Tim Jackson - Virgin King (Text Only)

Richard Branson’s wish to make sure he always does as well as possible from any business arrangement applies equally to his dealings with the Inland Revenue. He discovered early in his career the risks of breaking the law, when his botched attempt to evade purchase tax was detected by Her Majesty’s Customs & Excise. Luckily, the Customs were willing to settle for the payment of a £53,000 penalty, so the young entrepreneur was spared the humiliation of a prosecution, and the risk of a gaol sentence that might have put an end to his ambitions. From that clumsy attempt at fraud he learned the distinction between tax avoidance (which consists of arranging matters so as to minimise the tax bill) and tax evasion (which is illegal); and he learned to make use of top-class advisers to ensure that every step he took was watertight and could be defended against challenge. But Branson’s instinctive reluctance to see his hard-earned profits paid over to the Chancellor of the Exchequer never left him. In 1973, when Branson was not yet twenty-four years old, the first trademark of the Virgin record company was registered as the property of an offshore trust, thus legitimately placing beyond the taxman’s reach part of the royalties that overseas companies paid to Virgin. Later in the 1970s, Branson made use of a number of carefully prepared tax-avoidance packages bought in from experts. Early in the 1980s, Don Cruickshank had to warn Branson that he might actually be wasting time and money with these convoluted schemes, since Virgin was growing so fast that the schemes could not keep up.

Before Virgin went public, Branson took the step that has saved him tens of millions in tax. He transferred ownership of many of his shares in the company to offshore trusts of which he and his family are beneficiaries – so that when the company went public, and when the music business was later sold in a transaction valued at 2560m, the bulk of the capital gains could be free of tax. There the position still stands. The offshore trusts, resident in the Channel Islands, are the major shareholders in the holding companies of Branson’s present businesses; and they are able, quite legally, to invest money in his ventures if the independent trustees believe it wise to do so. If Branson ever decides to retire, he will be quite at liberty to take a one-year tax holiday abroad and to come back to the UK several hundred million pounds richer without owing anything to the Inland Revenue. Hostile questions were asked in Parliament about these arrangements soon after the sale of Virgin Music Group; but the lawyers and accountants have done their jobs too well for there to be anything to criticise.

This book is an attempt to capture what makes Richard Branson distinctive as a businessman. It is therefore in part a biography, and in part a history of the Virgin empire that he has established. But it does not seek to do both jobs in full. There is little on these pages, for instance, about Branson’s marriage to Joan Templeman, his second wife; and little about the companies in his empire with which he has so far had little to do – notably the communications businesses run by his brother-in-law Robert Devereux, and the Voyager hotel interests. In some cases, such as his participation in a consortium running train services through the Channel Tunnel, the projects are still at too early a stage for any serious conclusions to be drawn about them at all. Broadly, however, this book tells the story of Branson and his ventures one by one, starting from the mail-order record firm that was his very first serious venture at the end of the 1960s, and ending with his abortive attempt to run the National Lottery in 1994. Whether the reader will agree with the conclusions and predictions to be found in the epilogue, however, remains to be seen.

ONE

1969: Easy Work, Good Money

STEVE LEWIS, sixteen years old, knocked on the door. After a long pause, a bony youth with lank, black, greasy hair appeared. He had a prominent rip in the inside leg of his jeans. The brightness of the July sun highlighted the contrast between his pale, long fingers and the dark semicircles underneath his nails.

‘Is this number forty-four Albion Street?’ asked Lewis.

‘Yes,’ replied the boy, who looked eighteen or nineteen.

‘I’ve come about the job which was advertised in the personal columns of The Times’ , said Lewis. ‘“Record company and magazine looking for young people,” it said. “Easy work, good money.” This was the address to apply to.’

‘The job’s gone, But you can come and sell magazines for us if you want to.’ Nik Powell, the boy on the doorstep, turned on his heel and led the way past piles of magazines wrapped in string and paper into the hall of the terraced house. ‘Take that stack down to Hyde Park,’ he said, pointing to one of the piles. ‘You sell them for three shillings each, you keep one and six, and you bring the rest back here at the end of the day.’

Steve Lewis was just about to start studying for his A-levels at Christ’s College in Finchley, and he wanted to earn some pocket money in the summer holidays. Music was his passion – everything from Sergeant Pepper to Jimi Hendrix, but the black American music of the Motown label in particular; that was why the advertisement had caught his eye. But he didn’t want to hawk magazines in Hyde Park, he wasn’t going to be intimidated into doing so by this unkempt, haughty teenager he had never met and he made his feelings clear.

Powell grudgingly identified himself and told Lewis that he would have to wait until Richard Branson was free. As he waited, Lewis was struck by the glamour and buzz of the office. Phones were ringing; attractive women were coming and going. At the other end of the room, a young man with tousled light brown hair and a dazzling smile was talking very earnestly into the telephone.

When at last he finished his call and came over to see Steve Lewis, Richard Branson was a great deal more friendly than Nik Powell had been. His voice was mellifluous and rather posh. He explained that he had just set up a business to sell records by mail order, but admitted rather shamefacedly that he did not know much about music. Steve Lewis saw his opening. Within ten minutes he had dropped the names of enough obscure artists to convince the nineteen-year-old Richard Branson that he could provide the expertise that the business lacked. Branson, his interest rising, told Lewis that he had placed an advertisement in Melody Maker, the country’s leading music magazine, offering a list of records at a discount. ‘If the record you want is not listed here,’ said the advertisement, ‘write to Angie, and we’ll give you a price.’ The trouble was that Angie had left, yet the business was booming.

Branson had spotted a hole in the record market, and now it was all he could do to meet demand. Retail price maintenance – the system that allowed manufacturers of products to force shops to sell them at a minimum price – had been abolished by the government five years earlier, but neither record companies nor record shops had taken much notice. Rather than engage in a frenzy of discounting, the industry preferred to carry on much as it had done before, selling records at a standard price of thirty-nine shillings and elevenpence. Branson, therefore, had advertised his records at thirty-seven and six. A flood of customers had written in saying what they wanted, and enclosing postal orders and cheques. The records themselves had come in bulk from shops in Muswell Hill and the East End that were keen to unload excess stock. A group of girls had been recruited to type labels and to pack the records into envelopes. But without Angie, who could find the unusual titles that customers asked for? Who could distinguish the up-and-coming bands from the three-minute wonders?