The members of One Direction have become very wealthy young men over the past five years or so. With five huge-selling albums, One Direction have conquered the pop charts and the 2014 One Direction world tour was one of the most profitable in history. When you toss profits from merchandise and investments into the mix, One Direction members Louis Tomlinson, Harry Styles, Liam Payne, and Niall Horan are believed to have amassed fortunes estimated at around $40 million each. Like any member of the super-rich, One Direction’s advisors will have looked at every means possible to reduce the amount of cash One Direction hand over to the tax man.
Let’s be realistic for a moment when they leapt to fame in 2010 the members of One Direction were between 16- and 18-years-old. How many 16-year-olds understand the complexities of the U.K. tax system? It is also unlikely that the One Direction boys had much of an idea about asset management or smart investment. One Direction would have handed those parts of their affairs to experts in the field and trusted those people to make smart decisions on their behalf.
Of course, One Direction remain responsible for their tax affairs as they have to sign off to certify that the submissions are correct. It seems that their advisors may have let One Direction down and attracted the attention of the U.K. taxman. According to the Sun, One Direction has been using a legal, but controversial, scheme to avoid paying tax.
Put simply, One Direction are using a scheme that channels cash from their company, One Direction Media, to them as shares rather than as profits. This allows One Direction to draw down cash as dividends rather than income, and means that they pay less tax on their income.
The scheme that One Direction have used is perfectly legal, but companies must demonstrate that the way they manage their affairs is done for business reasons and not just to avoid tax.
In 2014, One Direction made some £74 million in profits and paid over £10 million in tax. One Direction actually paid more in tax than some multi-national corporations who made billions in profits, but paid virtually no tax. One Direction spoke out in 2014, urging fans to lobby the U.K. government to crack down on tax evasion by companies. To put those figures into perspective, the Daily Mail reports that, while One Direction paid over £10 million in tax, Facebook paid just £4,327.
The scheme that One Direction have set up is known as an “alphabet scheme,” and tax expert Neil Tipping told the Sun that such schemes are complex and controversial.
“An alphabet share scheme this complex is controversial and exactly the kind Government would want to crack down on.
“In light of the millions of pounds One Direction make every year, I’d expect investigators to look at their structure very closely indeed.”
It seems that the U.K. tax authorities do not like these schemes because they can be used to manipulate money. A spokesperson for One Direction said that the scheme had been set up to account for the fact that Zayn Malik had quit the band last year. Obviously, Zayn will have rights to earn income from sales of albums made whilst he was still a member of One Direction. After Zayn left One Direction, he will have a different level of income from One Direction than the rest of the boys.
It would seem, therefore, that One Direction’s use of their tax scheme may be justifiable from a business point of view as well as a means to reduce their tax liability, but of course, no one wants the taxman on their case.
According to the Guardian, One Direction paid almost as much tax in the U.K. as Apple and Amazon. Many One Direction fans might think the tax man may have his priorities all wrong if he is going after One Direction rather than the multi-national companies who make multi-billion profits.
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