UK political donors gain from unintended tax break
The analysis of Electoral Commission records shows that between June 2005 and December 2014, 100 of the wealthiest political donors in Britain used the loophole to donate at least £ 39 million to 4 political parties
Some of Britain’s biggest political donors, including a dozen senior lawmakers, have benefited from a little- noticed loophole that lets them avoid tax on millions of pounds in donations to political parties, a Reuters analysis has found.
Reuters is the first to measure the loophole, which offers political parties — and in some cases, individual politicians or their families — an unintended gift from the taxpayer.
Political donations made by individuals are not taxdeductible in Britain. If a donor makes money as salary or dividend and then donates it, they have to pay income tax. But giving from a company that they control lets the donor avoid paying income tax, accountants say. The mechanism enables donors to give more than they otherwise might.
The analysis of Electoral Commission records shows that between June 2005 and December 2014, 100 of the wealthiest political donors in Britain used the loophole to donate at least £ 39 million ($ 59 million) to four of the biggest political parties. That amounts to about onetenth of all donations to these parties, although the actual figure could be much higher since corporate donors don’t have to name their controlling or significant shareholders.
The analysis comes as politicians campaigning in a May election have pledged to fight tax avoidance. The Conservative Party says it will clamp down on “aggressive tax avoidance.” Labour’s plans include a review of the British tax authority, the Liberal Democrats say they will raise billions more in tax, and the United Kingdom Independence Party ( UKIP) says it will target tax dodging by big companies. Among those to benefit from the donations loophole have been politicians, including Health Minister Jeremy Hunt, a Conservative, and Lord Alan Sugar, a Labour donor and host of “The Apprentice,” a television series on entrepreneurship. Both men gave through companies: Hunt, through a company which names him as a principal shareholder, Sugar, through a firm he owns outright.
A spokesman for Hunt said: “It’s not unusual for companies to make donations to MPs and all of these donations were properly and transparent- ly declared to the Electoral Commission.” Sugar declined to comment.
Stephen Winyard, who owns a luxury castle spa in Scotland, said he used his company to donate 100,000 pounds to the Liberal Democrats last year. “To fork out 100,000 pounds out of my net income, having paid the higher rate of tax, would be difficult,” he told Reuters. “It’s probably more affordable if it’s done through the company.” Donations made through companies are perfectly legal, and some of those contacted said they were not aware of the savings they had made. The British tax authority simply does not tax donations made in this way, six tax accountants said. The tax authority, Her Majesty’s Revenue and Customs ( HMRC), said it had the legal right to tax such gifts but would not say why it did not use this right.
Christopher Grove, partner with law firm Withers LLP, said the benefit was the result of a “grey area” in tax law. “It’s a quirk of the way the system works at the edges, rather than something more deliberate,” he said.
At current tax rates, a wealthy donor who gives to a party through a firm they own rather than out of their own pocket effectively reduces the cost of that donation by around a third, said Tim Davies, head of tax at accountants Mazars. Alistair Graham, former chairman of the Committee on Standards in Public Life, a parliamentary watchdog, said it was never the intention of parliament to give such tax relief.
“The system should not place wealthy donors with private companies at an advantage compared with ordinary taxpayers who pay out of post- tax income,” he said. The public “would be deeply shocked” to learn of the loophole.
“All political parties should agree to close this loophole as soon as possible,” he added.
The main beneficiary of company donations was the Conservative Party, records show. These gifts accounted for 28 million pounds of those Reuters tracked, or 14 percent of the total donations declared by the Conservative Party for the period. Small donations do not need to be disclosed.
UKIP collected a much smaller sum through companies than the Conservatives — £ 3 million — though at 36 per cent of UKIP’s total declared donations in the period, this accounted for a larger share of all its funding.
A smaller share of Liberal Democrat and Labour donations came through private companies.
Labour received 55 per cent of the £ 173 million it declared in donations from unions. The company- donation loophole effectively puts Labour at a disadvantage, because unions raise the money they donate from their members, who have paid income tax on it first.
The Conservative, Liberal Democrat and Labour parties said they did not encourage donors to give in tax- efficient ways, and the donations complied with electoral laws. A spokesman for the Liberal Democrats said its policy of capping donations at £ 10,000 would minimise the gain to business owners. “( This) is just one of the quirks of a system that we don’t think works,” he said. UKIP did not respond to requests for comment. One donor, businessman and former peace campaigner Dale Vince, said minimising tax on political contributions was perfectly sensible.
“If someone consciously decides to do it one way rather than the other to save tax, then they’re being tax efficient... But I don’t think it makes it wrong necessarily,” he said. “The tax code offers many ways to be tax efficient.”