VAT » Tax Research UK

The Isle of Man’s VAT agreement – getting close to reality at last

Isle of Man, Uncategorized, VAT 3 Responses »

Aug 152011

Whilst issue was focused elsewhere last week the detailed reasons for the new arrangements between the UK and the Isle of Man crept out. As I suggested a long time ago (back in 2007) the likelihood is that the Isle of Man has a very different VAT output structure to the UK - because so many of its sales relate to financial services which are VAT exempt and which therefore have no VAT due on them. In that case to simply pro rata VAT receipts on the basis of total turnover of the two places was always going to be wrong: if the turnover of one party was heavily dependent on VAT exempt outputs it would in that case recover too much VAT if that was done. The party benefitting was, of course, the Isle of Man

The UK has now realised this (at last) and has used this as the basis for, correctly, renegotiating the arrangement with the Isle of Man.

There is still opposition in the Island to the new deal which will, I am sure justifiably, take another £75 million from the Island each year, bringing the total adjustment now in line with my original estimate of the annual subsidy the UK was giving the Isle of Man each year.

But it’s time for the Isle of Man to shut up – asking for a subsidy to be a tax haven is not going to win them any friends right now, and the sheer hypocrisy of the critics who want to use UK taxpayer’s funds to subsidise the abuse they permit is extraordinary.

When will the Isle of Man realise it is time for plan B?

Channel Islands’ VAT abuse can be ended by UK whenever it likes EU says

Guernsey, Jersey, Tax avoidance, Uncategorized, VAT 3 Responses »

Aug 042011

The Telegraph has reported that:

By the end of the year, CDs, DVDs and contact lenses will be among the hundreds of items that customers will no longer be able to buy cheaply via the internet as the government prepares to close the tax loophole that made it all possible, a source close to the EU has said.

As The Telegraph continues:

Up until now, the UK government was concerned about facing possible legal action if it attempted to stop the likes of Amazon, HMV and Play.com from exploiting a legal tax loophole that enabled them to ship goods to the Channels Islands and then back to UK customers minus the cost of VAT.

The EU has now given assurance to the treasury that it is perfectly within its rights to abolish the “abusive and restrictive” trade.

A change to the law that would see an end to the multi-million pound Channel Islands industry could be enacted as early as this autumn.

Exchequer secretary to the treasury, David Gauke, has maintained that he is determined to tackle the problem, although exactly how the EU’s support will manifest itself in UK law remains unclear.

So, now we know: this abuse is illegal and can be stopped without fear of legal challenge or claim for compensation against the UK arising.

And what will he spend the £200 million or so a year he will collect on? Youth services, maybe? Wouldn’t that seem just?

So when will we see action from George Osborne to stop tax abuse, end tax haven activity, support the UK High Street, maintain UK jobs and ensure that the valuable role of UK music shops in offering diversity to consumers is upheld? And what will he spend the £200 million or so a year he will collect on? Youth services, maybe? Wouldn’t that seem just?

No one yet knows the answers to these questions, but full marks to Richard Allen, the businessman who lost his online music company to LVCR abuse and has since led the campaign to have it stopped for getting the whole issue this far.

Channel Islands’ VAT abuse continues

Guernsey, Jersey, Tax avoidance, Tax Havens, VAT 5 Responses »

Jul 212011

From the Channel Online TV:

Online greeting card company Funkypigeon could soon become the latest fulfilment business to set up in Guernsey.

The business is recruiting on the island, but they will not yet discuss why they want to make the move over the Channel.

One reason could be that rules on Low Value Consignment Relief or LVCR mean their goods would be exempt from VAT, but that is not something the States encourage.

Three things are clear:

a) Osborne’s announcements clearly aren’t having an impact.

b) The ‘not encouraging’ stance of the States is toothless.

c) Radical action to stop this abuse is now needed.

Will Osborne deliver? Who knows?

Treasury Statement on VAT revenue sharing with the Isle of Man

Isle of Man, Uncategorized, VAT 4 Responses »

Jul 182011

The UK Treasury issued the following statement this afternoon:

Written Ministerial Statement

Isle of Man Indirect Tax Revenue Sharing

The Exchequer Secretary to the Treasury: (David Gauke): The Treasury has agreed a revision to the formula governing the sharing of joint indirect tax revenues under the 1979 Customs & Excise Agreement with the Isle of Man.

The new formula is intended to give the Isle of Man the revenue that they would collect if they ran their own indirect tax system, while providing the Isle of Man with generous transitional payments. In 2010 the Isle of Man changed the way that it measured its national income to more closely follow international standards. Under the previous formula this would have implied a significant increase in the Isle of Man’s share of joint revenues. The new formula provides the Isle of Man with a share of joint indirect tax revenues similar to that which the UK Treasury expected when the last formula was agreed in 2009.

The Treasury welcomes the recognition by Isle of Man Government that the previous revenue sharing formula was not sustainable and we are pleased that a new formula has been agreed, following negotiations. The Treasury hopes that it provides a stable and secure basis for the long term future of the Customs and Excise Agreement between the United Kingdom and the Isle of Man.

HM Treasury

18 July 2011

I do like the line:

The Treasury welcomes the recognition by Isle of Man Government that the previous revenue sharing formula was not sustainable

I think someone may have smiled when writing that.

I am delighted specific reference is made to the Isle of Man’s blatant attempt to manipulate the data on this issue. I brought this to public attention and the Isle of Man government was livid with me. I have been proven right, again and their flagrant attempts to abuse the UK have been rightly exposed and rejected.

As I have previously noted: my campaign on this issue is over. My case has been proven on all counts and accepted as the basis for action; justice has been done.

Now there are other issues to address, not least in the Isle of Man.

The Isle of Man is going to lose more VAT – and Tony Brown should admit it

Isle of Man, Uncategorized, VAT 11 Responses »

Jun 212011

The Isle of Man Today web site has noted:

THERE will be a public announcement if any changes of substance are to be made to the VAT sharing arrangement, the Chief Minister told the House of Keys.

Tony Brown revealed in an exclusive interview with the Examiner last month that the UK continues to press to take another substantial slice off our VAT revenue.

He said the UK had made its intentions quite clear that the VAT share the island should receive should be no more than we would collect if we were independent.

And he said if the UK pressed ahead with this, it would mean a substantial cut in government revenue on top of the 25 per cent loss resulting from the last VAT bombshell.

Well, let me make the announcement for him then, since he seems so reluctant to do so.

My information makes it very, very clear that this reform is going to happen.

As I noted last September:

Rumour reaches me that we should shortly see announcement of a massive increase in GDP in the Isle of Man.

Why could that be? Well, the VAT sharing agreement with the UK happens to be based on ratios related to relative GDP. So if the Isle of Man manages to report a significant GDP increase whilst the UK’s in the doldrums of near recession guess who wins significantly? Yes, our friends in the Irish Sea.

But surely they wouldn’t do such a thing, would they?

They were stupid enough to go ahead despite the warning as to how it would be received in the UK Treasury that I gave. And as I showed, their claim that the resulting revised GDP was ‘correct’ was utterly spurious – despite their furious briefing to the contrary.

Well, more rumours reach me, and yet again they suggest that I’m right on this issue. The UK Treasury is furious with the Isle of Man for this blatant attempt to re-jig the data on which the Common Purse Agreement governing the sharing of VAT revenues is based. And as a result they’re not just looking at revising the agreement using the data I have noted, they’re arguing the Isle of Man has been blatantly manipulating its VAT, for example by encouraging the film industry and yacht registration to distort its apparent VAT position.

The result is that The UK ate not just arguing the GDP data is wrong – they’re seeking to take these other factors, which are seen as tax haven abuse, out of account too.

It’s the price you pay for playing fast and loose, and as a result the peope of the Isle of Man will pay a heavy price.

It’s time their Chief Minister told them the truth – because if I know this you can be sure he does too. But only one of us is saying it.

I have not yet worked out what the change may be – I have the data to do so, but not the time. But if it’s as tough as I suspect the impact on the Isle of Man this time may be as significant as last time. After all – it’s just not true as the Isle of Man claims that for VAT purposes income per head there is £45,000 – some £17,000 or more a year in excess of the UK. And even if it was – the UK should not be subsidising it!

There are tough times ahead in the Irish Sea – and it’s all the fault of the Isle of Man politicians who tried to pull a fast one.

It’s time for the Isle of Man to pay for its own public services

Isle of Man, Uncategorized, VAT 6 Responses »

Jun 142011

Manx Radio have reported:

Health Minister David Anderson says the Isle of Man must remain prepared to fight the United Kingdom over revisions to the VAT revenue sharing agreement.

When the UK last changed the agreement, it left the Manx government looking at a £140 million shortfall in finances over a number of years.

Mr Anderson says any further renegotiation by the UK could leave the Island with even more financial problems.

There’s one problem for Mr Anderson and the Isle of Man: as I have shown, there remained a substantial subsidy for the Island in the last revision in 2009. I generously estimated that subsidy at more than £40 million at the time without taking some health, education and defence subsidies into account. I also suggested in 2009 that unless the Isle of Man radically changed its behaviour this subsidy was not worth giving.

The Isle of Man has not changed its behaviour, bar agreeing the incredibly limited information exchange required under the EU Savings Tax Directive since that time. As a result its tax haven activities still cost the UK hundreds of millions a year.

It’s not surprising that the UK is demanding further reform the VAT agreement with the Isle of Man as a result. And the Isle of Man has not a leg of negotiating credibility to stand on.

In which case I’d suggest it’s time the Isle of Man got used to the idea that it might have to pay for it own public services in future – out of tax they collect themselves. That will be a novelty for them.

Jersey horticulture

Jersey, VAT Comments Off

May 152011

A while ago I reported stories in the Telegraph concerning the arrangements made by some major UK horticultural companies to supply plants to the UK from the Channel Islands.

They no doubt had their sources.

I quoted other sources to add to the story – providing sources that seemed perfectly reputable.

However, I have now received a note by email saying some emphasis was wrong with regard to the story about Mr Fothergill and its Jersey supplier. I have no idea what the person sending me the information wanted me to do with it. They certainly did not ask me to publish it. But I think it only fair to do so, in full since they are aggrieved:

Good morning Mr Murphy,

Somebody has recently brought my attention to your recent blog post with regards to Blooming Direct & Mr Fothergills and I have read this article with interest, and with a great deal of frustration at the sheer number of inaccuracies & false statements that you make. I would like you to address these with immediate effect please.

Mr Fothergills has a contract of “cultivation & supply” with the Horticultural business J.R Jersey Horticulture Ltd, not Blooming Direct. J.R Jersey Horticulture is a specialist grower of young ornamental plants. We own our own large scale modern nurseries equipped to grow top quality plants. We are locally owned, managed & produce great quality produce.

Blooming Direct was set up as an independent retailer before Mr Fothergills arrived on the scene, and the concept was formed 2 years previous by myself. My partner & myself do indeed have “many years” experience in this sector, contrary to your questioning. We have over 25 years of plug plant growing & distribution with the Jersey firm, Flying Flowers.

Mr Fothergills approached J.R Jersey Horticulture to grow their plants because they were having big quality issues and wished to have their product grown & packed by the nursery that produces them. As soon as we agreed to produce plants for Mr Fothergills we agreed that it best to de-merge Blooming Direct to avoid any potential conflict of interests what with being a wholesaler as well as a retailer.

J.R Jersey Horticulture Ltd & Blooming Online Ltd (t/a Blooming Direct) are both 100% Jersey owned by Jersey residents.

You state that Mr Fothergills “bought a Jersey business”. This is incorrect.

I note you thank your Jersey sources for their research, perhaps they should get their facts straight before you publish.

I hope that this has given me the opportunity to give you the facts.

Kind regards,

Joel Richardson

JR Jersey Horticulture Limited

I think my second story did, to be honest, show an understanding of all these issues, and certainly made clear that there was a contract for supply with Blooming Direct in place and that it undoubtedly had a business of its own. None the less, I am happy for the clarification to be published. I think if there was error the Telegraph might have made it, but I’m not sure I did. Anyway, I hope matters are put right now.

Equally, I note that answers to two fundamental questions, which were the reason for my blog, have not ben addressed. The first was this comment made by Mr Fothergill’s to the Telegraph:

John Fothergill of Mr Fothergills, one of the handful of large horticultural companies with packing sheds operating out of neighbouring Jersey, accepted that the company was based there purely for tax reasons.

“To be blunt we are here for the VAT benefit and we would have to rethink things if this changes.”

I think that justifies my concern whoever owns the business.

Second, I noted of Blooming Direct, based on a report here, that :

The company is a family run horticultural business and is totally committed to maintaining high standards of quality. Blooming Direct attracted funding support from the States of Jersey (local government) by way of a “Rural Initiative Scheme” aimed at promoting diversification and enterprise within local agriculture and horticulture. This funding has enabled the company to bring quality garden products to their customers in and out of Jersey.

As I then said:

So the States of Jersey went out of its way to help establish a business that would exploit the VAT scheme when local ownership became a condition of its use? And Fothergills reorganised their business by chance at that same time to make sure the ” preferable VAT arrangements already in place were not compromised”? All very odd. And just a coincidence? Or indication that the States was going out of its way to encourage business that exploited this loophole?

I’m not disputing for a moment that the business undertaken is legitimate. But the questions asked are appropriate, I think, given what was going on at the time and the comments made by Mr Fothergill. So clarification is good, but answers to the broader issues raised would be good too.

The Channel Islands’ VAT abuse just goes on and on

Guernsey, Jersey, Tax avoidance, VAT 2 Responses »

May 122011

From the Telegraph:

Under the noses of HMRC and through a scheme administered on their behalf by the Channel Islands Postal Authorities, mail order goods bought from online retailers are being posted to UK customers in packages showing postage costs at 50 times the standard price, while the goods inside are stated as costing only a fraction of their actual retail price.

By reducing the product price to below £18 and shifting the difference onto the cost of postage, which is exempt from VAT, products regardless of their original price become eligible for Low Value Consignment Relief (LVCR) and enter the UK without a VAT charge.

Telegraph Expat has seen a Jiffy bag containing a 16GB flash card arrive from Flash_Memory, a Channel Islands mail order company with labelling that shows a false postage cost of £22 and a false product cost of £17.99.

According to official figures from Jersey Post, the Jiffy bag in which it arrived should have cost no more than 50p to send.

I stress: those are their words re costs.

But if they’re right – and they reproduce the invoice on their site – then the evidence of abuse of the Channel Islands for VAT purposes is growing by the day.

And note who is meant to regulate this for HMRC – the Channel Islands themselves.

Well that was never going to happen.

And the evidence that it’s not doing so looks to be strong.