Tax avoidance - is everyone paying their fair share?

First published on 26 November 2021 by Alastair
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In another case of do as I say, not do as I do, MPs have been found to be channelling large amounts of money from private consultancy work through personal service companies that may have significantly reduced their tax bills.

Let’s start by saying that the arrangement of using a company to accept payments for consultancy work can help avoid a personal income tax rate of 45/ 46% as earnings are taxed under corporation tax which means the personal service company pays tax at a 19% rate on their profits. As the money is paid to a company, the consultant and their clients are not liable for national insurance contributions (NICs). This is perfectly legal and for people running their businesses through a limited company it is a sensible thing to do. Indeed, at M&S we do this for a number of consultancy business clients. It’s standard tax planning and advice: our beef is with the hypocrisy shown by the MPs.

An investigation by The Times found that 10 MPs have taken on outside work and have channelled at least £1m through their personal companies. Nine were Conservative MPs and one was from Labour. 

These MPs include education secretary Nadhim Zahawi, Conservative MP Mark Pritchard, former minister Jake Berry, and chairman of the justice select committee Sir Bob Neill.

Labour MP Margaret Hodge, who led an inquiry into tax avoidance while chair of the Public Accounts Committee, stated that these arrangements were “completely outrageous,” adding, “We, as MPs, determine the tax everyone has to pay and for some in our midst to choose to use personal service companies in this way is particularly scandalous.” 

The supreme irony in all this is that there is a government campaign website (with a .gov domain no less), called, Tax Avoidance Explained,’ and within this site there is a page entitled, “Tax avoidance, don’t get caught out”!

Stewart McKinnon, Director, M&S Accountancy and Taxation

 

 

 

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