UK data centre tax farce ensnares opportunistic celebs

HM Revenue and Customs is in the process of clawing back a couple of million quid after a handful of celebrities got caught up in a suspect tax relief scheme to build data centres in the North East.

Kenny Dalglish, Rick Parfitt, Wayne Rooney, Arsene Wenger, Lady Ann Redgrave and Jimmy Carr were among 675 people who invested £79 million in 2011 but got back £131 million in tax relief, according to the BBC. There is apparently no question of wrong-doing from these individuals, though a number of Accelerated Payment Notices have been handed out, which requires an individual to pay first and appeal afterwards if they disagree.

The saga focuses around the construction of Cobalt Data Centres 2 and 3, where investors were given tax relief through the scheme which was intended to encourage economic growth in the Tyneside area. The scheme allowed investors to collect 50% tax relief on the full £263 million cost of building the data centres, despite their contribution being £79 million as a group. Each investor contributed roughly £117,000 each on average, but was able to claim back £74,000 in future taxes.

While the scheme was actually closed in 2011, HMRC didn’t begin the enquiry into the unusual tax relief system until 2012, but Harcourt Capital, one of the project backers, said the investigation from HMRC didn’t start until 2015. Nice to see the break-neck speed of the private sector is being maintained.

The main issue here seems to be the fact that following the construction of the data centres, there are no customers. It appears to be an example of individuals scamming a legitimate government initiative, but you might have to look a bit closer.

The data centres are currently marketed as shells, poised to house computer servers belonging to whoever needed somewhere to put them. In other words, if you don’t have space in your office to put server racks, you can rent some floor space in these data centres. This doesn’t seem to be a case of scamming the tax-payer, but a completely redundant business idea, which belongs in the 90s not the era of cloud computing.

The scheme itself seems like a short-sighted idea from a local politician or civil servant based loosely around the idea of regional regeneration. Build a data centre and they will come, though it would appear little thought was given to the prominence and rise of cloud computing, and how cost effective companies like AWS and Microsoft Azure can make data storage in a virtual environment.

So while we may be quick to criticize celebrities looking to take advantage of a tax-relief scheme, maybe we should be pointing the finger at technically incompetent government employees, who were unable to recognise the significance in the rise of the cloud.