Duchy of Cornwall

There’s a bit of fuss going on at the moment about the fact that the Duchy of Cornwall doesn’t pay Corporation Tax.

The Prince of Wales has defended the position by saying that the Duchy is not a company, so corporation tax is not due, but the income is all charged to income tax instead.

The actual legal status of the Duchy seems to be a little in doubt – there was a ruling that suggested that for some purposes it was a local authority, which of course would not be chargeable to corporation tax either –  but I was wondering what the impact would be if it were indeed a body corporate subject to corporation tax (a guarantee company, perhaps – it’s clearly not a member’s association or similar).

I’ve not looked in detail at the position, but from the Prince’s statements what we seem to have is £18m of income on which £5m of income tax is due (at 50%), suggesting £8m of deductible costs and £10m of profits taxable in the Prince’s hands.

If we say that the Duchy is a company, then if that income all stayed in the company we’d have CT of about £2.4m – less than half the income tax bill. 

If the entire surplus of £7.6m went to the Prince in dividends, he’d then pay a further £2.7m in income tax for a total tax charge of £5.1m – if and only if he takes all the income out personally.  With the 45% rate, of course, the tax bill would actually fall to about £4.7m.

The question therefore seems to be: why is the Prince not paying rather less tax than he does?

Is it perhaps because he has not adopted a tax-efficient structure, but is in fact just doing what ought to be done regardless of the tax position?

I don’t know the answer here.  But it seems a bit odd that the people who are complaining that he’s not paying corporation tax don’t seem to have looked at what would happen if he did…

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