Paradise Papers: F1 champion Lewis Hamilton ‘dodged’ VAT on £16.5m private jet

Formula 1 champion Lewis Hamilton avoided tax on his £16.5m luxury jet, according to Paradise Papers documents.

They show a £3.3m VAT refund was given after the Bombardier Challenger 605 was imported into the Isle of Man in 2013.

It appears a leasing deal set up by advisers was artificial and did not comply with an EU and UK ban on refunds for private use – although he may have been entitled to one for business.

Hamilton’s lawyers say a tax barrister review found the structure was lawful.

They added it was not correct to say no VAT had been paid on any of the arrangements.

A statement later issued by the racing driver’s representative said: “As a global sportsman who pays tax in a large number of countries, Lewis relies upon a team of professional advisers who manage his affairs.

“Those advisers have assured Lewis that everything is above board and the matter is now in the hands of his lawyers.”

Instagram posts

At 06:15 on 21 January 2013, Hamilton touched down at Ronaldsway airport on the Isle of Man in his new jet with his then-pop star girlfriend Nicole Scherzinger to finalise the paperwork with customs.

While Hamilton’s planned use of the jet was predominantly for business purposes, the BBC’s Panorama programme has seen documents which suggest the 32-year-old F1 Mercedes driver intended to make private flights about a third of the time.

Hamilton’s social media accounts provide evidence he has used the candy apple red Challenger for holidays and on other personal trips around the world.

He has posted a number of photographs of himself on the plane on Instagram – including one showing his bulldogs Roscoe and Coco on board.

Just a kid from the UK that had a dream. #YouCanDoItToo #NeverGiveUp #TeamLH #MegaJet #RoadtoAbuDhabi #AbuDhabiGP

A post shared by Lewis Hamilton (@lewishamilton) on

“If private usage of the jet is being disguised as business usage of the jet, then what you essentially have is a tax avoidance scheme,” says Rita De La Feria, professor of tax law at Leeds University.

“You’re using it for your own private interests, you’re going on holidays, meeting friends. You’re supposed to pay the tax on private consumption.”

Ultimate client

Private jets purchased outside the EU are subject to 20% VAT on importation in order to qualify for free circulation within the bloc.

While the Isle of Man is not part of the EU, it is a British Crown Dependency and forms a common area with the UK for VAT purposes.

Because of this link, an aircraft imported via the island is granted full access to the EU.

To try and get round EU and UK rules banning VAT refunds on aircraft used by private individuals, Hamilton’s advisers formed a VAT-registered leasing business on the Isle of Man, the leaked documents held by offshore law firm Appleby suggest.

The new company, Stealth (IOM) Limited, leased the jet from Hamilton’s British Virgin Islands company, Stealth Aviation Limited, and imported it into the Isle of Man.

It was then leased on to a UK jet management company that provided Hamilton with a crew and other services – and which leased it back to Hamilton and his Guernsey company, BRV Limited.

Hamilton is described in the documents as the jet’s “ultimate client”.

They also suggest he was being kept up to date.

In one email sent ahead of the final signing of the charter agreements and the jet’s importation into the Isle of Man, an adviser states: “I would like to email Lewis his agreement this evening and try to reach him on the phone to talk him through it.”

Other documents show the hourly rate of the plane’s lease was increased from £2,000 to £5,500 overnight at one stage, so the Isle of Man company turned a profit as a “commercial” aircraft leasing business.

On the basis of the transactions, Hamilton’s advisers were able to claim a 100% VAT refund on the £3.3m he was obliged to pay at the point of importation.

But the leasing agreements suggest Hamilton was going to be using the plane 80 hours per month, with his company using it for 160 hours.

If this estimate had been used for the basis of the VAT refund, under UK and EU VAT rules, only two thirds could have been considered for a refund in relation to business use.

The artificiality of the structure raises questions about whether Hamilton should have received a refund at all.

‘No subterfuge’

Lawyers acting for Hamilton said the driver has a “set of professionals in place who run most aspects of his business operations and that no subterfuge or improper levels of secrecy had been put in place”.

In a statement, they said Stealth (IOM) Limited was formed to run a leasing business and hire the aircraft on a long-term basis at a commercial rate.

They added that the company made all necessary disclosures to Isle of Man officials, who approved the approach.

The lawyers said that reducing taxes was not the motive, but even if it had been, it is lawful to lease rather than buy in order to reduce VAT.

There are 50 schemes like Hamilton’s in the Paradise Papers.

The documents show that Appleby on the Isle of Man has imported luxury jets worth £1.25bn.

In total, the island has handed out more than £790m in VAT refunds to jet leasing companies, involving more than 230 planes.

In light of the Paradise Papers revelations, the Isle of Man government has invited the UK Treasury to conduct an assessment of the practice of importing aircraft into the EU through the island.

It has denied “mistakenly” refunding VAT.

The Isle of Man says since 2011 more than 30 assessments for under-declared or over-claimed VAT against businesses in the aircraft leasing sector, with a value of about £4.7m, have been raised.

Labour Leader Jeremy Corbyn last week called on the Prime Minister Theresa May to launch an investigation into VAT avoidance allegations linked with business jets in the Isle of Man.

In a statement on the Paradise Papers leak, Appleby said it was a law firm which “advises clients on legitimate and lawful ways to conduct their business. We operate in jurisdictions which are regulated to the highest international standards”.