Private Eye reports this week that Sir Clive Thompson, the former Rentokil boss and now well-known chairman of Farepak before it went bust, was being paid his salary through a private company, called Storm Financial. (He also seems to have missed an accounts deadline, too, for a company called Barslondon).
Such companies as Storm Financial obviously have various benefits, the main one being you don’t pay income tax on the earnings but corporation tax. You can then distribute the cash as and when you feel, according to whatever maximises the tax advantages.
Neat, you might say, and something for Farepak savers to ponder this christmas when they’re without the products Sir Clive and others promised them.
There can also be a benefit for the company in paying senior employees through companies, in that they might not have to pay national insurance contributions. Though, as far as I and thousands of IT contractors remember, there is the hated IR35 to contend with here, which sets aside the arrangements and charges the tax as if the set-up was not in place.
We don’t know what tax Farepak and Sir Clive have and have not paid, just that these structures could have allowed them to do the above. Let’s just say that collapsed companies often have, er, interesting tax complications at the bitter end, meaning Farepak’s final accounts for 2006 could make for some fascinating reading.