Formula One’s teams received nearly four times more tax relief than the amount of tax they paid over the past five years according to new research.

Together, the eight teams which release publicly-available financial statements received £187 million ($241.9 million) between 2012 and 2016, the latest year which a complete set of data is available for. It shows that their combined tax bill only came to $62.6 million (£48.4 million) driven by high-octane losses and credits for companies in the tech sector.

F1’s teams have managed to drive down their tax bill (Mark Thompson/Getty Images)

The tax affairs of F1 teams raced into the spotlight in July when British authorities asked a court in London to close the doors of the Force India outfit over an unpaid tax bill. As the table below shows, Force India was actually paid $66.7 million (£51.6 million) by the tax authorities, which is more than any other F1 team received. So how could it have owed money to the tax man? The answer is found by taking a good look under the hood of Britain’s byzantine tax system.

Force India is in pole position in F1’s tax relief

Corporations usually pay three main types of tax. The first is sales tax which is known in Britain as Value Added Tax, or VAT for short. It is deducted before costs are calculated so does not show on financial statements. Additionally, payroll tax (called PAYE, or Pay As You Earn) is paid by corporations on behalf of their employees. Finally comes corporation tax which is levied on businesses based in Britain.

If a business is trading it generally has to pay VAT and if it employs staff it has to pay PAYE regardless of whether it has a corporation tax bill to pay. F1 teams tend to swerve around it in two perfectly legal ways.

Corporation tax is calculated on pre-tax profits which is often the stuff of dreams for F1 teams. Unlike most businesses, profit is not the barometer of success for F1 teams. Instead they judge their performance on racing results and tend to spend all of their revenue in a bid for victory. In fact, teams often spend more money than they receive in revenue with the difference covered by debt or payments from their owners. It explains why they made a combined net loss of $111.8 million in 2016 as we reported.

Not only does this mean that the teams’ corporation tax bills are stuck in the slow lane but they can also carry losses forward to offset them against future profits.

The impact of this can be seen by looking at the 2013 results of the Williams team which show that it had pre-tax profits of $12.9 million (£10 million) giving it a corporation tax bill of $3 million (£2.3 million). However, the team had $3.4 million (£2.6 million) of unrelieved and unutilised tax losses so it ultimately had a tax bill of just $14,200 (£11,000). This gave Williams an effective tax rate of just 0.1% even though the standard rate of corporation tax was 23%.

Williams hasn’t paid any tax since then largely due to the losses it is carrying forward and it seems on track to stay that way as its latest financial statements say that “the company has estimated losses of approximately £99.3 million [$128.3 million] available to carry forward against future trading profits.”

Force India, like many other teams, also used another perfectly legitimate maneuver to boost its income as it took advantage of the British government’s Research and Development Expenditure Credit (RDEC) scheme which is designed to reward companies for investing in R&D. An RDEC credit is worth 12% of qualifying R&D expenditure so it offers turbocharged tax relief.

Although Force India got more tax back than any other team, Mercedes’ High Performance Powertrains F1 engine division made the greatest single gain from the tax man in 2012 when it landed a $53.7 million (£33.3 million) tax credit largely fuelled by group relief receivable. That’s not the way it has always been for Mercedes as its F1 team earned an accolade at the other end of the spectrum in 2016 when it paid $19.6 million (£15.9 million) which is the highest single tax bill of any outfit during the period.

Although there is enough information in the financial statements to write dedicated profiles of these F1 teams, the twists and turns in the tax performance of two remains a mystery. Sauber is based in Switzerland where local corporations pay tax but aren’t obliged to file publicly-available financial statements so its costs are unknown.

The other question mark is over Ferrari which files extremely detailed financial information as it is listed on the New York Stock Exchange. However, its F1 team is a department of the auto maker rather than being separately incorporated so its results do not have to be disclosed. According to the latest filings Ferrari itself paid $242 million (€209 million) of tax last year so if it was in the race it would be in pole position by a long way.


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