The Revenue gives a Green light

Observations on tax

In recent months the Inland Revenue and Customs and Excise have been pursuing hundreds of couples across the country for extra tax, often extending back over several years. These people run small businesses as builders, electricians plumbers and computer experts, and their "crime" has been that, having established themselves as limited companies, they have then paid their earnings in the form of dividends rather than mainly in wages and salaries.

The company shares are very often split 50:50 between husband and wife, with just one partner normally doing most of the work. Paying by dividends was a widely used device for reducing tax on the couples' incomes (both partners' personal allowances coming into play) while also saving on national insurance.

But now the Revenue has succeeded in having such arrangements declared a form of tax evasion and so the couples are having to pay up, with bills typically running to several thousand pounds.

Switch now to Philip Green. Last month this captain of the retail industry did what he has done in previous years, but on an even grander scale. As the press excitedly, if not quite accurately, put it, he "paid himself" or "wrote himself a cheque" for £1.2bn. This is a dividend from the Arcadia Group, which he runs, and which includes such names as Miss Selfridge, Dorothy Perkins and Burton.

The sum - equivalent to £20 for every man, woman and child in the country - exceeded by four times the group's actual pretax profit of £253m for the year, and was financed by borrowing more than £1bn from the company's banks.

The cheque was actually paid to Mrs Tina Green, who holds the majority of Arcadia's shares which are the basis of the Green family fortune. However, Mrs Green (unlike Mr Green) is resident in Monaco and so has no liability to British income tax.

You might wonder how great her contribution is to running a business very widely regarded as the product of her husband's outstanding financial and marketing skills.

To rub salt in the Revenue's wound, interest on the money borrowed to pay the dividend (about £45m) will reduce the tax payable on Arcadia's profits by more than half.

There is no suggestion here that Mr Green has been evading tax; indeed his arrangement is believed to have been cleared with Revenue and Customs. But scale aside, are the Greens really in such a different position from the couples up and down the country who now find themselves writing cheques to the taxman?

Harvey Cole is an economist and a former Liberal Democrat leader of Hampshire County Council