Sir Chris Hoy responds to 'misleading' tax story

Guardian wrote that his open-ended loan could be scheme similar to Jimmy Carr

by Sarah Barth   June 23, 2012  

Chris Hoy head shot

Sir Chris Hoy has slammed a 'misleading' report in the Guardian newspaper that stated that his company paid him £325,000 in loans as part of a possible tax avoidance scheme.

The article alleged that in a year when Hoy's company dividends were slashed, an open-ended loan for almost the same amount lost was paid to him by the company.

In a statement released today, Hoy said: "Although I would not normally speak about such matters in public, I regard the article to be misleading and as such I have felt compelled to respond.

"In 2010 I took a loan from my company, this was repaid in full in October 2011, a fact which The Guardian was not aware of.  This is standard practice in most small companies in the country.  Loan monies, as The Guardian points out, are liable for tax at a 25% rate. The dividends that I took to repay the loan were in fact taxed at the highest rate.  Neither I nor my company disguise remuneration.

The article implies that my dividend reduction from one year to another is in some way relevant to the loan. This is wholly incorrect. I saw an opportunity to buy property and with the guidance of my advisers I borrowed money from my company to do so. The loan was subsequently repaid shortly thereafter (October 2011) by declaration of fully taxable dividends.

The original report, published on Friday, read:

The latest accounts of Hoy's Trackstars Ltd state: "At 30 June 2011 Sir Chris Hoy owed the company £324,771 (2010, £898 – owed from the company). This amount was unsecured and interest free with no fixed repayment terms. During the year dividends totalling £130,000 (2010, £440,000) were paid to Sir Chris Hoy."

To put that in English, in 2010 Hoy received £440,000 in dividends, which attract taxes not hugely dissimilar from salary.

But while he received about £455,000 from the company during 2011, £325,000 came via the open-ended company loan, which attracts minimal tax. It is not clear from the accounts if Hoy's move, which is legal, resulted in a tax saving.

The Guardian added that Trackstars is believed to be Hoy's image rights company, which receives his sponsorship monies in return for him promoting his sponsors' brands (Adidas, Jaguar, Gilette, Bank of Scotland and Lloyds TSB) and allowing his image to be used in their advertisements.

Hoy added: "Everything I have done is as a UK resident, and is UK taxable and not offshore.  Also, to be clear, my lottery funding, which I am very grateful for, stopped in October 2008, though I do still promote the national lottery as I benefit from its support of British Cycling's world class programme.

"I am very proudly British and my responsibilities as a British sportsman do not stop once I step off the bike.  I take my responsibilities as a taxpayer as seriously as I do as an athlete.  I sincerely hope this misleading article does not affect the British support I know I will need to perform at my best in London."

HMRC introduced new rules on loans last year to stop "disguised remuneration" in the form of loans. It said: "The objective of this legislation is to prevent the avoidance or deferral of income tax and NICs [national insurance contributions] on employment income.

"It will impact on employers and intermediaries who use trusts or loans to reward employees with a view to avoiding or deferring paying tax and NICs."

Last week the comedian Jimmy Carr apologised for a 'terrible error of judgment' after his use of a completely legal tax-avoidance scheme was exposed by The Times. 

More than 1,000 people, including Carr, are thought to be using the Jersey-based K2 scheme, which is said to be sheltering £168m a year from the Treasury. The user will hand over their company, receiving only a small salary with negligible tax, then receiving the rest in the form of a 'loan' that will never be repaid.

18 user comments

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To be honest I don't care whether Sir Chris is making millions by not or not paying his taxes(because lets face it if we could reduce our own tax (legally of course) then who wouldn't) , what i do care about as he clearly does,is to do his best for British sport. So good on you mate, you definately get my support!

Encouraging more people to take up sport.

posted by mrb [5 posts]
23rd June 2012 - 14:07

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True, but have you depended on taxpayer funded facilities and public money (whether through the lottery or through sports bodies) to get to the point where you can earn what you do.

Actually you probably have, in the form of schools, health care and so on, which is why (assuming you're an average PAYE-er) you generally don't have the opportunity to make deductions, loan yourself money and distribute it in ways which avoid taxation.

I'm not suggesting Hoy has done anything wrong and I don't begrudge him making good money from his efforts, but I can see why there is an interest in whether his tax affairs follow both the spirit and the letter of the law.

abudhabiChris's picture

posted by abudhabiChris [499 posts]
23rd June 2012 - 14:40

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I'm not going to pretend to understand all this tax stuff, but I am self employed and thanks for my accountant I can write of a little tax here and there, even just for cleaning my own chef's whites.

As long as he's competing at the highest level for both UK and Scotland, then he should be given the ability to right off some of his taxes in my eyes. The money he brings into sport through sponsors and the like must be a hefty sum.

I don't give a jot about lottery funding, thats nothing to do with public money apart from the people who choose to play Lotto.

I think Hoy, not alone but with a select group of cyclist's have raised the profile of British cycling over the last decade or so and this has attracted interest for such companies as BSkyB who now run a pro team based in the UK.

With the profile being raised, I would also think thats given rise to bike sales in general. So more money being spent in the UK.

Ok, its not right to be able to avoid taxes, but high profile athletes should be able to benefit a little from their continued performance on behalf of the country. Thinking

Gkam84's picture

posted by Gkam84 [8684 posts]
23rd June 2012 - 15:10

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abudhabiChris wrote:

I'm not suggesting Hoy has done anything wrong and I don't begrudge him making good money from his efforts, but I can see why there is an interest in whether his tax affairs follow both the spirit and the letter of the law.

I can see why there's an interest too (although I'd much rather see the papers go after the really big tax avoiding PLCs and bankers, and maybe the odd politician or their relatives rather than go for the easy shot celeb route) but if you're going to report on someone's finances the point is surely that you need to do it accurately. The Guardian has a responsibility to get its facts straight - could they have tried harder to speak to Hoy rather than just his agent? They probably could but that would have meant waiting.

On the point of Hoy's rise to fame and fortune partly being funded by the taxpayer - if, as he says, he is paying tax at the higher rate he's probably already a net contributor to the public purse rather than a cost to it.

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posted by Tony Farrelly [4132 posts]
23rd June 2012 - 15:24

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As a (rather lowly) tax adviser, I'd say that if Hoy's statement above is accurate then he is completely in the clear and the Guardian ought to be ashamed of themselves. Taking a loan from your own company is standard practice and there are clear rules surrounding it. It won't result in a lower tax bill. The difference with the likes of the K2 tax scheme and this is twofold:

1) The loan was repaid (and this was always the intention), and
2) There's no offshore vehicle.

You need both of these (and a whole lot of very careful planning) to avoid tax. The Guardian appears to have made a snap judgement based purely on the word "loan".

posted by aidanr [9 posts]
23rd June 2012 - 15:51

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Personally I would like to see more of our illlustrious prime minister and his very very very wealthy cronies tax avoidance schemes come to light but being in power they can just reduce there own tax burden by reducing the tax rate for higher earners and creating ways to allow them do this. and then castigating us for trying to do the same and at the same time make us pay more tax in sneaky budget laws.

If you want to make more money for the country make our leaders stop squandering all the taxes they raise. These avoidance schemes and people trying to save a little money pale in insignificance with the money government wastes each year and then too have a go at people like mr carr whose tax is miniscule compared to what they waste themselves, whether he is avoiding tax is irrelevant in light of what the government gets up to.

We all look to avoid tax, its natural, in one legal way or another. If the Revenue allows it whats the problem. Make it simpler and more transparent. I have no problem with people being successful. Take a leaf our of the gevernments and there wealthy friends and do the same.

posted by Ciaran Patrick [117 posts]
23rd June 2012 - 17:14

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Good for the Guardian (and the rest of the papers by the way). £325,000 is not small beer. Hoy is tax dodger even if what he did was legal and should be exposed as such. The buying property augument by the way is the one all the tax avoiders use.

Paul W

posted by PaulVWatts [111 posts]
23rd June 2012 - 18:07

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Genuinely self-emplloyed individuals are often accused of avoiding tax by having their fees paid in to a company, and then drawing it out in the form of loans. Ken Livingstone waas similarly accused. But there really is very little substance to this claim.

The best you can do really is delay part of the tax bill. The company has to pay tax at around 24%, and when eventually the individual takes dividends, the tax on the dividend increases the effective tax rate overall to a very similar level to paying simple income tax on feees received as an individual. Also, if you borrow momey from your own company, HMRC levies a special tax called "section 419" at 25%, which is a kind of loan - when you repay the loan, for example by taking a dividend instead, HMRC repays the tax and assesses you for income tax on the divi.

It is a slightly different proposition when an individual whose income is earned through employment uses a company. (Hoy and Livingstone were channelling self-employed fees, sponsorship income etc this way). Then, you can effectively get around the 13.8% employers national insurance contributions which woudl otherwise be due. This is a little controversial when practiced by many thousands of IT consultants and similar who for some years have used such structures, although they have to deal with an HMRC policy called "IR35".

Very controversial indeed has been the practice of senior civil servants and local authority cheif execs doing the same. It is one thing for private companies and individuals to look for legal ways to cut their tax bills, but for our government to conspire in cheating itself out of its own tax revenues is extraordinary.

"K2" and similar schemes used by Jimmy Carr, Gary Barlow etc are an entirely different ballgame. They avoid tax altogether through use of extremely contrived and non-commercial trickery. They are however - just - legal, and it is down to the government to do someting about them. It does look like that is about to happen though, through a new concept in the UK, already established in a number of other countries, called a "General Antiavoidance rule". It kind of says, in the usual dense prose, "if it walks like a duck, and quacks like a duck, it's a duck".

posted by Paul M [306 posts]
23rd June 2012 - 18:18

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Ive seen Chris Hoy's house. Its nice enough but he certainly isnt in the Phillip Green or David Cameron's dad league of richness/ tax avoidance. Also, he isnt like some British pro cyclists i can name who live abroad - im sure mainly for training reasons but who im also sure do it tax reasons.

posted by Some Fella [715 posts]
23rd June 2012 - 20:24

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Recently one of the guys at work told me that he used to work as a contractor previously and the accountant he hired to help basically said that there is a difference between tax aviodance and tax evasion, one is legal the other is not...and you simply have to avoid it...

As for me, I have always had a salary so always paid tax!

Blue skies all

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posted by Comrade [133 posts]
23rd June 2012 - 21:51

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Can't see what the fuss is about. He's only trying to keep hold of his own money. It's not as if he's kept it hidden under the floorboards like Ken Dodd. Thinking

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posted by michophull [94 posts]
24th June 2012 - 10:41

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mrb - surely then every member of the British armed forces should pay no tax as they "represent" the country, and in much more difficult circumstances than any athlete and for far less reward.

I just get a bit fed up of the pedestal that athletes (football players included) are placed on these days.

From what I understand and have read Chris Hoy seems to have done nothing wrong. At the end of the day though he has done pretty well out of his chosen career path, not as good as many others in this world, but well enough.

I just find it distasteful to see it suggested that this group of people should get some form of breaks from society because they "represent" us.

posted by 1961BikiE [80 posts]
24th June 2012 - 11:22

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PaulVWatts wrote:
Good for the Guardian (and the rest of the papers by the way). £325,000 is not small beer. Hoy is tax dodger even if what he did was legal and should be exposed as such. The buying property augument by the way is the one all the tax avoiders use.

Sir Chris Hoy should be exposed for doing something… legal? Run that by me again. If the Government were so exercised bout tax avoidance they'd close the loopholes and change the law - they haven't.

And while £325,000 is a lot of money compared to what most of us earn it's still small beer when you consider that the average salary of a FTSE100 company CEO is ten times that; and I'm sure all their tax affairs are entirely kosher.

The reason the Guardian come out of this one looking like a bunch of muppets is because they've held up for public pillory someone who doesn't seem to have avoided tax - the point being that if you take a loan from your own company you still have to pay tax on it when you repay the loan - which you have to do, and which he did.

Tony Farrelly's picture

posted by Tony Farrelly [4132 posts]
24th June 2012 - 23:13

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As a Guardian reader I'm disgusted by their conduct so far in this. They printed 4 large pictures of sportsmen on Saturday as part of the current tax-avoidance-fest. I didn't even read it - I've got better things to do on Saturdays than read about celebs' tax affairs. I just registered who they were and assumed they all had the same story as Carr as implied by the headline. I hope that now Sir Chris appears to have cleared his name the paper will print a full apology under a similar sized photo (they won't).

posted by robert_obrien [117 posts]
25th June 2012 - 11:23

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At the end of the day, if we had that kind of money we would all look to reduce the amount we pay in tax. Someone said last week that David Cameron made a big deal about Jimmy Carr, however, had it been one of his conservative sponsors it would be a different matter. I agree. If i had that kind of money I wouldnt be wanting to pay like 40% tax on it.

posted by AJWatson [34 posts]
25th June 2012 - 19:22

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bloody newspapers, they do love the sensationalism, sells copies!

posted by Karbon Kev [667 posts]
25th June 2012 - 19:46

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Tax avoidance is a serious issue and it's disappointing to read how some people are so lax about it. And don't suppose we would all do it given the opportunity. Not everybody is selfish and only think of themselves.
I'm glad to hear Sir Chris Hoy isn't avoiding his duty. Shame on the Guardian!

posted by BikeJon [36 posts]
26th June 2012 - 16:38

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Tax evasion is serious, Tax avoidance isnt due to it being legal.

When Jimmy Carr was battered last week it made me just shake my head. The Tories are all at it so why pick on him? If Cameron is so bothered about it, close the loops holes, you're the bloody PM you have the power to sort it......whats that? You wont because youre all upto it yourself, thought so.

posted by Darthshearer [141 posts]
26th June 2012 - 16:59

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