CalMac saved £11m in 'tax dodge' while taking £36m of Covid funding

Calls have now been made for ministers to ban the complex legal tax avoidance scheme run by CalMac to pay seafarers, at a time when the SNP has attacked Westminster for failing to tackle UK tax avoidance.

It has emerged that the transport minister Jenny Gilruth herself is unsure that the scheme, which exploits the existing tax system legally, is appropriate and believes that ministers will have to rethink.

Unions have described the offshore scheme operated by what is a taxpayer-owned company as a “national scandal”, and expressed anger that ministers have done nothing to change it.1 But CalMac say that the scheme operated through Caledonian MacBrayne Crewing (Guernsey) established by CalMac parent company David MacBrayne Ltd is standard practice in the UK to enable UK flagged vessels to be competitive.

Over the last 17 years, CalMac has saved over £50m from its use of the subsidiary company based in the tax haven of Guernsey to employ its 1000 seafarers, exempting it from National Insurance contributions.

Caledonian MacBrayne Crewing (Guernsey) was originally established to cut more than £1.5m in costs.

Meanwhile, in the year to the end of March, 2022, CalMac received Covid funding of £11.7m from the Scottish Government agency Transport Scotland plus £200,000 of furlough money from the taxman. That came after receiving £22.8m from the transport agency plus £1.1 from HMRC.

 READ MORE: Transport minister gives no assurance over fiasco ferries delivery

That is on top of the over £300m of subsidies it got over two years to maintain ferry services to some of Scotland's remotest islands.

The use of tax havens by shipping firms to employ seafarers came under closer focus after it emerged P&O used a company in the offshore tax haven of Jersey to employ 800 staff it axed without notice last year to be replaced by cheap agency staff.

Eight years ago in front of a University College London audience the First Minister, Nicola Sturgeon gave her own view over legal tax avoidance, branding it "obscene", "immoral" and "despicable", and promising a "zero tolerance" approach in Scotland. She said she could not "think of words strong enough for it".

She said the "whole political establishment" had negligently allowed tax avoidance to become routine, even though it robbed public services of essential funding.

The transport workers union TSSA slammed Scottish government ministers for allowing CalMac’s tax avoidance to continue to take place, saying: “Tax avoidance by a state-owned company is a national disgrace."

TSSA president, Marios Alexandrou, said: “Eight years ago Nicola Sturgeon called legal tax avoidance "obscene", "immoral" and "despicable", yet on her watch CalMac, a company 100% owned by the Scottish Government, has continued to exploit the loophole allowing them to avoid paying a whopping £6m pounds a year. That’s money that could fund nurses, schools or emergency services.

READ MORE: Fears new ferries may never sail as Ferguson Marine budget stalls

“CalMac is a publicly owned company. That carries with it a moral responsibility to pay its taxes, and its staff, fairly.

“Under the United Nations Convention on the Law of the Sea (UNCLOS) ships are meant to have a ‘genuine link’ to the flag they fly. CalMac owns and operates ships in Scotland. It employs staff who live and work in Scotland. That means they should be flying a Scottish flag, and paying taxes in Scotland.

“Enough is enough. CalMac’s tax-avoidance is costing the Scottish taxpayer a fortune. Scottish ministers need to intervene now and put an end to this scandal.”

Another union official said: "The complex web of the Guernsey set-up does raise serious questions about how on earth these offshore arrangements are being sanctioned by the Scottish Government.

"It is not just tax avoidance that is the concern, but the amounts of public money that is going offshore.

"It is a hypocrisy if ministers are aware of this and are doing nothing."

The practice of allowing ferry companies to avoid paying National Insurance contributions was introduced to keep them competitive in the face of foreign competition.

Many of the major ferry operators in the UK use offshore schemes, including Serco NorthLink Ferries which operates services to the Northern Isles of Orkney and Shetland. Outsourcing giant Serco beat Calmac to the £450m, six-year contract to run the services in 2020.

It has emerged that transport minister has expressed her misgivings over the offshoring before full details of the latest financial arrangements emerged.

She said in a briefing given over an MSP inquiry into the future of Scotland's ferry services that she was "not necessarily sure" that it was "appropriate".

She said: "The existing arrangements are historical — they have been in place for a number of years. The Government will need to look at that, although I have not been presented with any suggestions on how we might change that arrangement at the current time. However, that is something that we will need to consider.

"I, as the minister, have not yet had evidence to the contrary to provide me with a range of options.

"I have not yet had that advice, but I am not necessarily convinced that that is the most appropriate model."

Nine years ago, then chief secretary to the Treasury Danny Alexander, a Liberal Democrat in the coalition government, said a tax loophole allowing firms to dodge National Insurance would be closed under a new scheme targeting offshore payroll services.

He said it would end the use of offshore payroll services in tax havens such as Jersey and Guernsey.

READ MORE: Ferguson Marine: Ferry firm sanctioned twice over financial fails

He said these staff could be unknowingly ineligible for certain benefits.

The establishment of Caledonian MacBrayne Crewing (Guernsey) was approved by ex-Liberal Democrat Scottish transport minister Nicol Stephen.

Two years ago the Tax Justice Network's ranking of corporate tax havens scored Jersey and Guernsey 98 out of a possible 100, putting them "up there with the worst".

New measures introduced five years ago put further onus on firms to justify why they should benefit from the low or non-existent tax rates paid on their profits in Crown Dependencies like Guernsey, Jersey and the Isle of Man which is home to nearly 80,000 companies.

In 2017, Guernsey had just under 18,000 companies, with 89% not employing staff locally. The laws were introduced after the European Union threatened the dependencies with inclusion on its 2019 tax blacklist, along with 62 other places.

With it comes the possibility of economic sanctions and major damage to the reputations of the islands' financial services sectors.

The dependencies said the law change addresses concerns - by introducing fines of up to £100,000 for so-called brass plate companies that cannot prove they have a sufficient physical presence in the islands.

Depending on the type of company, tax-resident firms will have to demonstrate they are locally managed, generate income in the islands, and that they have a physical presence in terms of staff, premises and local spending.

EU attention on the islands sharpened after the 2017 release of the Paradise Papers, where Jersey and Isle of Man were the focus of major revelations.

By bringing in the new laws, Britain’s dependencies hoped to avoid finding themselves on the 2019 EU tax blacklist.

Last year the SNP blamed Westminster for not doing enough to tackle UK tax evasion and avoidance.

The party warned that Scotland lost £3 billion a year from UK tax evasion and avoidance - money that could be spent on schools, hospitals and the NHS.

"These are astronomical sums on a global scale, and yet Westminster is failing to take real action to tackle it," the party said.

“The UK only has 0.86% of the world’s population – but the UK’s tax loss is equal to 14.2% of the world’s total tax loss.

“Per person, this equates to around £570 a year – a figure that hits particularly hard amid a Tory cost of living crisis, for which we all pay the price.

"The SNP has consistently called for greater tax transparency and stronger action from the Westminster government to clamp down on tax avoidance and evasion – but the UK Tories simply continue ignoring Scotland."

Robbie Drummond, chief executive of CalMac, said: “The National Insurance Exemption for Seafarers scheme is standard industry practice in the UK. It is a scheme designed to enable UK flagged vessels to be competitive, protect UK maritime jobs and is approved by the UK and Scottish governments, as well as HMRC and the Treasury.

Video: Nicola Sturgeon announced that CalMac Ferries Limited was the preferred tenderer to operate the Clyde and Hebrides Ferry Services (CHFS) network in 2016

“CalMac applies UK employment legislation and our vessels and staff are governed by the UK Maritime and Coastguard Agency.”

A Scottish Government spokesperson said: "We support measures to ensure individuals and businesses pay a fair amount of tax and have called for greater tax transparency and stronger action from the UK government on avoidance and evasion.

'However, we are limited in what we can do – the Scottish Government does not regulate employment practices, nor are we responsible for National Insurance contributions or international maritime laws and practices.”