The National Union of Journalists has demanded explanations from a regional publisher after claims it hid £51.3m in profits to make it harder for staff to push for higher wages.
A tax tribunal involving Iliffe News and Media heard evidence that the publisher had hidden levels of its profits between 2003 and 2005 with a scheme which licensed newspaper mastheads to avoid tax.
Evidence at the tribunal revealed the move was partly made to prevent the union securing an increase in wages for journalists at its regional newspapers by concealing its true financial position.
The tribunal heard that Anthony Morton, finance director for Iliffe’s parent company Yattendon at the time, said in an email to the company’s accountants that it wanted to reduce levels of profits reported by its newspaper subsidiaries.
He wrote: “What we would like to do is to be able to reduce reported profits in the newspaper subsidiaries, since the levels of profit become common knowledge and could lead to union claims.”
Iliffe is set to form part of David Montgomery’s new Local World consortium, along with Northcliffe Media titles.
Barry Fitzpatrick, NUJ deputy general secretary, said: “We are appalled by these revelations which bring into question whether our members can trust anything that this company says during negotiations, particularly as we are now in talks over a ‘transfer of undertakings’ transfer as our members move to work for Local World.
“I am writing to Iliffe to ask for an explanation of this disgraceful behaviour.”
The tax tribunal was told the group drew up a tax avoidance scheme by assigning to its parent company the newspaper mastheads used by its subsidiaries, which were charged a lump sum payment to have them licensed back to them for a fixed term.
The subsidiary companies claimed that the grant of the licence was a new intangible fixed asset, enabling them to claim tax relief on the payments.
The tribunal found in favour of HM Revenue and Customs that the publisher was wrong to claim a tax deduction on these payments made by subsidiary companies for the use of their own newspaper mastheads.
The law was changed in 2005 to prevent such schemes.
The publisher now faces a claim from the government for it to pay further taxes for the period.
In a statement, Iliffe chief executive David Fordham said: ”This particular tax structure was put in place before I took over as chief executive of Iliffe News and Media in 2004.
“These were commercial transactions (which the court acknowledged) carried out with full and proper advice taken at that time.
“We will of course pay whatever tax the courts finally decide is due, but at this stage are still considering the detailed implications of the judgement.”