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We’ve launched a legal challenge with Dale Vince, founder of Ecotricity, against HM Revenue and Customs, demanding the closure of a loophole which allows private equity fund managers to pay almost half the tax they should.
Back in 1987, the private equity industry successfully lobbied the Inland Revenue, now HMRC, to pay less tax. Their success meant that the money made by executive managers is classed as ‘capital gains’ and not ‘trading income’ – instead of paying a tax bill of around 40%, that figure dropped considerably to 28%.
Good Law Project, working with leading tax lawyer Dan Neidle, believe the agreement was unlawful. For years, people have been arguing the so-called ‘carried interest’ loophole should be abolished. New research suggests it never existed at all, as HMRC isn’t allowed to give sweetheart deals.
In the event that the loophole is closed, HMRC could collect an estimated £600 million more in revenue each year, from just a couple of thousand people.
The case launch comes off the back of a petition hosted by Good Law Project that has already gathered over 70,000 signatures.
A pre-action protocol letter, the first formal step in legal proceedings, has been sent to HMRC.
Dale Vince, founder of Ecotricity, said: “The rules exist to take more tax from private equity investors, but HMRC are not using them. I want to know why. The revenue could be in the region of £600m – an amount no one should ignore. Why should wealthy private equity investors be allowed to pay a lower rate of tax than a nurse or bus driver? I believe it is morally wrong and it needs to change.”
Jo Maugham, founder of Good Law Project said: “If you ran a small business, or received income support, or were pushed by an agency to take your pay as loans you wouldn’t get special treatment like this.
“This is, I feel sad to have to say, another example of our institutions being strong with the weak – but weak with the strong.”
Phil White, member of Patriotic Millionaires said: “We need to close this tax loophole which enables wealthy private equity fund managers to be taxed at a lower rate than most working people. Private equity firms are well known for single-mindedly optimising returns to themselves and this is yet another example of how the dice are loaded in their favour and against the interests of the rest of society.
Instead of HMRC turning a blind eye to wealthy individuals paying lower rates of tax on their income than, for example, teachers, it should focus on closing these loopholes which create such injustice in our country.”