Camelot, Nando's, Pizza Express, Café Rouge, Strada and Pret A Manger have cut their taxable profits by borrowing from their owners through the Channel Islands Stock Exchange using the quoted Eurobond exemption, a regulatory loophole the Government knows about but has decided not to close. High street retailers doing the same include BHS, the electronics retailer Maplin, Office and Pets At Home.
Instead of putting their money in the shares of the companies they buy, the owners - mostly private equity funds - lend it instead. The interest on the loans cuts the UK companies' taxable income each year and the exemption - triggered because the loans are listed on the Channel Islands Stock Exchange - means the interest goes to the owners tax free. Without this loophole, HMRC could deduct a 20 per cent "withholding tax" from payments overseas and the overall tax saving would be greatly reduced.
Murray Worthy, a tax campaigner with War on Want, said: “The only reason this is happening is because of the influence of big business on the Government's tax rules."
Gondola Group - which owns Pizza Express, Zizzi and Ask - has avoided as much as £77m in UK corporation tax since it was bought by the Cinven private equity fund in 2006. Cinven loaned Gondola more than £300m at a 12.5 per cent interest rate but only invested £8m in equity. Instead of receiving the interest payments on the loans every year, Cinven has allowed it to accrue on the debt, compounding the amount taken off Gondola's profits every year. When Cinven sells the restaurants, which it is reportedly considering, it can receive the £276.8m it is owed tax free. Gondola's UK corporation tax bill last year was only £200,000, after an operating profit of £39m. In 2011, it recorded a tax credit of £5.8m. Cinven also owns Spire Hospitals and Partnerships in Care - healthcare companies that The Independent revealed earlier this week were using the same arrangement. Pizza Express and Zizzi have previously been criticised for their poor pay. Pizza Express sacked a waiter who revealed the company kept 8 per cent of tips as an "admin fee" in 2009 while in the same year Zizzi staff were paid £4.25 per hour before tips were added.
Tragus Group, which owns the Café Rouge, Strada and Bella Italia chains, could have avoided more than £13m in tax after accruing £47.7m in interest on 17 per cent Eurobonds it owes to the Blackstone private equity fund, which owns the group through a Cayman Islands subsidiary.
The electronics retailer Maplin accrued interest of £68.9m in 2012 on borrowings from its owners, Montagu private equity. However, a spokesman argued that the majority of the interest cannot be taken off its tax bill following negotiations with HMRC. Interest of £361m has accrued over the previous five years, on top of the £137.5m it originally borrowed from Montagu at 16.5 per cent. It is unclear how much tax has been avoided because Maplin would not disclose the figures involved - or how long the interest had been disallowable for, but the potential savings could still be in the tens of millions.
ir Philip Green's wife, Lady Green, brought BHS into the family's Arcadia group, which also owns Top Shop, by investing through the Channel Islands Stock Exchange in 2009. The group deducted interest of £13.5m from its taxable profits in 2012, avoiding £3m.
Pret A Manger owed £237.9m to its owner, the Bridgepoint private equity fund, at the end of 2012. The loans were listed with at a 12 per cent interest rate but a spokeswoman told The Independent that they were only allowed to deduct 45 per cent of the interest from their income with HMRC's approval. They have since repaid £150m of the loans.
Instead of putting their money in the shares of the companies they buy, the owners - mostly private equity funds - lend it instead. The interest on the loans cuts the UK companies' taxable income each year and the exemption - triggered because the loans are listed on the Channel Islands Stock Exchange - means the interest goes to the owners tax free. Without this loophole, HMRC could deduct a 20 per cent "withholding tax" from payments overseas and the overall tax saving would be greatly reduced.
Murray Worthy, a tax campaigner with War on Want, said: “The only reason this is happening is because of the influence of big business on the Government's tax rules."
Gondola Group - which owns Pizza Express, Zizzi and Ask - has avoided as much as £77m in UK corporation tax since it was bought by the Cinven private equity fund in 2006. Cinven loaned Gondola more than £300m at a 12.5 per cent interest rate but only invested £8m in equity. Instead of receiving the interest payments on the loans every year, Cinven has allowed it to accrue on the debt, compounding the amount taken off Gondola's profits every year. When Cinven sells the restaurants, which it is reportedly considering, it can receive the £276.8m it is owed tax free. Gondola's UK corporation tax bill last year was only £200,000, after an operating profit of £39m. In 2011, it recorded a tax credit of £5.8m. Cinven also owns Spire Hospitals and Partnerships in Care - healthcare companies that The Independent revealed earlier this week were using the same arrangement. Pizza Express and Zizzi have previously been criticised for their poor pay. Pizza Express sacked a waiter who revealed the company kept 8 per cent of tips as an "admin fee" in 2009 while in the same year Zizzi staff were paid £4.25 per hour before tips were added.
Tragus Group, which owns the Café Rouge, Strada and Bella Italia chains, could have avoided more than £13m in tax after accruing £47.7m in interest on 17 per cent Eurobonds it owes to the Blackstone private equity fund, which owns the group through a Cayman Islands subsidiary.
The electronics retailer Maplin accrued interest of £68.9m in 2012 on borrowings from its owners, Montagu private equity. However, a spokesman argued that the majority of the interest cannot be taken off its tax bill following negotiations with HMRC. Interest of £361m has accrued over the previous five years, on top of the £137.5m it originally borrowed from Montagu at 16.5 per cent. It is unclear how much tax has been avoided because Maplin would not disclose the figures involved - or how long the interest had been disallowable for, but the potential savings could still be in the tens of millions.
ir Philip Green's wife, Lady Green, brought BHS into the family's Arcadia group, which also owns Top Shop, by investing through the Channel Islands Stock Exchange in 2009. The group deducted interest of £13.5m from its taxable profits in 2012, avoiding £3m.
Pret A Manger owed £237.9m to its owner, the Bridgepoint private equity fund, at the end of 2012. The loans were listed with at a 12 per cent interest rate but a spokeswoman told The Independent that they were only allowed to deduct 45 per cent of the interest from their income with HMRC's approval. They have since repaid £150m of the loans.
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