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An Isle of Man company linked to Doug Barrowman misled a client into believing they were dealing with a UK entity in an apparent attempt to covertly benefit from the island’s more lax tax regime, according to documents seen by the Financial Times.
Barrowman, husband to Conservative peer Baroness Michelle Mone, rose to prominence over £200mn worth of controversial government contracts his company PPE Medpro won during the Covid-19 pandemic. Both are under criminal investigation in relation to the contracts.
One firm linked to Barrowman, Smartpay Limited, is an “umbrella company” used by recruitment agencies to pay workers. Smartpay ran a tax avoidance scheme where it would pay workers partly via a loan in an attempt to minimise their taxable wages, according to a 2022 tax tribunal ruling.
Smartpay was founded in 2014 as part of the Knox Group of businesses, whose chair and founder is Barrowman.
In 2015, Smartpay told a recruitment agency that it was an onshore company and provided information about its UK-registered entity of the same name, including company reference number, tax number and company filings, according to a document seen by the FT.
Just a day earlier, Smartpay signed a contract also seen by the FT with a worker who was being supplied to the recruitment agency. That contract describes Smartpay as an Isle of Man registered entity, also called Smartpay Limited.
Steve Willmore, head of operations at the recruitment agency in that case, Fuel Recruitment, told the FT his company only works with UK-registered companies and was only ever engaged with Smartpay Ltd in the UK.
Willmore said he had “no knowledge of a business registered in the Isle of Man”. He added Fuel Recruitment obtained a signed declaration from the UK company to confirm it was compliant with HM Revenue & Customs guidance about the use of “umbrella companies”.
Ray McCann, a former tax investigator for HMRC, said in his view the “use of two companies with the same name is intended to mislead the UK end user of the employee and the recruitment agency”. He added that the primary goal seemed to be “to keep the Isle of Man company out of HMRC’s reach”.
The 2022 tax tribunal judgment shows that both Smartpay entities had argued they were not required to tell HMRC about the tax avoidance scheme they ran because the UK entity had no involvement in the loan arrangements and the Isle of Man entity was beyond HMRC’s jurisdiction.
The tribunal disagreed and said the UK entity acted “at all times” as an “undisclosed agent” for the Isle of Man entity “in order to present, wrongly, to the UK agencies or intermediaries (and perhaps to the individual users) that they were dealing with a UK domiciled and resident company”. Smartpay did not respond to a request for comment.
The Isle of Man also has weaker corporate transparency rules than the UK and lower corporation and personal taxes.
Dan Neidle of Tax Policy Associates, who obtained the Smartpay documents and shared them with the FT, said companies like Smartpay “want to have all of the juicy tax and secrecy benefits of being on the Isle of Man” but they “need to be able to tell businesses they’re in the UK” to win contracts.
Barrowman has at least six other UK-registered companies with replica versions of the same name located in tax havens, including PPE Medpro, according to filings gathered by Neidle.
He said the Smartpay case raised questions about whether similar misdirection had occurred with the other entities.
Neidle noted that the contracts won by PPE Medpro have never appeared as large revenues or profits in the company’s UK annual accounts. There is a company of the same name in the Isle of Man. The government’s civil litigation against PPE Medpro is against the UK-registered company.
Barrowman and Mone are also under criminal investigation and £75mn of their assets have been frozen as part of the probe. The pair have denied any wrongdoing, as has PPE Medpro. The company has said it delivered all of the goods it promised the government according to the specifications set out in their contract.
A spokesman for the Knox Group of Companies said: “We do not operate shadow companies and consider that your description of these entities is deliberately misleading.
“The Smartpay business was at all times a significant commercial operation. Disputes with HMRC happen across all business sectors and the matter to which you refer has been determined through a court process. All taxes have been paid.”
“Further, PPE Medpro did not mislead anybody and all appropriate taxes have been paid.”
Barrowman told the FT: “This deliberate witch-hunt is being pursued against me by individuals with hidden agendas, who hide behind their keyboards and invent theories of foul play at every situation — regardless of whether it bears any resemblance to the truth.”