How dying Orwell avoided the clutches of the taxman

[A Corporate Solution]

Ben Fenton, Telegraph—UK, 9/30/05

George Orwell, author and lifelong socialist, entered into a tax avoidance scheme on his deathbed as money began to flood in from the success of his final two books, Animal Farm and Nineteen Eighty-Four.

He was seeking to escape the full weight of the Labour government’s punishing surtax regime as all his royalties arrived in a short period and he feared leaving his widow and six-year-old son with a gigantic bill for death duties.

After Orwell died, his accountants underplayed the copyright value of those two great works, which between them have sold millions of copies in dozens of languages, by telling the Inland Revenue they were mere “topical bestsellers” with short sales lives.

They also diminished the taxman’s expectations of the Orwell estate benefiting from the sale of film rights to both books with the bizarre reasoning that Hollywood might find them too anti-communist in tone and not want to offend the Soviet Union.

Papers relating to Orwell’s tax records have only now come to light with the release at the National Archives in Kew of the Inland Revenue file for Eric Arthur Blair, the author’s real name.

The file includes the document setting out the “service agreement”, made while Orwell was dying of tuberculosis in a small sanatorium at Cranham, near Gloucester, that was intended to protect him and his estate from the crippling surtax regime of the time.

It takes the form of the “minutes” of the first meeting of a company called George Orwell Productions Limited held on April 19, 1949, nine months before his death.

Listed as present is only one name, “E. A. Blair”—Orwell himself.

The minutes have only one item on the agenda, the service agreement, which says: “In consideration of Mr Blair agreeing that all Fees, Royalties etc. received by him as Journalist, Author, Lecturer, Broadcaster etc. and that all the copyrights of all Books, Articles, Plays etc. written by him during the term of his employment are to be the property of the Company, IT WAS RESOLVED that the Company should employ Mr Blair for a period of Fifteen Years from the 6^th April 1949 at a salary of Two thousand pounds (£2,000) per annum plus such Bonus as may be voted each year at the discretion of the Board.”

After consulting Jack Harrison, his accountant, Orwell paid himself the equivalent of a salary of about £126,000 at today’s prices because it would attract relatively less tax than the lump sum expected from the royalties of Nineteen Eighty-Four, which turned out to be six times greater in the following tax year. He had ignored Harrison’s advice to do this after the publication of Animal Farm in 1945 and paid crippling taxes in 1947 as a result. Now, with the success of Nineteen Eighty-Four assured, he seemed to have determined not to make the same mistake again.

The scheme was drawn up with the knowledge of both men that Orwell was unlikely to draw much more than a year’s salary before his death.

Orwell noted ironically at the bottom of the “minutes” that “the Assistant Secretary was instructed to write to Mr Blair confirming the above arrangement”.

Orwell referred to the riches that he earned only at the end of his life as “fairy gold” because he knew he could never spend it.

After Orwell’s death at the University College Hospital in January 1950, Mr Harrison took on the Inland Revenue, which was keen to tax every penny from the estate.

The file shows a detailed correspondence between the taxman and Orwell’s lawyers.

In one question, the Revenue asks why the American copyright on Animal Farm has been valued at £500, relatively lower than a collection of essays Dickens, Dali and Others.

“Your point is appreciated but its strength is somewhat diminished by reason of the fact that the demand for Animal Farm as a topical best-seller may, apart from any unexpected boost as a result of the deceased’s death, be expected to be now exhausted.”

In fact, American sales of the book topped eight million by 1970, about the same as Nineteen Eighty-Four.

Of that masterpiece, the solicitors said that a professional copyright valuer believed sales would “dwindle fairly rapidly”.

“The fall from 4,528 sales in the six months ending 30.6.50 to 821 in the three months ending 31.10.50 supports his view and indicates that future sales will very rapidly decline,” they told the taxman. The Revenue was also licking its lips about the film rights to the books, the files show, pointing out that Orwell must have recognised their value because he specifically mentioned them as a bequest in his will.

But the solicitors bent all logic to try to play down the value of the rights, the new documents show.

“It should also be borne in mind here that the only books worthy of filming are Nineteen Eighty-Four and Animal Farm and are in a strongly anti-communist tone and would be regarded by film companies as an extremely risky proposition as, by the time that these films could be made and put on the market (which would take 2 or 3 years from the date of contract) friendly relations may have been established with the USSR and it would then be extremely difficult if not impossible to secure a showing of the films.”

Both books were filmed twice in the 20^th century and commercially successful.

DJ Taylor, a biographer of Orwell, said of the newly-discovered files: “It is very poignant that he only earned this money when he knew he was dying.

“I would defend the man to the death, but I think in this case he was being quite naïve because I don’t think if he had really understood what was going on that he would have really approved of a scheme that cheated the state of income.”

But Prof Peter Davison, the editor of the 20-volume Complete Works Of George Orwell, said that the author’s motivation was easy to understand.

“He was very worried about providing for his son, Richard, a boy who he could not even see for his last few months such was the fear of passing on the tuberculosis.

“I think this shows that he was doing what he could to provide for his son.”