Sky in 40m tax loophole storm

29 November 2012

A BskyB magazine for satellite TV customers was used as a tax avoidance scheme to save the company up to £40m a year.

The company saved millions in VAT payments by charging its satellite customers £2.20 a month for the Sky magazine. As magazines are normally zero-rated for VAT, it meant Sky could avoid paying VAT on a small but significant chunk of revenue. Across Sky's 10 million subscriber base this would mean a saving of between £30m to £40m a year.

The issue of VAT avoidance through the contrived splitting of services between different parts of a corporation had been highlighted in recent years by a case against a popular department store chain in the UK. As a result, in February 2011, legislation against VAT "supply-splitting" was published and Sky agreed to cease publication of Sky Movies and Sky Sports magazines, and downsize Sky magazine with losses of up to 20 jobs.

By October that year, all publications had been stopped, and BSkyB Publications was being wound down.

A spokesman for HMRC told the newspaper that while it would not comment on individual cases it would always seek the repayment of back tax if it believed it was owed to them.

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