The company that runs Formula One has used a complex technique to legally avoid paying tens of millions of pounds in corporation tax despite racking up annual profits of £305m last year, The Independent has learned.

F1, which is run by billionaire Bernie Ecclestone, made a net contribution of £945,663 ($1,468,000) in corporation tax in 2011 on revenues of £980m ($1.5bn) – even though the majority of its commercial operations are based in the UK.

The company has been able to substantially reduce its tax liability by taking out loans from other companies in the same group, as part of a complex arrangement with HM Revenue and Customs (HMRC). The interest payable on these loans is tax deductible, reducing the firm’s taxable profits.

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Details of money-spinning motorsport’s tax arrangements have been disclosed in a prospectus for the planned flotation of F1 on the Singapore stock exchange.

The Independent has also established that total corporation tax contribution from businesses linked to F1 – including by F1 itself, the eight teams and the two engine manufacturers headquartered in the UK, and the Silverstone circuit which hosts the British Grand Prix – was just £1.9m in 2011 despite total revenues of £2.1bn.

An analysis for this newspaper shows that in 2011, the most recent year for which a complete set of data is available, tax was only paid by two of the 12 F1-linked businesses.

They are engine manufacturer Cosworth and F1 itself, which has its headquarters in London’s fashionable Knightsbridge district.

The standard rate of corporation tax in the UK is 24 per cent of a company’s profit. The F1 teams tend to avoid this because they spend all of the money they receive in a bid to boost their chances on track. Breaking even or making a loss means that they don’t need to pay tax as there is no profit for it to be charged on.

F1 itself, whose biggest shareholder is Luxembourg-based private equity firm CVC Capital, has a different trick under its bonnet to reduce its tax bill. It is perfectly legitimate but far more complex.

F1 principally makes money from three sources: race-hosting fees, television broadcasting fees and advertising and sponsorship of F1 races.

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Its pre-tax profit came to £305.6m ($474.4m) in 2001. But the publication of the prospectus for the planned flotation of F1 on the Singapore stock exchange has revealed that F1’s precise tax bill is lower than previously thought.

F1’s key revenue-generating company, Formula One World Championship (FOWC), is located in the UK along with another 13 of the 30 companies in the group. They receive the lion’s share of the revenue but their tax bill is minimised thanks to a series of loans they have taken out from their offshore counterparts in the F1 group.

In 2011, F1 had £2.5bn ($3.9bn) of “intra-group loans” and HMRC allows the interest on them to be tax deductible. The interest came to £387.7m ($601.8m) in 2011 and it drastically reduces the tax bill of the UK-based F1 companies, pushing many of them into a paper loss.

This is confirmed in the flotation prospectus which states that “we have an efficient tax position. We expect our aggregate cash tax payments to remain broadly consistent with prior years.”

It explains that “the group’s tax charge is materially dependent on the amount of UK tax relief available to it for interest expense on certain intra-group loans. The amount of such relief is limited to the ‘arm’s length’ amount of interest, which can be a subjective matter. In order to obtain greater certainty regarding our affairs we have since 2008 operated pursuant to a formal advance thin capitalisation agreement with the UK’s tax authority, HM Revenue & Customs, which... applies until 31 December 2017.”

F1’s ultimate parent company, Delta Topco, is based in Jersey and the prospectus adds that it is “subject to Jersey corporation tax since it is a Jersey incorporated company. However, the current corporation tax rate in Jersey that is applicable to the company is zero.”

CVC Capital declined to comment on F1’s tax arrangements. F1 also paid $13.21m (£8.6m) in taxes overseas in 2011, the prospectus shows.

Tim Street, of UK Uncut, said: “Big businesses, corporations and rich individuals can avoid tax on an industrial scale. The Government needs to take action in the UK to stop this. The scale of this requires action. If the Government does not move to tackle it, we will not be able to pay for vital services and there is growing inequality in this country.”

Matthew Sinclair, chief executive of the TaxPayers’ Alliance, said that “Britain’s hideously complex tax code means it’s incredibly difficult for the public to understand how much tax a company, let alone an F1 team, should pay. It’s vital that the politicians who created our broken tax code now drastically simplify and reform it so people can be assured that everyone, whether a racing boss or a coffee giant, is paying their fair share, no more and no less.”

Despite not paying much tax, the UK benefits tremendously from companies connected to F1 being based in the country. The teams, engine manufacturers, track and F1 itself employ 5,243 people and spend billions with UK businesses which do pay tax, so the HMRC wins in the end. However, moves are afoot to tighten up legislation in this area.

Last week the Organisation for Economic Co-operation and Development (OECD) launched a plan to update and co-ordinate national tax laws to stop them being “abused” by multinational companies. It said that tax income should reflect the economic activity it generates.

The OECD hopes that its plan will be put into action over the next two years and is working on an international legal structure that would help countries introduce it quickly.

Prime Minister David Cameron said he was “delighted” with the development. “Taxpayers, governments and businesses all suffer when some companies manipulate the tax system to avoid paying their fair share of taxes,” he added.

Earlier this year it emerged that the US companies Starbucks, Google and Amazon paid little tax in the UK despite having big operations here.

Google was fiercely criticised by MPs for routing £3.2bn of UK sales through Dublin, which led to it paying little tax. Starbucks had UK sales of £413.4m last year and was questioned over transferring royalty payments to a Dutch sister company. Following criticism it agreed to pay £10m tax this year.

The companies pointed out that these tax avoidance schemes are legal and they have a duty to their shareholders to minimise their tax bills. F1 is certainly no different.