My latest video is about the story broken by the BBC that Ed Lester (Chief Executive of the Student Loans Company) is not taxed the way a Chief Executive should be. Video is at www.Youtube.com/HustonTV .
On £182,000 salary the tax and all the National Insurance which should have been paid to HMRC is £96,000 - or £8,000 per month. Instead his limited company gets the whole £182,000 paid gross. No tax deducted by the Student Loans Company.
The amount of tax Lester's company pays depends on its tax planning and expenses and will be reduced by, for example:
- Dividends instead of salary
- Paying salaries to family members
- Claiming expenses like running of company cars, travelling to conferences in exotic locations etc
- Pension contributions
- Paying for business premises
Vince Cable - the Business Secretary tried to defend what's going on, saying Lester was "an exceptionally useful individual who has helped to turn round that organisation. The arrangements under which the negotiations took place involved substantial value for money for the taxpayer, a tax cut by the individual and we will pursue matters of public concern on the tax issues".
So abiding by the tax law is not important if we can save public money?
This government minister seems to be approving the use of limited companies to employ senior bosses. Goes against all that 'cut down on tax avoidance' stuff he normally comes out with.
Vince's LibDem colleague Danny Alexander signed off on the deal, perhaps not knowing the whole story, and if left looking even more sheepish than normal.
What I want to know is whether Ed Lester's company has taken into account the special, and unpleasant, tax rules called IR35. These dictate that if someone who would otherwise be an employee (like Lester) puts a Limited company between them and the employing body, then all the tax benefits (of the company) are lost. This looks just like that.
Is Lester's limited company in HMRC's sights, or are we looking at another sweetheart deal done by top officials?
We wait to see how many other senior people in the public sector are not, in fact, employed in that job, but paid gross at a loss to the Treasury. This means less tax is paid and the rest of us have to pay more.
Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – www.huston.co.uk or 028 9080 6080.