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Did Rees-Mogg stand to gain Billions from a no-deal Brexit? Lloyd Hardy debunked!


A previous Politax article addressed a conspiracy theory promulgated by Maureen Fitzsimmons (amongst others), and that particular tweet is seldom seen anymore. Lloyd Hardy wrote a long article in a similar vein, and in a similar vein it was also nonsense and warranted debunking, so, using some pieces from the previous Politax article, here we go.


You can find the Lloyd Hardy article here.


Let’s go through the “FACTS”.


“FACT 1: Jacob Rees-Mogg's Fund Invests $3 Billion in China”


Jacob Rees-Mogg is a partner [1] in Somerset Capital Management[2], a $6.8 billion[3] hedge fund (over £5 Billion) managed by a Limited company in the Cayman Islands[4] with 40% of its current investment in Chinese stocks[3]. Unlike the LLP that he uses to avoid taxation in the UK, the Caymans Limited company should pay UK Corporation Tax at 19% but it is 'technically' located in an offshore tax haven.”


The first sentence contains no real accusations of wrongdoing, and some useful references. Although he takes no active role anymore, Jacob Rees-Mogg’s firm runs a number of funds with (currently) about $7.4billion under management. They specialise in Emerging Markets, so developing economies which are becoming more engaged in global markets as they become more developed. The core group of Emerging Markets are known as the BRICS – Brazil, Russia, India, China and South Africa. China is by some distance the largest Emerging Market in the World, so it should come as no surprise that an Emerging Market fund has a large exposure to China. The benchmark China exposure for an Emerging Market fund would be around 35%.


How about “$6.8 billion hedge fund managed by a Limited company in the Cayman Islands”? That’s not quite correct. Somerset Capital Management (Cayman) Limited (SCMC) is the managing member of three US funds:


Somerset Emerging Markets Small Cap Fund LLC, Assets Under Management $320M

Somerset Global Emerging Markets Fund LLC, AUM $429M

Somerset Small Mid Cap Em All Country Fund LLC, AUM $275M


So just over $1bn or about 14% of the $7.4bn of assets under management are managed using SCMC. But why use them at all? Why can’t these funds just be based in the UK?


The United States is the most lucrative investment market in the world, so selling funds to the US is clearly desirable. Unfortunately you can’t just sell your UK investment fund to US persons – it would need to be registered with the SEC. If you look at almost any Prospectus for a UK based fund of any kind and it will have a clause that says something similar to this:

The Shares have not been and will not be registered under the United States Securities Act of 1933, as amended. They may not be offered or sold in the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia or offered or sold to US Persons. The Company has not been and will not be registered under the United States Investment Company Act of 1940, as amended. The ACD has not been registered under the United States Investment Advisers Act of 1940.”


Also, US PFIC pronounced “peefick” rules make it undesirable for US investors to invest in non-US funds – basically they mean any capital gains made by US investors in non-US funds will be taxed as income, but feel free to look them up separately.

So SCM LLP have a problem. They want to sell their funds to US investors who cannot buy them. So they need a fund structure which means US investors can buy them, they can still be managed from the UK, whilst being financially viable – so don’t incur any extra taxes and make it as inexpensive as possible from a regulatory standpoint. You can find information about the structure in an SEC filing here.

So the funds listed above are based in Delaware, so they are US domestic funds. You will note its address is Meteora Partners in New York, who will probably help with SEC compliance so SCM LLP don’t need to know the complexities of SEC compliance as well as FCA! It also has a “managing member” in the Cayman Island. Ostensibly a “managing member” is responsible for the day to day management of the LLC, which the Cayman Islands don’t require to be licensed, and which is just outsourced to the UK where the fund is actually managed from.

Onto the second sentence, “Unlike the LLP that he uses to avoid taxation in the UK, the Caymans Limited company should pay UK Corporation Tax at 19% but it is 'technically' located in an offshore tax haven.” Some accusations in here – note the lack of any references at all. The Cayman Islands company has no revenue – it’s simply there to provide an inexpensive regulatory structure for three US based funds. It wouldn’t pay Corporation Tax if it was in the UK – because it has no revenues, and therefore no profit to be taxed.


SCM have funds based in the US, Ireland and the UK. US for US investors, Ireland for those looking for an EEA domiciled fund, and the UK predominantly for the domestic market. So the purpose of having the funds domiciled in various locations is simply to expand your potential client base. All of them are actually managed from the UK and charge a fund management fee – and it’s this fee that makes Somerset Capital Management LLP its profit. SCM LLP is a UK based Limited Liability Partnership.


If we use this Companies House link and click on “Filing History” you can see all the statutory Companies House filings this firm makes. Of interest to us is the accounts – the latest at the time of writing are 19th August 2020 “Full Accounts”. We do notice that the firm pays no tax – so does the accusation hold? If you go to page 11 of the accounts there is a paragraph entitled “Taxation” which states:


“No provision for taxation is made in the LLP’s financial statements as any liability arising is assessable directly on the individual members”.

Which is of course borne out by the legislation, see the Corporation Tax Act 2009 1273:

“Limited liability partnerships

(1)For corporation tax purposes, if a limited liability partnership carries on a trade or business with a view to profit—

(a)all the activities of the limited liability partnership are treated as carried on in partnership by its members (and not by the limited liability partnership as such)”

An LLP is transparent for tax purposes. You may have heard the expression “You make a better door than a window”, HMRC sees certain entities as windows for tax purposes and others as doors - taxpayers. An LLP is a window which HMRC looks through until it sees a door. So if an LLP has two individual members HMRC will look through the LLP and will “look at” the two individual members – for tax purposes those two individual members made the profits as self-employed individuals and the LLP doesn’t exist.

So if two friends go into business as equal partners and the partnership makes £100K profit, they will each pay tax on their £50K as if they had earned the profits themselves. The partnership itself won’t pay any tax at all, but no tax is avoided.


It’s quite possible that one partner is a higher rate taxpayer (40%) and one is an additional rate taxpayer (45%). It is also possible that a member of an LLP is a company – so again this company’s share of the profits of the LLP become the profits of the company. So how much tax is ultimately paid on the profits made by an LLP is dependent on who the members of the LLP are.

So no tax is avoided by using the Cayman Islands entity and no tax is avoided by using Somerset Capital Management LLP.


Let’s move on to Fact 2


“FACT 2: Jacob Rees-Mogg Avoids UK Taxes


The Cayman Islands imposes no direct taxes whatsoever on companies registered there: No corporation tax and no income tax, no property taxes, no capital gains taxes, no payroll taxes, and no withholding tax [6]. This and the fact it is an LLP mean that Jacob Rees-Mogg avoids all UK taxes on his profit from this company that does not contribute to British society in any way. The society that he not only lives in, but is the most senior law maker of.”


The first sentence, again the one with the reference, is true. The Cayman Islands does not impose corporation tax etc. However, as we have seen this is of no relevance to a Cayman Islands company with no revenue – it wouldn’t pay tax wherever it was. With what would it pay tax? On what basis?


This sentence, “This and the fact it is an LLP mean that Jacob Rees-Mogg avoids all UK taxes on his profit from this company that does not contribute to British society in any way” (without any reference), is demonstrably not true.


Go back to the Companies House link and this time choose “People”, which lists all the members of the LLP. Go down the list and you will Find Jacob Rees-Mogg as an individual, but if you go a little further you will find “Saliston Limited”. If you click here you will find the Companies House record for Saliston Limited.


Saliston Limited is Rees-Mogg’s own company, which he owns 100%, and through which he holds much of his investments. It’s a smaller company, so doesn’t need to disclose full accounts, but if you go to the entry on 31st March 2021, “Total exemption full accounts”, on page 12 of that document you can see in note 7 Corporation Tax of £72775 and other tax of £9914, so £82689 is conclusive proof Mogg doesn’t avoid “all UK taxes”. Mogg’s individual tax is not public knowledge, but we do know he is an MP, on a cabinet minister salary, which I believe is £142945 and by law is paid PAYE, so about £56500 tax and NI. We’re up to about £140K per year based purely on information in the public domain.


“FACT 3 - In 2015 The EU Cracked Down On Jacob Rees-Mogg's Tax Haven


In June 2015, the EU began placing restrictions on Tax Havens and started promoting Anti-Tax Avoidance Directives (ATAD)[8]. The EU planned to make sure the burden of tax was not placed unfairly on working people by people like Jacob Rees-Mogg. Instead #FairTaxation would mean that rich elites and corporations would pay their fair share, just like the rest of us.”


Well this is just nonsense, debunked many times. I’m not going to repeat this whole thing here, just to say that there were no material changes to UK tax law required by ATAD. All the measures within ATAD, apart from immaterial amendments to existing measures, were already UK law, had been for years and would have been whether we were in the EU or not. If anyone needs chapter and verse on this, please see a previous Politax article.


The rest of Lloyd Hardy’s assertions are almost certainly not factual, but are not generally related to tax, so are not my field. There’s a couple of things of note. “Mogg lobbied for personal gain”. SCM invest in a large number of Emerging Markets funds, some large cap, some small, but in all sectors. The funds will gain/lose on whatever broadly happens in Emerging Markets.


Will SCM gain from fossil fuels, and Tobacco? Possibly. But then SCM also have the Future Leaders fund which specifically doesn’t invest in fossil fuels or Tobacco! With such a diverse range of investments, you can claim Rees-Mogg is gaining from almost anything. “Mogg insisting the Chinese do their bit to combat climate change for personal gain!” could equally be the charge. Again, nonsensical.


“FACT 7 - Jacob Rees Mogg & Friends Make Billions in a No Deal Brexit” is noteworthy only because of how ridiculous it is.


The profits of the tens of billions that Jacob Rees-Mogg and his friends make in a No Deal Brexit will avoid all UK tax. Somerset Capital Funds alone could make 50% should they capitalise on the loss of 50% of our free trade with the EU by shifting resources to buy up devastated UK stocks, potentially £2.2 Billion ($3 Billion) from a No Deal Brexit. This is a massive conflict of interest for the Leader of the House of Commons, the cornerstone of our democracy to have.”


Difficult to know where to start. SCM have literally zero exposure to the UK. It would be difficult to invest in an asset class with a less significant conflict of interest. “Somerset Capital Funds alone could make 50% should they capitalise on the loss of 50% of our free trade with the EU by shifting resources to buy up devastated UK stocks”. No, SCM does not invest in the UK. It does not invest against the UK. Its investments have precious little to do with the UK at all. Think about the impact of Brexit on Brazil, China, India, Indonesia, Malaysia, South Africa, Russia etc etc – and many other countries who really don’t care, from an economic point of view, whether the UK is in the EU or not! That is SCM’s exposure. Negligible.


Lloyd Hardy’s article is nonsense, from start to finish. You might not like Mogg’s politics, many don’t, but Lloyd Hardy doesn’t help legitimate debate. His article is designed simply to deceive. This diagram is a classic example:



It’s designed to look like some kind of textbook example of how profits are shifted. But what is it actually saying?


The LLP doesn’t pay 19% not because the profits are shifted to the Cayman Islands, it doesn’t pay corporation tax because it’s an LLP! It doesn’t shift any profits to the Cayman Islands, and the Limited Company in the Cayman Islands isn’t the Head Office. The company is based in every real sense in London. Head office is in London and the majority of employees are also in London – there is no office used by SCM in the Cayman Islands, and there are no employees. The £5billion isn’t in the Cayman Islands – it’s invested in China, Brazil, etc etc. The fees for managing that £5billion is received by the LLP in the UK, and the profits are taxed in the hands of the LLP members. Nothing in the diagram is representative of reality.


Lloyd Hardy’s article is best ignored, or used as an example of misinformation. Despite the number of times the word is used, “FACT” it most certainly isn’t – and deliberately so.


This article is covered by the Politax Guarantee. If you find a material factual inaccuracy in anything I have said I will delete the article. I wonder if Lloyd Hardy would offer the same?


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