear Lynt needed two goes to get the link advertised.

Lynt forgot the link again ...

But there is one problem with the story: it’s complete crap, but then, readers should know that anything bearing the by-line of Andrew Gilligan should be treated with utmost suspicion. The Telegraph’sLondon Editor” has taken publicly available records from Livingstone’s limited company and phoned up the Labour challenger in a cheap piece of gotcha hackery, then invented an “avoidance” figure of £50,000.

... but got it second time. Plus a forthright comment

Moreover, he doesn’t understand – or doesn’t tell the readers – how directors of limited companies take payments from them, and the taxation regime to which they are subject. And he misses completely the National Insurance payments, which are the sole advantage of taking payment via a dividend, as Livingstone and his wife may have done.

Employees of a company working through PAYE will pay Income Tax – after deduction of allowances – at 20% for the first £37,400, then 40% up to £150,000, and 50% above that. They will also pay Employee’s National Insurance contributions, and the employer will pay an Employer’s contribution. Directors of limited companies can, though, make some payments as dividends.

These, though, are subject to Corporation Tax, which is typically 20% for companies eligible for Small Profits Rate. That makes it the same as basic rate Income Tax. The difference, which has evaded Gilligan – perhaps there was another of those transcription errors – is that no National Insurance contributions need to be made on these payments. That was where IR35 came from.

And if the director’s total income strays into the 40% tax band, they still have to pay it, whether the payment is made as salary or dividend. So Livingstone and his wife are not avoiding the 40% rate if they take payments as dividends, as Gilligan infers, though they will avoid National Insurance contributions by doing so. There is nothing underhand about that – anyone working that way can do it.

No evidence of the former Mayor avoiding paying Income Tax at 40% is provided, as Gilligan has none. He has nothing to back his suggestion that Livingstone is not “paying [his] full share”. And if funds are left in the limited company, they can still attract Corporation Tax. The taxman gets you one way or the other.

Gilligan’s piece is typically shoddy, misinformed and slanted. One would expect no less from a blinkered tribalist. And it’s a disgrace to journalism – again.

[UPDATE1 1830 hours: this story has been creatively re-told by the perpetually thirsty Paul Staines and his tame gofer, the flannelled fool Henry Cole, at the Guido Fawkes blog. Under the clumsily constructed title "Ken's Tax Hypocrisy Avoids Himself £1,000-a-week In Tax" (and don't bother trying to cover up with a sneaky edit, lads, I took a screenshot), they attempt to pull a whopper of Olympian proportions.

The post tells that "left-wing accountant Richard Murphy, who usually writes for the Guardian (boo! Rotten lefties!! They killed nice Mr Murdoch's newspaper!!!), reckons that ... Livingstone has saved himself some £50,000 in one year alone". Murphy made no such "reckoning". The only mention of the £50,000 figure came in the headline, and it was not supported by any of the following text.

In fact, neither Murphy nor Richard Mannion, the other accountant quoted by Gilligan, cite any figures at all. So that's treble burning trousers all round at the Fawkes blog, then. Another fine mess]

[UPDATE2 27 February 1030 hours: Get your diaries out - Tim Worstall of the Adam Smith Institute agrees with me! Mr W points out that Ken Livingstone is running a business with several income streams - as opposed to being the equivalent of an employer - and so being taxed as a business should not be seen as unusual.

And, echoing what I pointed out, he confirms "It's National Insurance that provides the savings". Livingstone is doing what any other self-employed person would, not that this thought is allowed to enter when those doing the finger-pointing are trying to smear the Labour challenger because they are cheering for Bozza. No change there, then]


Shinsei said...

This is silly. You imply that the criticism of Ken is that he is doing something illegal. None of his critics have claimed this.

The criticism is that Ken has vociferously condemned others for using perfectly normal and legal tax avoidance strategies. Yet he uses exactly the same.

Ken doesn't have to set himself up as a company. He can just pay normal income tax AND national insurance.

And he can pay the full 50% income tax on the £250k he earned rather than pay it out to himself over a number of years at a lower rate, or when the 50p tax rate is removed.

Tim Fenton said...

How do you "just pay normal income tax and national insurance" for speaking engagements and other appearances, not to mention his LBC show? They're not full time jobs.

It certainly used to be the case that HMRC preferred to work with freelance workers with multiple income streams in this way. Check with your nearest accountant if in doubt.

Also, I don't see where there is any implication that those having a go at Livingstone are making claims of illegality.

By all means come back on any of the above if you wish.

Shinsei said...

Most people earning money outside of their normal job don't set themselves up as a company.

They just declare the extra income (whether speaking engagements or book royalties) to HMRC on their annual tax return.

Ken could have done this. Lots of people have multiple sources of income and do not incorporate themselves.

Tim Fenton said...

Livingstone doesn't have a "normal job". None of the things he's been doing qualify by themselves.

What he's done is more widespread than you think. I would be surprised to see "lots of people" who have regular multiple sources of income working any differently.

And he will have done a Tax Return the same as anyone else - or in his case, got his accountant to do it.

Shinsei said...

I know plenty of people who are early retired and still do odd pieces of work - whether a couple of newspaper articles, spot of consultancy work, 10 mins spots on TV etc.

Most of them haven't incorporated.

They just declare all the separate income sources to HMRC at year end.

Some mutter about whether they are doing enough to go to the trouble of incorporating but usually don't get round to it.

Ken seems to be quite pro-active on setting himself up in the most tax efficient manner. Something he has very vociferously condemned others for.

Now I have no problem with what Ken has done apart from the hypocrisy angle. He has cheer-leaded for the misinformed attacks on the like sof Vodafone & Barclays for their tax affairs.

There's plenty of genuine tax evasion and tax "e-voidance" that ought to be challenged. Whether it is Cayman Islands bank secrecy or avoiding stamp duty thru using offshore vehicles.

So it is a bit rum when Ken castigates anyone not "paying their full share of tax" when he goes to lengths to pay less himself.