Image: Channel Island beach, Paula Funnell/Flickr

In 2011, after the collapse of Southern Cross, the NHS regulator Monitor considered imposing stricter controls on the finances of the organisations taking NHS work. One of these was limiting the amount they could borrow. After submissions from companies, NHS trusts, individuals and various industry bodies, Monitor backed down and dropped the proposals.

Two of the companies - Tunstall and Spire Healthcare - were among those exposed in October this year by Corporate Watch and the Independent as using a legal tax avoidance scheme based on borrowing from themselves - or rather from their owners - through the Channel Islands.

HMRC knows about the scheme but allows it to continue. It considered closing the loophole last year but decided against it after lobbying from the finance industry.

Corporate Watch recently obtained private healthcare company’s submissions to Monitor under a Freedom of Information request. Tunstall and Spire both argued against a debt limit on organisations taking NHS work because it would mean they'd have to pay more tax (less borrowing would mean less interest deducted from taxable revenue).

Tunstall said: “placing limits on a company's debt financing structure... will have a significant impact on the cost of their borrowing, as well as the cost of taxation”.

Spire said that any restrictions on debt levels “would be likely to trigger significant tax consequences for the provider concerned”.

The companies seem to be implying that they can invest more in healthcare if they don’t have to pay tax. But Spire and Tunstall aren’t reinvesting the money they’re dodging into their health services – it's going straight to their owners. Theirs isn't a principled stand against state inefficiency but a way of getting even more cash out of the country.

Tunstall provides 'telehealth' services, which are meant to provide care for elderly people in their homes (though the quality of that care is strongly disputed). The company made almost £100m from its work with councils and NHS bodies in 2012. It avoided as much as £19m in tax in the same year, after borrowing £558m from its owners, the Charterhouse and Bridgepoint private equity funds.    

Private hospital group Spire has seen revenue from the NHS double over the last five years to around £170m in 2012. It avoided up to £20m thanks to the £757m it owes the Cinven private equity fund.  

The interest that racks up on this debt slashes Tunstall and Spire’s taxable profits and goes back to their owners - tax free - thanks to a regulatory loophole. Combined with the interest they have to pay on the money they owe to banks and other third party lenders, this severely reduces their taxable UK revenue. Tunstall’s tax bill in 2012 was just £548,000 while Spire declared a tax credit.          

Luckily for the companies, the regulator seems sympathetic. Earlier this year Monitor was said to be considering recommending the logical next step in the argument: exempting NHS ‘provider’ companies from corporation tax altogether because it stops them “operating on an equal footing”, in the words of its Chief Executive David Bennett.

They didn’t take this forward but there’s no shortage of tax-related moaning from the private healthcare industry. David Worskett of NHS Partners Network - which represents companies including Spire and fellow avoiders Healthcare at Home and Care UK - has said that corporation tax is a “significant economic distortion” that it would be “extremely helpful” to have addressed by the government.

How fortunate then, that the government continues to let them dodge it.