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Pay as little tax as Tony Blair

Tony Blair pays just 315,000 tax on an income of 12 million. Robert Powell explains how he does it and looks at ways you can reduce your tax bill by following the former PMs levy-restricting methods...

For most people, getting the sack is the trigger for a raft of financial worries. Not for Tony Blair. No, the former Prime Ministers ejection from Downing Street was just the start of a lucrative, money-spinning career. But despite logging an income of over 12 million across the last financial year, Mr Blair only paid 315,000 in tax. How so? Blair Inc.

The former PMs huge income derives from a dense corporate web unofficially known as Blair Inc. This complicated network of companies allows the full extent of the former PMs income to remain hidden. The 12 million income, up 42% on the previous year, was filed by Windrush Ventures, one of Mr Blairs many companies. However, almost 11 million of this income was written off as administrative expenses and hence classed as tax allowable. This brought total profits for the company down to just over 1 million. Corporation tax was levied on this at 28%, resulting in a bill of just 315,000. City accountants have been scratching their heads at this large expenses figure. The accounts show that Mr Blair paid 2.3 million in wages to 26 staff in the last tax year. A further 300,000 went on office equipment, while 550,000 was spent on rent for Mr Blairs Mayfair business base. However this leaves almost 8 million of expenses completely unaccounted for. Much of this figure may have gone towards footing the frequent overseas trips made by Mr Blair and his business entourage. Analysis by The Sunday Telegraph this week revealed that in just 12 months, the former PM made 61 trips abroad totalling almost 224,000 miles of travel. Administrative expenses Work-related expenses are the key advantage of setting up your own business or declaring yourself self-employed, although there are some important differences between the two tax statuses. Tax-allowable expenses include premises costs, stock costs, travel expenses, repairs and importantly staffing costs (including your own salary). However a nimble accountant will pick out every legally-legitimate loophole going in order to minimise your tax bill. How to do it... Practically, setting up your own business will garner the largest tax advantages if your earnings are high enough to push you into the upper income tax brackets (as Mr Blairs do). All business profits are subject to Corporation Tax. This is charged at 20% for profits under 300,000. A marginal (inclining) rate is charged if profits are between 300,000 and 1.5 million and the full rate of 26% (25% in the 2012/13 tax year) is levied on profits exceeding 1.5 million. However these profit boundaries apply after tax allowable expenses including your own salary have been deducted. The idea is to take a salary out of these takings that is taxed at the 20% income tax rate.

An example... Say your business took 300,000 of income in the 2011/12 tax year. The first job is to write off any allowable expenses. For this example lets peg this figure at 100,000 made up of a 35,000 salary for yourself and 65,000 for other admin costs. These expenses can then be written off immediately, leaving profits of 200,000. Corporation tax at 20% is due on this, giving a bill of 40,000. Meanwhile your 35,000 salary is subject to 20% basic rate income tax, after youve had your personal allowance, which stands at 7,475 this year. So 27,525 of your salary is subject to a 20% levy, giving an income tax bill of 5,505 and a net pay packet for the year of 29,495, minus National Insurance of course. So your total tax bill for the year with salary would come to 45,505. Thats 15.16% of your original 300,000 income. And even when you take expenses out of the equation, youre still not paying any more than 20% tax equivalent to a basic rate earner on any of your profits. In context, if you had earned 300,000 from a full time or self-employed job (after expenses), income tax at 50% would be levied. In addition, the remaining 160,000 sitting in the business account can be used to fund your pension (tax free), pay out dividends or finance directors loans: three extremely tax-advantageous ways to make the most of your company cash. Going self-employed As I mentioned earlier, the tax perks of starting your own business only really start to take hold in the upper echelons of income levels. For example, a tennis coach with an income of 25,000 will most likely be a sole trader, in other words: self-employed. All income will go into the business account and any cash our coach needs for living expenses will be taken out as and when. At the end of the tax year, all allowable expenses (transport, admin, repairs etc. but not the personal cash drawn out across the year) will be deducted from the total income amount. Income tax and NI will then be levied on the remaining profits, taking into account personal tax-free allowances. Tax deadline closing in One thing that self-employed workers and business directors do have in common is that they are both required to file a self-assessment tax return. The deadline for submitting paper returns has already passed. However taxpayers

can still file online up to the end of January. Take a look at How to get your online self-assessment tax return right for some tips on coughing up this year and avoiding HMRCs lofty late-fees. Your take Whats your take on Tony Blairs post-Downing Street career? Have your say using the comment box below.