In defence of Ken Livingstone\’s tax arrangements

Companies House documents show that Mr Livingstone, who is Labour’s candidate for the London mayoralty, earned £232,000 in 2009, the first year after his defeat to Boris Johnson at the last mayoral election.

The money, from personal appearances, speechmaking and hosting a radio show, was paid directly into a new company set up by Mr Livingstone and his then partner, now wife, Emma Beal, who are sole shareholders.

Accountants shown the documents by The Sunday Telegraph say the move appears designed to ensure that Mr Livingstone paid corporation tax at 20 or 21 per cent, rather than income tax at up to 40 per cent — a loophole the former mayor has himself attacked as “Robin Hood in reverse”. Mr Livingstone confirmed this arrangement last night.

Yes, of course there\’s the joy of biter bit.

But the thing is, he\’s really running a business called \”Ken Livingstone\”. It\’s a brand with multiple sources of income. Really doesn\’t seem all that odd that he should be taxed as a business.

Richard Murphy, an accountant and expert in tax avoidance, said: “Mr Livingstone chose not to pay out this profit to himself and his partner and, as such, the profits would only have been subject to corporation tax at 21 or 20 per cent in the company. Higher taxes would very likely have been paid on this income if it had been paid to the shareholders in 2009.”

Well, as we know, the man who has done it should know how to do it.

Mr Livingstone said: “The company has paid [corporation] tax and when it pays me you pay an amount that is effectively the same rate as you would have done on income tax.”

Accountants say that this is incorrect. If Mr Livingstone did decide to take any money from the company, by paying himself and his wife a dividend, he would make further tax savings, they said.

On income tax, well, yes, it is pretty much of a wash. It\’s national insurance that provides the savings. Sure, there arte some income tax savings from the income splitting but note that that\’s not what Ken said. If you pay \”me\” then it\’s a wash which is pretty much true.

Mr Murphy, who is a supporter of Mr Livingstone, said: “Personal companies like this should be reformed so the income they earn is taxed on their owners as if it were part of their own income. That way, tax, and National Insurance if appropriate, could not be avoided by putting a company between a person and their income.”

And I\’m not hugely convinced that there would really be all that much difference….asbent the income splitting that is. For with multiple sources of income Ken really is self-employed. Which means that much of the NI argument disappears into the mists. Yes, there are still some advantages, deferal, that income splitting, but he could still pay his wife as his assistant and claim that if self employed, no?

5 comments on “In defence of Ken Livingstone\’s tax arrangements

  1. Hosting a regular radio show looks very like employment (regular set times, has to be done in person) even if it’s part-time and he’s got other self-employed income. So some of it should probably be taxed as employment income if it weren’t for the company.

    Also even if he is self-employed there’s still an NI saving by using the company (although less than if he were an employee). 2% at those income levels.

    Finally, on the income splitting with wife thing, if he’s self-employed and employs her as an assistant, it’s only allowable for tax if the pay is at a commercial rate for the work she does. The point about the jointly-owned company is that it allows income splitting without that commerciality constraint.

  2. Pingback: Livingstone used as Cameron’s human shield in brutal PMQs | Westminster blog | Jim Pickard and Kiran Stacey share their views on the UK’s political scene for the Financial Times – FT.com

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