A BskyB magazine for satellite TV customers was used as a tax avoidance scheme to save the company up to £40m a year.
The broadcaster saved millions in VAT payments by charging its satellite customers £2.20 a month for the Sky magazine, through a now-closed tax loophole, reports The Guardian.
The newspaper said that as magazines are normally zero-rated for VAT, it meant Sky could avoid paying VAT on a small but sizeable chunk of revenue. At around £3 to £4 per customer, the saving across Sky's 10 million subscriber base would have been between £30m to £40m a year.
At an earlier court case at the start of the decade involving Debenhams, the issue of VAT avoidance through the contrived splitting of services between different parts of a corporation was first highlighted.
However, a 2005 UK ruling meant cable companies were able to deduct VAT on "cable guide" magazines if they structured them in a way that those customers received a genuine, fair-priced product from a different company.
That year, Sky relaunched BSkyB Publications and in 2007 took production of Sky magazine in-house. A small note on the publication's masthead in 2011 read: "£2.20 of your package price is paid by you to BSkyB Publications Ltd for this magazine."
BSkyB Publications' accounts reveal that most of that income was recycled back to Sky TV, as payments for "customer data" and "support services". In February 2011, when legislation against VAT "supply-splitting" was published, Sky said it would cease publication of Sky Movies and Sky Sports magazines, and downsize Sky magazine with losses of up 20 jobs.
By October that year, all publications had been stopped, and BSkyB Publications was being wound down. In Sky's quarterly report for September 2011, a footnote revealed that the Sky benefit from the zero-rated VAT treatment of around £3 to £4 per head, had now been "restated".
A spokesman for HMRC told the newspaper that while it would not comment on individual cases it would always seek the repayment of back tax if it believed it was owed to them.
Meanwhile, Sky said in a statement that it "contributes more than £1bn a year in tax - a total of 1.4% of all taxes paid by the 100 largest FTSE companies. We're proud of the significant - and growing - contribution we make to the British economy".
John Christensen of Tax Justice Network told the paper that "tax avoidance is deeply engrained in Britain's corporate culture and is now a high-risk activity, not just to the companies involved, but also to the reputations of their professional advisers".