Peter Mandelson received £400,000 tax-free in cash last year from a company he owns. The company, of which he is the sole shareholder, gave the former secretary of state a loan – a move described by a leading tax campaigner as likely to have been motivated by tax avoidance. It allows those who take advantage of the mechanism to delay when they pay tax on income earned through their company – potentially indefinitely.
Salary payments or dividends from a small business are liable for tax under UK rules, but in the case of a loan to a director – provided a certain minimum rate of interest specified by HMRC is charged – the borrowing is not liable for tax. The official interest rate that applied at the time was 3.25%. The company charged £15,211 in interest on the balance. No repayments were made on the loan by Mandelson during the year, nor was any repayment schedule or term of loan set out.
Richard Murphy, a chartered accountant and director of Tax Research UK, said Mandelson’s use of loans raised questions.
“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 said. “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.”
Mandelson’s loan and property dealings previously came under scrutiny after he was forced to resign from Tony Blair’s cabinet in 1998 when it was revealed he failed to declare a secret property loan from Geoffrey Robertson, a fellow Labour MP and tycoon, who was at the time under investigation by Mandelson’s department. After a brief return to the cabinet, he was forced to resign a second time in 2001 over his involvement in a passport application of Indian billionaire Srichand Hinduja.
In August 2011, it was reported that Mandelson paid £8m for a four-storey Regent’s Park townhouse with its own wine cellar. Mandelson recently criticised Labour’s tax policies on wealthy individuals, about the mansion tax, Mandelson said Ed Miliband’s plan to tax properties worth more than £2m was “crude” and “sort of short-termist” and would “clobber” homeowners.
During the early years of Blair’s premiership, he commented to an audience of tech entrepreneurs that he was “intensely relaxed about people getting filthy rich as long as they pay their taxes”.
He has made public speaking appearances for clients including Coca-Cola, Lloyds bank and Samruk-Kazyna, Kazakhstan’s sovereign wealth fund, as well as for mining companies operating in Africa. Mandelson established a second company, Global Counsel LLP, in partnership with his long-time aide Ben Wegg-Prosser and the advertising giant WPP. Global Counsel’s clients include multinationals such as BP, Goldman Sachs and commodities giant Glencore. In 2012, it was revealed that Mandelson was advising Asia Pulp and Paper, which has been accused by environmental groups of destroying large swaths of an Indonesian rainforest. He is the proverbial politician for hire.