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Why doesn’t Jacob Rees-Mogg pay tax?



A common accusation is made on Twitter that Jacob Rees-Mogg doesn’t pay UK tax, which understandably causes some consternation.


Where does this accusation come from? A tweet on 22nd March 2019 asked JRM “How does your company make £103m profit and pay zero tax??” With a follow up of “Any idea why he has an entity based in the Cayman Islands?” There’s a spreadsheet detailing the firm’s profits and tax from 2014 to 2018.




Perfectly reasonable questions, but by the end of that same day this, the most common wording of the accusation, had appeared several times on Twitter. By now this same wording has been retweeted tens of thousands of times at least.


“Jacob Rees-Mogg’s Company Accounts show c£103M profit over last 5 years, but paid ZERO UK corporation tax as ultimate ownership in Cayman Islands. No contribution for schools, hospitals, roads, defence, public services, welfare etc. No wonder he is keen to avoid new EU tax laws.


Is it true? On the spreadsheet detailing the firm’s accounts it has a reference to a “Company Number” of OC327862 – this is the Companies House reference for Somerset Capital Management LLP, which is indeed the firm that Jacob Rees-Mogg cofounded.




So what do we notice about this firm? Well its registered office is in London and it is an LLP – so it’s a UK LLP.


If we use the 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 s1273:


“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.


If you go back to the original Companies House link and click on “People” we can see who the members of the LLP are. Underneath each person it has “Country of Residence”. As you can see, none of the members of the LLP are in the Cayman Islands.


So whilst Somerset Capital Management LLP ”paid ZERO UK corporation tax” the reason isn’t “as ultimate ownership in Cayman Islands”, it’s simply because it isn’t liable to pay corporation tax, the members are liable for the tax.


People who think the “No wonder he is keen to avoid new EU tax laws.” still has some truth regardless of the rest of the Tweet may be interested in this article.


So the tweet is basically nonsense, and most people actually accept that, but still have some reservations. Some of those reservations come from a 2017 Juliette Garside article in the Guardian, The Brexiters who put their money offshore, which highlights Jacob Rees-Mogg appearing in the Paradise Papers leak:


“Rees-Mogg is referred to because of a $680,000 payment he received when the BVI-based investment firm he worked for was bought by a Canadian bank. Rees-Mogg held more than 50,000 shares in the BVI-based Lloyd George Management at the time it was bought by Bank of Montreal in 2011.


Many people miss the last sentence which states, “There is no suggestion he avoided tax on any profit.


Indeed, there is a common perception on social media that rich individuals can avoid UK tax quite easily and legally by hiding wealth in offshore accounts. This isn’t true. Jacob Rees-Mogg, like the vast majority of people who live in the UK, is UK tax resident and domiciled. He is liable for UK tax on his worldwide income and gains. So if there was a capital gain made when he received $680K it would be just as taxable if it was in a UK company as a Cayman Islands company. Similarly, if you earn interest on a bank account in the Cayman Island, the interest is taxable in the UK. So whilst there is no evidence that Jacob Rees-Mogg currently has any of his wealth in offshore locations, it wouldn’t actually save him any tax if he did.


UK resident non-doms can avoid tax by holding money offshore and electing, for a fee, to be taxed on the remittance basis. That basically means you don’t pay UK tax unless and until you remit the funds to the UK. This is not an option to Jacob Rees-Mogg nor any other member of Parliament, see the Constitutional Reform and Governance Act 2010, s41:

“Tax status of MPs and members of the House of Lords


(1)Subsection (2) applies if a person is for any part of a tax year—

(a)a member of the House of Commons, or

(b)a member of the House of Lords.

(2)The person is to be treated for the purposes of the taxes listed in subsection (3) as resident and domiciled in the United Kingdom for the whole of that tax year.”


The Guardian article goes on to say, “Somerset is managed via subsidiaries in the tax havens of the Cayman Islands and Singapore” and this quite possibly drove the tweets to link the zero tax on £103M profit to the Cayman Islands. We know it’s not totally true, but is there any truth in it?


Let’s consider what Somerset Capital Management, as a Group of entities, actually does. They are a fund management company, specialising in Emerging Markets. They hold, roughly, $7billion of assets in various companies based in “Emerging Markets”, so Brazil, Mexico, Russia, China, Indonesia etc etc. They don’t own these assets, these are known as “Assets Under Management” (AUM) and they belong to investors. So you might, as an individual with money to invest, have a vague notion that Emerging Markets may have some growth potential in the long term, but you might not know where to start in terms of finding companies to invest in. So you invest in a fund managed by an Emerging Markets specialist.


Somerset have a number of funds, this is one of their UK funds, and there is some information of what you can expect from the fund, “The Fund seeks to achieve capital appreciation and income growth by mainly investing in an actively managed portfolio of dividend-paying emerging market securities.


Somerset Capital Management LLP is the investment manager of this fund and will take various fees, including an Investment Management fee, out of the fund. So, say, a £100M with a 1% management fee will have £1million deducted annually which will go to SCM LLP – if you do enough of this you get to £103million profit!


So why does the firm need overseas entities to do this? Why can’t everything be based in the UK? Well, the United States is the most lucrative investment market in the world, so selling 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. So this is the US structure.


We have the fund itself, Somerset Global Emerging Markets LLC based in Delaware, so is a US domestic fund. 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.


Again, the management fees for the US based funds are again received in the UK where the funds are actually managed from.


Somerset has a couple of Irish funds which are used where an investor requires an EEA based fund following the UK’s exit from the EU.


So both problems are resolved.


Some people are still sceptical that a Cayman Islands/US fund structure, or even an Irish fund structure, doesn’t avoid UK tax. It is important to understand that, generally speaking, UK funds don’t pay UK tax. So moving the structure of the fund out of the UK doesn’t save any UK tax at all.


A UK fund will invest in various companies, from who it will receive dividends and may make capital gains – it will pay tax on neither. However, it will distribute those dividends to the investors, and investors may also make a capital gain from their investment in the funds – these *are* taxable. If the funds were also taxable the same dividends and gains would effectively be taxed twice.


It’s useful here to separate fund structures from Corporate structures. The firm makes the profits and is in the UK. The funds are based wherever they need to be based to attract investors. Wherever the fund is domiciled the LLP receives the fee which then becomes taxable in the hands of the LLP members.


So Jacob Rees-Mogg, along with the other LLP members, will pay tax on whatever share of income from the LLP is deemed to be his. The tweet, and the whole narrative, isn't really based on reality at all


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