Phone business that gave £600,000 to Conservatives last year is being pursued by HMRC in a row over VAT

This article is more than 3 years old

This article is more than 3 years old

Lycamobile, the international phone call business and a major donor to the Conservative party, is embroiled in a £26m tax dispute with HMRC over VAT.

Accounts filed with Companies House show that Lycamobile’s UK division nearly doubled its pre-tax profits to £10.9m last year on turnover of £194m.

But the company, owned by Sri Lankan-born tycoon Allirajah Subaskaran, also revealed that it could face a bill of £26m from HMRC, including “potential penalties”, due to a dispute over VAT.

Lycamobile said the charge related to “certain VAT positions that have been taken by the company between 1 July 2012 and 29 February 2016”. “The position is currently subject to dispute between HMRC and the company,” it said.

Auditors from KPMG have revealed that they are unable to form an opinion on the accounts due to a lack of “sufficient appropriate audit evidence”.

Last year, the accounting firm flagged up its confusion over £134m in funds owed to Lycamobile UK by related companies, adding that the knock-on effect on this year’s accounts meant it was still lacking information.

“Because of the significance of the matter [...] we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion,” said KPMG. “Accordingly we do not express an opinion on the financial statements.”

It added: “We were unable to determine if adequate accounting records have been kept by the parent company.”

Lycamobile UK’s own directors’ report admitted that the tax dispute and complex structure create “material uncertainty that may cast significant doubt on the company’s ability to continue as a going concern”.

The Labour party and tax experts said the accounts raised questions for the Conservative party, which accepted £614,300 from Lycamobile in 2016 and nearly £1m the year before.

Tax accountant Richard Murphy said KPMG’s audit report and the VAT dispute raised “massive uncertainty” about Lycamobile’s financial position.



He said: “In the circumstances anyone dealing with the company has been given notice as to the risk they take. And the Conservative party is especially vulnerable. Taking donations from a company subject to this level of doubt as to its true financial position looks unwise. They’d do themselves a favour by saying no to further offers for the time being.”

Lycamobile’s accounts also revealed that it paid £72m to another part of Subaskaran’s business network, based in the low tax jurisdiction of Madeira, which the company said was for phone airtime.

A spokesperson said it had “no impact whatsoever on affecting the tax charge for Lycamobile UK”.

Labour’s shadow chancellor, John McDonnell, raised concerns about the VAT dispute and the reasons for Lycamobile’s transactions through a Madeira company.

“If true, then it’s time for the Tories to get a grip and take tax avoidance seriously for once and refuse further donations from any company that funnels money via a tax haven,” he said.



“When the Tories are not handing out £70bn in tax giveaways to big business and the super-rich they are blocking action to clamp down on tax avoidance, threatening to turn Britain into a tax haven and taking donations from companies that have questions raised over their tax arrangements.

“If Philip Hammond and Theresa May want to be taken seriously on tax avoidance and party funding, then they need to get their house in order.

“They could start by simply committing to not take donations from such companies, publishing their tax returns in full, and taking on board Labour’s recommendations for more tax transparency. Otherwise the public will continue to not take them seriously on this matter.”

A Conservative spokesman said: “All donations to the Conservative party are properly and transparently declared to the Electoral Commission, published by them, and comply fully with rules.”

Lycamobile gave nearly £1m to the Conservatives in 2015, while Subaskaran has previously been a guest at the Tories’ “black and white” election fundraiser at Grosvenor House hotel in Mayfair, an event for which guests paid up to £15,000 a table.

His company’s support of the Conservative party has previously come under scrutiny after it emerged in 2012 that it had paid no corporation tax for three years.