The tax arrangements of a Labour council leader have been called into question after it emerged tens of thousands of pounds of public funds had been paid into his personal consultancy.
Mehboob Khan, leader of Kirklees Council, is a 40 per cent higher-rate tax payer through lucrative allowances received from a variety of public sector roles.
But he has also received more than £48,000 from the Audit Commission which was paid into his Excol Consultancy.
Coun Khan did not respond when asked for specific details on how much tax had been paid on those earnings but in a statement said corporation tax had been paid on Excol’s profits.
Corporation tax on profits would have been paid at 21 per cent. It is not known if any income tax or national insurance was paid.
Questions surrounding Coun Khan’s tax affairs have emerged as the general issue of tax avoidance continues to rise up the political agenda, with Chancellor George Osborne this week promising to increase the number of tax inspectors.
The Taxpayers’ Alliance last night called on Coun Khan, who already receives more than £50,000 in annual allowances largely linked to his senior councillor role, to reveal details of his tax payments.
A spokesman said: “Coun Khan needs to be open and transparent about both his work and pay from the Audit Commission which has been funded by taxpayers.
“Any suggestion that he has avoided paying tax on payments for work in the public sector will go down very poorly with hard-pressed families who don’t have the option to exploit Britain’s complex and cumbersome tax code.”
Tax avoidance is not illegal but there have been increasing concerns about “off-payroll” arrangements with contractors, particularly in the public sector, which provide no assurance the correct level of tax is subsequently paid.
Paying consultants off payroll is legitimate but the method provides scope for legal tax avoidance and for other more creative accountancy measures capable of clouding levels of tax due.
Excol’s filed records provide no tax details as its small company status means it is only has to provide abbreviated annual accounts.
The episode carries echoes of former London mayor Ken Livingstone, who became embroiled in controversy over his tax payments during this year’s mayoral election when it emerged he had channelled earnings through a similar personal service company.
Coun Khan received £48,555.67 from the Audit Commission for a variety of consultancy roles between 2006 and 2010. The work largely involved taking part in performance assessments of councils.
A spreadsheet of payments to Excol provided by the Audit Commission showed the joint-highest individual payment was £5,900, made in January 2009 for Coun Khan’s assistance in an assessment of Wakefield Council.
Some payments were identified as expenses but £42,400 was solely payment for consultancy work.
Although Coun Khan did not respond when asked for full details of Excol’s tax payments, he did provide some information on the company’s tax in 2009/10 and 2010/11. He said Excol made profits of £5,843 and £4,020 respectively, on which corporation tax was paid at 21 per cent.
In both years, Coun Khan’s allowances for serving as Kirklees Council leader, as a senior member of West Yorkshire Fire Authority and as non-executive director of Kirklees Primary Care Trust totalled in excess of £50,000, comfortably taking him into the 40 per cent income tax bracket.
It is unclear where Excol’s incomeand subsequent profits came from in 2009/10 and 2010/11. In those financial years, payments from the Audit Commission had fallen markedly to just over £800 and just over £3,000 respectively. Coun Khan said this was a reflection of his becoming council leader and being unable to devote as much time to his consultancy work.
He did not respond when asked where any other monies received by Excol came from but insisted all his outside interests had been fully registered.
In 2008/09, Excol received £16,595 from the Audit Commission.
Although Coun Khan had not become council leader by then, allowances from his public positions were still about £40,000 and high enough to qualify for higher-rate income tax.
No information has been made available by Coun Khan on Excol’s profits in 2008/09.
The Audit Commission, which is in the process of being wound-up by the Government, said it could not provide a rationale for the level of payment because no staff remained who had worked on the council assessment scheme.
In a statement, Coun Khan said: “Since the recession and austerity measures, there is a bigger focus on increasing the tax take to ensure that vital services are protected.
“I must stress, the purpose of the company was because tax could not have been deducted at source. I am not alone, millions of people have companies for running their private businesses.
“Full corporation tax has been made. Last year the difference in tax paid through Excol and being deducted at source was only £20.
The amount of tax saved was easily outweighed by my personal charitable giving of £4,000.
“All allowances from the council, Primary Care Trust and West Yorkshire Fire Authority were tax-deducted at source and not paid into Excol.
“The income from private work was received as gross and the profit was taxed after deductions for costs and overheads.
“This is based on advice I took from, among others, the local tax office.
“No payment received by Excol, either from the period before I was full time council leader or since, has represented any kinds of conflict of interests.
“Any interests I have are reflected in the members’ register of interests held by the council.”