A sub-prime mortgage lender that was threatened with having its licence revoked by regulators after targeting customers who couldn’t pay back its loans has saved millions using a legal tax-avoidance scheme.
Swift Group, which has £339m worth of loans to Britons, has avoided an estimated £74m in UK corporation tax since 2008 after racking up interest of £274m on loans it has taken from its private equity owners.
A joint investigation by The Independent and Corporate Watch has also found Moto service stations and hygiene giant PHS, which provides hand-dryers, artificial plants and other workplace equipment, to be among the many companies using the scheme, which is estimated to be costing the Exchequer at least £500m a year.
The Essex-based Swift Group made £42.3m in interest from loans to people unable to get mortgages from high-street lenders last year. However, the £15.8m operating profit made from this was wiped out by interest of £79.6m that Swift paid or accrued on loans from Alchemy Partners. Swift’s UK corporation tax bill for the year ending March 2013 was only £262,000.
It declared a tax credit the previous year. As around half of the loans are made through the Channel Islands Stock Exchange, no “withholding tax” will be deducted on the interest payments.
Swift admits on its own website that its loans are “specially designed” for “people whose circumstances mean that traditional high-street lenders can’t help”. The Office of Fair Trading ruled in 2011 that it could have its licence revoked for doing scant research into its customers’ credit, being too quick to take people to court and failing to explain its charges properly.
Marc Gander, of Consumer Action Group, said the company was “another example of an under-regulated sub-prime lender which makes its crust by exploitative mining of the resources of a vulnerable British public and which clearly has no intention of putting anything back”.
PHS, which provides hand-dryers, hand-sanitisers, water coolers, artificial plants and data shredding to companies across the UK, has avoided an estimated £77m after accruing £276m in interest on loans from private equity fund Charterhouse Partners since its takeover in 2005.
Moto service stations paid interest of £190.1m on loans from Macquarie, an Australian private equity fund, and other investors between 2006 and 2011. This allowed Moto to avoid an estimated £52m in UK corporation tax, compared to an equivalent equity investment by the owners. As the loans were listed as “quoted Eurobonds” on the Channel Islands Stock Exchange, the owners can receive the interest tax-free.
Offshore stock exchanges such as the Channel Islands qualify, under HMRC regulations, for the Quoted Eurobond exemption. Without the exemption, the owners would have to pay a 20 per cent withholding tax, and most of the tax savings from the interest deductions would be cancelled out.
Accounts registered at Companies House show both Moto and PHS declared tax credits in 2012.
Moto’s chief executive, Tim Moss, said: “The Moto Group abides by all UK tax, legal and other regulatory requirements.” The company also clarified that no tax deduction was claimed in relation to the Eurobond in 2012, or will be claimed in future years.
Spokeswomen for PHS and Swift did not reply to invitations to comment.
A spokesman for HMRC said it would not comment on the tax affairs of individual companies.