ECOTRICITY boss Dale Vince has defended a decision to to take a £3.2 million interest-free loan from his company amid criticism that the move amounted to “a tax avoidance arrangement.”

Three weeks ago, Ecotricity announced it was donating £250,000 to the Labour Party’s election campaign.

In addition, £20,000 has been donated to the campaign to get Labour’s David Drew elected in Stroud.

As part of his party’s manifesto, Labour leader Ed Miliband is targeting tax avoidance by business moguls.

During a visit to Stroud earlier this month he reiterated his intention to crack down on the issue.

And last week Mr Miliband challenged David Cameron over what he called ‘dodgy donors’ to the Conservatives.

The accusations against Mr Vince were made in the Daily Telegraph on Saturday and were based on the latest Ecotricity accounts posted on Friday at Companies House.

However, Mr Vince has staunchly defended himself over accusations the loan tax avoidance arrangement.

A spokesman for Ecotricity confirmed that Mr Vince had received £3.2 million in director’s loans but added: “It is a short term loan, properly made with tax paid on it, and to suggest it’s anything else is simply mudslinging. The loan is expected to be repaid in the next 12 months.”

Company tax was paid on the loan to HMRC and income tax paid on the benefit-in-kind but Mr Vince is not paying income tax on the money.

Speaking to the Telegraph, Richard Murphy, a chartered accountant and tax expert, said: “What the loan does is potentially advance money at a lower rate of tax than would be the case if he was paid a dividend or a salary now.

“Deferring when the tax is paid is one of the major methods of tax avoidance.

“This therefore looks to be a tax avoidance arrangement.”

Apart from paying a much smaller sum of money as a benefit-in-kind it gives Mr Vince an income which he does not have to pay personal tax on. The company loan is entirely legal and relatively routine.

It allows Mr Vince to take advantage of the mechanism to delay when he pays tax on income earned through Ecotricity.