Labour’s hedge fund donors took low-tax option of £160mn loans

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The directors of hedge fund Quadrature Capital, one of the Labour party’s largest donors, have taken £160mn in loans from the business in a move that could lead to a lower tax bill than if they received dividends.

The UK-based investment firm, which manages a fund in the Cayman Islands, made a £4mn donation in May to Labour after the general election was called — the largest single amount given to the party in the run-up to the vote. The fund at the time said it backed the party’s stance on climate change.

The hedge fund, which was founded in 2010 by billionaires Greg Skinner and Suneil Setiya, has paid more than £2bn in UK tax since it launched, as all of its trading profits have been subject to corporation tax.

But tax experts have pointed out the loans were for an unusually “large” amount, and that taking loans could mean the two directors face a lower tax bill than if they had received dividends from the company.

The two directors took £56.7mn in loans for the year to the end of January 2024, the most recent accounts show. Interest of £3.26mn was charged during the year. The latest borrowing has pushed the total amount currently outstanding to more than £160mn, the accounts stated.

Borrowing has increased significantly since 2020. Skinner and Setiya, who both receive a salary from the company, did not take any dividends during the year to January 2024.

“Borrowing money from your company or partnership can involve complex tax issues, and where large amounts are involved it will often attract the attention of HMRC since in many cases loans could result in lower tax liabilities than a salary or dividend,” said Ray McCann, a former senior tax investigator at HM Revenue & Customs who is now a consultant at Charter Tax.

While the top rate of tax on dividends is 39.35 per cent, company loans to shareholders that are not repaid within nine months of the end of the company’s financial year trigger a tax charge of 33.75 per cent. 

A source close to Quadrature denied “any insinuation of tax avoidance”, and said that “the taking of directors’ loans is part of standard tax planning, is fully declared, and is in accordance with HMRC rules”.

Quadrature and the Labour party both declined to comment.

The business recently underwent a corporate restructuring so that it could set up offices in Singapore and New York. 

The firm focuses on electronic trading rather than using stockpickers. It applies algorithms to decide which stocks to buy with a “market-neutral trading strategy”, and also bets against companies using short positions.

According to its most recent accounts, Quadrature paid £351mn in salaries for its 143 employees in the year to the end of January, up from £343mn paid a year earlier for 113 staff at the time. The average salary fell to £2.45mn from £3mn.

Quadrature’s founders also established a charitable organisation called the Quadrature Climate Foundation, which has given more than $1bn in philanthropic grants since it was founded in 2019, the company announced in September.

Charitable donations from the foundation jumped from £120mn in 2022 to £247mn in 2023, filings on the Charity Commission website showed.