Osborne tells Miliband ‘pay avoided tax’ on Labour donation

Labour is accused of helping millionaire businessman John Mills avoid paying £1.46m of tax on a major donation he made to the party.

In an interview with The Daily Telegraph, John Mills, founder and chairman of home shopping company JML, said he has given the Labour Party £1.65m in shares in his company because it was more “tax efficient” than a cash donation.

He also added that the idea to pay this way had come out of discussions with the Labour Party.

How was tax allegedly avoided?

Accountants spoken to by the Daily Telegraph said that by making the donation in shares rather than as a cash dividend, Mr Mills had avoided paying £724,710 in tax. 

If the payment had been made in cash, the newspaper reported, Mr Mills would have had to earn £3.1m, of which £1.46m would go to HM Revenue & Customs, leaving the remaining amount for the donation.

“To be honest with you, it is the most tax efficient way of doing this,” he said. “Because, otherwise, you get no tax relief on donations to political parties for understandable reasons.

“If you donate to a political party out of a tax paid income, up until April it was 50 per and now it is 45. That means if it is £100,000, the Labour Party gets £55,000 and the government gets £45,000.”

When Google goes to extraordinary lengths to avoid paying its taxes, I say it’s wrong. Ed Miliband in Google Big Tent, 22 May 2013

He added that the idea “came out of a discussion I had with them (Labour) 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.”

Miliband on Google

Two weeks ago Labour leader Ed Miliband was in the Google Big Tent, where he gave the company and its executive chairman Eric Schmidt a public dressing down over tax.

He said: “I can’t be the only person here who feels disappointed that such a great company as Google, with such great founding principles, will be reduced to arguing that when it employs thousands of people in Britain, makes billions of pounds of revenue in Britain, it’s fair that it should pay just a fraction of one per cent of that in tax.

Will you now pass the amount of tax that has been avoided to the exchequer? George Osborne, in a letter to Ed Miliband

“So when Google does great things for the world, I applaud you. But when Eric Schmidt says, its current approach to tax is just ‘capitalism’, I disagree. And it’s a shame Eric Schmidt isn’t here to hear me say this direct.

“When Google goes to extraordinary lengths to avoid paying its taxes, I say it’s wrong.”

Osborne’s letter

And now Mr Osborne has taken the Labour leader to task over the donation. In a letter to Mr Miliband, the chancellor wrote:

“You said in April last year that ‘tax avoidance is a terrible thing’. In relation to the tax affairs of Google, you said last month that there is a ‘culture of irresponsibility’. You went further still and pointed to the consequence if everyone avoided tax: ‘If everyone approaches their tax affairs as some of these companies have approached their tax affairs we wouldn’t have a health service, we wouldn’t have an education system’.”

He went on: “The tax affairs of individuals are a matter for them and HMRC. My questions are for you and the Labour Party rather than Mr Mills.

“Can you confirm that the Labour Party advised Mr Mills on how to avoid tax on his donation? As leader of the Labour Party, and given your previous statements on tax avoidance, such actions by your party appear to be directly at odds with your public statements.

“Most importantly, will you now pass the amount of tax that has been avoided to the exchequer? As you say, this is money that is needed to fund vital public services such as the health service and our schools.”

Labour has responded to the Telegraph interview by saying: “John Mills’ tax affairs are a matter for him. John has a been a Labour supporter for many years and we are grateful for his support.

“This donation has been declared in full to the Electoral Commission in line with party funding rules and it appears on the commission’s public register. It is standard practice to discuss donations’ permissibility with the Electoral Commission.”