Will Isle of Man VAT review mean more caution when it comes to tax leaks?

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Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

IoM VAT Review – Crown Dependencies Tax Leaks & Tax Avoidance Troubles

Will Isle of Man VAT review mean more caution when it comes to tax leaks?

Over recent years, the British print and broadcast media have been devoting an increasing amount of time and space to poring over the details of the tax affairs of the rich and famous… One of the essential tasks of the press is, of course, to investigate shady dealings.

In 2012, The Times revealed that boyband Take That and comedian Jimmy Carr were involved in tax avoidance schemes

It seems that tax has been a front-page issue ever since. Something which has driven both a shift in tax policy and changes in taxpayer’s behaviours.

Indeed, although they had done nothing illegal, the affair, according to the group’s lead singer and songwriter, Gary Barlow, “felt dirty”. Jimmy Carr even suggested that the issue almost finished his career.

It was a story based on a series of disclosures which named and shamed, possessing the kind of ingredients both to titillate and irritate readers over a period of time. In short, to use journalistic parlance, it had “legs”.

The IoM, the Paradise Papers & the Panama Papers

Given that one of the notable episodes of recent times involved the Isle of Man – a territory whose flag features three legs, no less – it might have been taken as read that it wasn’t going to disappear overnight and, in fact, has only just been resolved.

In November 2017, the International Consortium of Investigative Journalists (ICIJ) released a tranche of more than six million documents which came to be known as ‘the Paradise Papers’. They made uncomfortable reading for those in the public eye, including the Queen – whose private estate had reportedly invested millions of pounds through a fund in the Cayman Islands – and Lewis Hamilton.

The five-times world champion was alleged to have used a scheme in the Isle of Man to avoid a multi-million VAT bill when importing a private jet into the UK.

For a man whose professional life normally involves moving only forwards and at great speed, Hamilton was forced onto the back foot, even though media went out of their way to make clear that he had done nothing illegal.

Given that the ‘Paradise’ exposure followed earlier and very similar claims stemming from the leak of documents referred to as ‘the Panama Papers’ which also scrutinised the ability of the world’s tax authorities to manage the apparent challenge posed by offshore tax avoidance, HMRC and its partners were keen to respond.

Such a sentiment was, of course, in no way prompted by the Revenue receiving yet another kicking at the hands of the House of Commons’ Public Accounts Committee, which professed itself  “frustrated” with the speed of response to the ‘Panama’ details.

The Isle of Man was also keen to defend its reputation and therefore called in the UK Treasury to carry out a review of how it was implementing the rules on VAT.

That’s because, despite having the world’s oldest continuous parliament, it is one of the Crown Dependencies, meaning that it and the mainland are treated as a single tax area for the purposes of VAT.

The outcome has put the Isle of Man in the clear, at least on a qualified basis. For all the ‘Paradise Papers’ furore, the Treasury report has now found that the Manx authorities had “correctly implemented” the law.

Even though they agreed to implement “additional post-registration compliance procedures” to ensure that the right amounts of VAT are collected in future, the explosive allegations were “not upheld”.

It is, I think, a cautionary tale.

Tax Avoidance vs. Tax Evasion

I certainly don’t wish to hamstring sound journalistic practices or impugn the motives of those who put the stories together but the Treasury report hasn’t been released to the same fervour as the ‘Panama’ or ‘Paradise’ disclosures.

In addition, it’s worth bearing in mind that both of those episodes followed the leak of millions of private documents relating to tax avoidance (which is legal) and not tax evasion (which isn’t).

Furthermore, the belated all-clear won’t bring much comfort to those wealthy souls implicated in the alleged avoidance of VAT on their planes and yachts.

As the author Mark Twain is famously said to have remarked, a lie can be halfway around the world before the truth even has its boots on.

The damage to these individuals’ reputations – no matter how caveated – has been done. As anyone who has ever stood too close to the garages at the grand prix at which Lewis Hamilton plies his trade will attest, there’s a whiff which lingers.

If you have any queries about this article, the Paradise Papers, VAT or tax matters in general, then please get in touch You can also read more about Tax Avoidance below…

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