Chancellor George Osborne is facing increasing pressure to close the ‘Mayfair’ tax loophole, after a report found that private equity bosses are using it to cut their tax bills. The group behind the report has called the loophole “government-sponsored tax avoidance”.
The report, from campaign group 38 Degrees, suggests that executives at private equity firms are avoiding paying up to £700 million a year in taxes by lowering their tax rate.
An arrangement between HM Revenue and Customers (HMRC) and the British Venture Capital Association (BVCA) means that profits made at investment firms, called ‘carried interest’, are treated as personal investments. This means the profits are taxed at a 28% rate, and in some cases 10%, rather than the usual 40% or 45%.
According to 38 degrees, private equity fund managers can earn between £1.2 million to £15 million in a “good year”, yet avoid paying national insurance contributions and pay a lower tax rate than those on incomes far below theirs.
The paper also reveals 16 private equity bosses are major donors of the Conservative Party, giving more than £7 million over the last seven years.
David Babbs, executive director at 28 Degrees, said, “This Mayfair tax loophole is government-sponsored tax avoidance on a breathtaking scale.
“Money which should be funding the NHS is going to millionaire fund managers instead. The rest of us pay in our fair shares to keep the country going: why should millionaire financers be treated differently?”
He added, “In his last budget before the election, George Osborne wants to convince the country that he’s on the side of hard-working families on average incomes. If he wants us to take him seriously, he’s got to close the Mayfair tax loophole.”
In response to the report, Tim Hames, director general of the BVCA, has said that the claims of revenues lost in the report do not match reality and noted that there are similar arrangements were in place in many other countries.
Photo: Ken Tegardin via Freeimages
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