A Labour former defence minister, who earns more than £115,000 from outside business interests, has failed to declare a family firm that could be used to avoid tax, the Sunday Times reported.

Adam Ingram, 62, the MP for East Kilbride, Strathaven and Lesmahagow, set up the company with his wife, Maureen, last May as a vehicle for his consultancies and directorships, the newspaper said.

Under Commons rules he should have declared his interest in Adam Ingram Advisory Ltd to the parliamentary standards commissioner. The paper quoted Ingram as saying that his failure to declare an interest was ‘a misunderstanding on my part, which I am now immediately rectifying’.

Hours later, by coincidence, the MP told his local Labour party that he would leave the Commons at the next general election.

Payments for consultancy services made to a company such as Ingram’s do not incur the normal 40% higher rate income tax nor are National Insurance contributions payable, the Sunday Times said. Instead, company income is subject only to corporation tax at 21% for small firms.

Many people use corporate vehicles as a way of reducing their tax bill by retaining profits within the corporation while they are still high earners. They pay themselves dividends at a point in the future when they have fallen into a lower income tax band.

Ingram told the Sunday Times that his company was not set up for the purpose of avoiding tax. He is the sole director and shareholder of Adam Ingram Advisory Ltd, while his wife is the company secretary. Ingram said he had not paid his wife any money and he would pay the full rate of income tax when he took any cash out of the company.

‘This is not any attempt at tax avoidance whatsoever,’ Ingrma told the Sunday Times. ‘I am one of those people who is more than prepared to pay my taxes and all income will be properly declared and properly taxed.

‘Nothing has come through that company that has not been individually registered in the register of interests.’