By Martin Kelly
The Labour party is today embroiled in a tax avoidance row after it emerged a donation was structured in a manner that allowed the party to avoid paying hundreds of thousands of pounds in tax.
The controversy involves a donation of £1.65m given to Labour by one of its leading supporters, businessman John Mills who heads shopping channel company JML.
Mr Mills paid the donation in the form of shares which meant that Labour were able to keep the dividends without paying tax. According to Mr Mills, paying the donation in the form of shares was “the most tax efficient way” because it meant that Labour “get all the money”.
According to the Telegraph newspaper, leading accountants have calculated the cost to the UK Treasury of lost tax revenue is around £3/4m.
Mr Mills claimed the idea of donating using shares followed meetings with Labour party officials.
Speaking to the Telegraph, he said “It emerged … came out of a discussion I had with them about the best way of doing it.
“It is quite a good model. Labour has got people who deal with compliance and the legal side of all this. They are very sensitive nowadays.”
John Mills talking about the donation
The revelation is acutely embarrassing to Labour leader Ed Miliband who recently criticised large companies who failed to pay taxes in the UK. Speaking last month, Mr Miliband openly criticised internet giant Google saying it was “wrong” that the company had gone “to extraordinary lengths to avoid paying its taxes”.
Last month in Holyrood, the Scottish Labour party attacked global giant Amazon who it claimed had avoided paying corporation tax in the UK.
Claims that his own party had sought to avoid paying tax on donations comes at an awkward time for Mr Miliband who today [Thursday] will give a speech in which he is expected to confirm that Labour will not re-introduce welfare benefits, cut by David Cameron.
The revelation will also re-ignite the row over a controversial donation made to the Better Together campaign by the head of a company which was also found to have avoided paying tax.
Ian Taylor, whose company Vitol used a controversial EBT system over a decade to avoid paying millions to HMRC, gave the anti-independence Better Together campaign £500,000. The donation caused controversy after it emerged that not only had his company avoided paying tax, but it had also paid a former Serbian war criminal one million dollars.
Days after Better Together revealed Mr Taylor as their biggest donor, details emerged relating to his company Vitol, which opponents claimed brought the acceptance of the donation into question.
It emerged that the company had links to extreme Middle East regimes and had paid $1 million to a former war criminal in order to secure an oil deal. It also emerged that Vitol paid some employees through a tax avoidance scheme, so-called Employee Benefit Trusts.
The scheme allowed the company to avoid paying tax on UK employees’ salaries. In December 2012, it emerged that Vitol was engaged in negotiations with HMRC in order to reach a settlement on paying off the outstanding tax bill.
Speaking to the Sunday Times following the tax avoidance revelations, Ian Taylor said: “We will have to pay something. We will work hard to do what is best for our employees, but we must abide by the legislation – and we will.”
Mr Taylor, who became the Chief Executive of Vitol in 1995, has previously made substantial donations to the Conservative party, and attended a private dinner with Prime Minister David Cameron at Downing Street in November 2011.
The Labour MP John Mann, a member of the Treasury Select Committee, described Mr Taylor’s donations to the Tory Party as “dirty money” and called on Mr Cameron to hand it back.
Despite Labour attacking Mr Taylor’s donation to the Tories, Better Together has refused to hand back the money given to it by the Vitol Chief Executive with Labour MP Alistair Darling, who heads the No campaign, saying he was “pleased” to have the support of the Conservative party backer.