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With so many famous actors, musicians and sportspeople being high earners, you’d think that they’d pay their taxes without any issues, right?
Well, unfortunately, ‘celebrity tax evasion’ is a phrase that’s pretty common in the news. Hearing about the various tax problems of so many different celebrities means that we now come to expect these multi-millionaires to try to evade paying their tax. There have been plenty of high-profile scandals in the UK alone. Numerous celebs have got into hot water with HMRC.
So, is there a reason we so commonly hear about it happening?
You might be wondering if famous people pay tax in a different way to other high-earners? The answer is no!
Celebrities pay tax in the same way that most self-employed people do. They’re required to fill out and complete a self assessment tax return on all of their earnings before the annual deadline (31st January). This includes paying Income Tax, National Insurance and Capital Gains Tax (CGT) to name a few.
Celebrities tend to have assets and wealth in multiple countries, and they are also very busy people. As a result, many rely on accountants and bookkeepers to sort and declare their earnings for them each year.
But as we know, if you file your taxes incorrectly, or fail to declare earnings, it doesn’t take much to get in trouble with HMRC. This is why there have been so many celebrity tax evasion scandals in the UK.
Former politician and MP Vince Cable found himself in trouble with HMRC in 2011. This was after failing to tell them that his income had exceeded the VAT threshold (£85,000 as of 2022/23). In that year, Vince had made a lot of media appearances. He also signed a book deal that took his business earnings up from his annual MP salary of £65,738 to around £192,000.
Because his turnover was over the VAT registration threshold and he’d failed to register this information with HMRC within 30 days, the then MP was fined. He had to pay a penalty of £500, and was also billed a figure that was “less than £15,000.”
Luckily, Vince had a team of financial advisors who were alert enough to notice the mistake before it turned into a bigger problem.
Former pop star and member of Atomic Kitten, Kerry Katona, filed for bankruptcy in 2008. She did this after failing to make the final payments on her overdue tax bill. Kerry racked up a £417,000 tax bill after not keeping in regular contact with her accountant, who she claimed to be a fraud. Speaking in an interview with the Telegraph newspaper, the singer said:
“I asked David [her accountant], ‘have I got enough money for my tax?’ He said ‘yes;’ the next thing you know I got a phone call saying I might be made bankrupt. But it was my own fault for letting it happen.”
Kerry’s case shows the importance of keeping in regular contact with your accountant and/or financial advisor, as well as making sure that you’re keeping track of your tax liabilities.
Comedian Jimmy Carr made the headlines after it was revealed that he was one of the most prominent celebrities to have benefited from an offshore ‘wealth management’ scheme in 2012. Carr was sheltering £3.3 million and only paid 1% of it towards tax. Using the scheme, he channelled his salary in the UK through Jersey-based shell corporations.
Although Jimmy Carr paid very little tax on his earnings, it might surprise you to find out that it was in fact all legal. Even though this case of celebrity tax evasion stirred up public anger, the scheme itself was a case of tax avoidance rather than tax evasion. That means that although it could be seen to be morally wrong, it was perfectly legal in the eyes of HMRC.
The comedian admitted that he was not a tax expert, but that his financial advisor had suggested the idea to him:
“I met with a financial advisor and he said to me ‘Do you want to pay less tax? It’s totally legal’. I said ‘Yes’.”
Why do so many famous people get embroiled in tax schemes and evasion? There are so many reasons as to why, but a few could be put down to:
If you’re a high earner (earning more than £100k+) then it’s important to remember that you need to declare all of your earnings. And pay the correct amount of tax! To check and budget for how much tax you’ll need to pay each year, use our Income Tax calculator here.
If you have a tax-based problem, get in touch. We can help with simple, one-off tax advice from our accredited accountants.
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