BBC stars are exploiting tax loophole

This is Money, apparently the financial website of the year, is running a story that some of the BBC's top earners are exploiting a tax loop hole by having their salaries paid to a limited company. This enables employees to pay tax at the 21% corporation rate rather than handing over up to 50% income tax (and avoids National Insurance contributions altogether). If this is true, and all the indicators are that it is, then this is exactly the same type of avoidance scheme that staunch socialist stalwart Ken Livingstone uses through his company, Silveta Limited.

It's not just failed mayoral candidates that are using this scheme though. According to the Associated Press, it seems the practice of government employees being paid 'off-payroll' to avoid tax is quite common - with over 2,400 verified cases so far. This might not be surprising during a Conservative/LibDem government, but what I found more disturbing is that almost half of those cases date back to the previous Labour administration.

There is no suggestion that any of these activities is in any way illegal. So my question to you is, is it morally wrong to avoid paying tax in this way? In other words, do we have a moral duty to obey not just the letter of the tax code but the spirit of it as well?

Secondly, if this practice which started during the New Labour government, and even Red Ken is happy to participate in, is morally justifiable then surely nobody should be paying more than 21% tax. So, is it time for a complete shake-up of the tax system into a system? For instance, to one in which everybody pays a single flat rate on all their earnings, no matter what the source.

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Reply 1

g_star_raw_1989

People are always going to exploit loopholes it depends on the individual as to whether they think their actions are moral or not.

Reply 2

Ocassus

I'm not surprised. Half of ones earnings over 150K is retarded.

Reply 3

faber niger

Can someone explain exactly how this loophole works? I don't understand. Surely, if you pay corporation tax, the employees then need to pay income tax on their earnings too? Or if you're in control of the business, do you not have to pay income tax on your own earnings since what you make is more like capital gains than a salary (I guess this is what you mean by "off-payroll")?

(edited 11 years ago)

Reply 4

member520746

Original post by Ocassus

I'm not surprised. Half of ones earnings over 150K is retarded.

The BBC is publicly funded, if anyone should be paying the designated rate of tax it's the people whose career rests on the people of this country paying a government-set levy to the company which employs them. We don't pay money to the BBC so that it can be lost in tax exploits, it undermines the whole concept.

Reply 5

maturestudy

Original post by jismith1989

Well, no - I'm not a tax lawyer, accountant or anything like that. However, the This is Money article, How you too can pay only 20% tax on £100,000 income (and keep your child benefit) explains it all very well.

Reply 6

Genocidal

Morals are subjective and I wish people would stop trying to force their moral beliefs on others. If it's not illegal then it's fine.

Reply 7

maturestudy

Original post by Genocidal

Morals are subjective and I wish people would stop trying to force their moral beliefs on others. If it's not illegal then it's fine.

Well, of course morals are subjective - that's why I'm seeking your opinions as to whether you think it's morally acceptable or not. Even though morals are subjective, that doesn't mean they are arbitrary - they still have to be consistent and justifiable.

If it's not illegal then it's fine.

Wooosh! That's the sound of the entire point of the thread karooming past you. What's does 'fine' mean? You mean it's morally acceptable? If that was case then what is morally acceptable to you is determined by the laws of the country in which you happen to reside. In that case, you don't believe in a subjective morality at all!

Reply 8

Classical Liberal

Original post by jismith1989

Correct. Once you withdraw money from the company you have to pay income tax.

The tax avoidance works if you just buy things through your company. For example pay for your home, declaring it as business premises, and thus you do not pay income tax.

Reply 9

donuticus

It's how I pay myself and have done for several years. I'm more than happy to pay tax but if their is a legal way to lower my tax liability then I would be foolish not to use it.

I'm expecting some negative rep for this comment and so be it.

Out of interest though of those who have/will neg rep me I'm assuming you pay more tax than your obligated too?

Reply 10

maturestudy

Original post by Classical Liberal

Oh, no that's not how it works at all. Although it certainly can be beneficial to buy things through the company in some circumstances, declaring your primary home as 'business premises' would almost certainly land you in hot water. You should read the article I linked to.

Other things work though. Dividends can be taken out tax free (you've already paid 20% corporation tax) up to the higher tax band limit, dividends beyond that are classified as unearned income - that is, capital gains 18% or 28% tax rates. There are also a whole raft of other ways of taking money out of the company such as taking out an interest-free directors loan - which isn't even counted as income at all, even if you never pay it back!

Reply 11

Genocidal

Original post by maturestudy

I believe they only have to be consistent and justifiable to the individual. Laws were created to keep people in line, but everything outside of the law is to do with morals. And I believe that's when the only person you have to answer to is yourself. If you feel fine exploiting a tax loophole then that's your business. I don't believe that it's anybody else's business.

Reply 12

faber niger

Original post by Genocidal

Morals are subjective and I wish people would stop trying to force their moral beliefs on others. If it's not illegal then it's fine.

And yet you see no contradiction between your first sentence and your second: if law is not the enforcement of some people's [elected representatives' and the unelected judiciary's] moral beliefs on others, what is it? An arbitrary system of rules (in which case, where does its binding force come from)? A social contract (in which case, is law the only possible type of social contract)? The enforcement of political power (in which case, why shouldn't we be happy to let the powerful break the law)? A system of oppression (in which case, we presumably have to expect conflict between opposing groups and systems)?

(edited 11 years ago)

Reply 13

Electronica

It is true that companies will pay the tax at 20% but once the money is taken out of the business, as salary or dividend, tax will be charged at the income tax rate - be that 20, 40 or 50%, depending on the individual's circumstances. The money has to come out of the company sometime. It is not correct to compare 21% to 50%. Ken Livingstone is not a tax dodger since when he removes salary from his business he will pay income tax on it.

Reply 14

Electronica

Original post by Classical Liberal

If you put a house through a company it would cost you more than it would save. You would be assessed to more tax on it as a benefit in kind.

Essentially, your point is correct, but it doesn't quite work for houses.

People benefit from storing their earnings in a company because they can slowly drip feed their earnings over time instead of paying high rates of tax immediately as they get the money. For example, a person earns £160,000 per year which would be charged mostly at 40%. They could instead take £20,000 out of the company for 8 years which would only be 20% per year. It's a pension fund if anything. A benefit in having a company, but certainly not a tax dodge.

(edited 11 years ago)

Reply 15

Genocidal

Original post by jismith1989

I view them as separate since it's just plain easier than getting into some complicated discussion about the origins of law.

The law is there. End of story.

Moral beliefs these days are what I, and many others, call what falls outside the law. It's sort of like if you had a first date and you made the woman pay. It's not illegal, but many people would call it morally wrong. So please don't try and get into a discussion about where the law comes from because it's completely irrelevant.

If it's not against the law then it's down to the individual's discretion. And that's where differences between moral beliefs come into play.

Reply 16

callum9999

Original post by JCC-MGS

I always thought the "concept" of the BBC was to provide TV/Radio/Online broadcasting? When was it's concept changed to be a tax model?

And I was wondering why it's only BBC stars who do this (surely if it's rampant in the BBC, it's rampant everywhere else), but it all becomes clear when you see it's the Daily Mail who "investigated" this!

Though on topic, I have no problem with anyone reducing their tax liability as long as it's within the law. I do it, I'm sure you do it - why can't others do it just because they are richer than you? Whether it should be legal or not is another matter (with me thinking probably not).

Tax is theft.

Original post by callum9999

And I was wondering why it's only BBC stars who do this (surely if it's rampant in the BBC, it's rampant everywhere else), but it all becomes clear when you see it's the Daily Mail who "investigated" this!

I think you're confused about two things.

First, The Daily Mail haven't investigated this, they are merely reporting on events that occurred in Parliament, and which are a matter of public record. It was Exaro's investigative journalists that uncovered the use of tax avoidance loopholes within the civil service.

From the second paragraph of the original post, and the hyper linked sources, it should be clear that this is a common practice within the whole of the civil service, not just the BBC.

Reply 19

maturestudy

Original post by Genocidal

First of all, you haven't addressed the main criticism, which was that your actual statement contained a contradiction. But that was really an aside.

I fully support your right to hold the views you do - in fact I would vehement defend those rights, even though I disagree with you. However, the position you hold is known as Naive Ethical Relativism and I personally think it contains within it a number of serious problems.