Former Labour minister Lord Mandelson has avoided paying tax on £400,000 by authorising his company to loan it to him rather than taking the money as a salary. His company, Willbury Limited, collects payments for his speaking engagements and his book deal.
According to accounts filed at Companies House the firm gave him the loan in the 2013/14 financial year. HM Revenue & Customs rules state that the practise is legitimate as long as a minimum interest rate is paid, at the time of the loan that was 3.25 percent. As loans do not constitute earnings the sum cannot be taxed.
Richard Murphy, a chartered accountant and director of Tax Research UK, told the Guardian that it was likely the loan was being used as a way of avoiding tax. He said: “How to extract cash from small companies whilst paying as little tax as possible on the way is a massive part of the UK tax avoidance industry.”
He continued: “Directors taking loans from companies they own is one way in which this is done, which has been widely condemned in the past when done by footballers and others. It’s just about impossible to think this is motivated by anything but tax avoidance.
“All politicians, including members of the House of Lords, should not only be seen to comply with the spirit of the law on tax but should be required to do so as a condition of holding office.”
A spokesman for Lord Mandelson said the company “oversees all of Lord Mandelson’s writing, public speaking, broadcasting and personal commercial undertakings. It pays all relevant UK corporate taxes and Lord Mandelson pays all relevant personal taxes.”
No part of the loan appears to have been paid so far and no payment schedule is believed to have been agreed.
This is not the first time Mandelson has attracted media attention because of loan arrangements he has made. In 1998 he was forced to resign as Secretary of State for Trade and Industry because he had bought a home in Notting Hill in 1996 with the assistance of an interest-free loan of £373,000 from Geoffrey Robinson MP. The millionaire Labour MP was subject to an inquiry into his business dealings by Mandelson’s own department.