HMRC probes £168m tax avoidance scheme in Jersey

July 13th, 2012

HM Revenue and Customs has launched an investigation into a tax avoidance scheme which has reportedly been used to shelter £168m from the exchequer.

Wealthy individuals have been paying around one per cent tax using legal methods through the Jersey-based K2 system, an investigation by The Times found.

Salaries of wealthy people were moved from mainland investors into a trust in Jersey, which then gave them back the money in the form of loans, which income tax does not apply to, the newspaper claimed.

HMRC confirmed it had begun investigating the system and could potentially look to challenge it.

“This scheme (K2) was already under investigation by HMRC. if, as is alleged, it depends on the use of loans, it will not work. HMRC are looking into this,” a spokesman for the HMRC said.

“If the scheme does work technically, HMRC will challenge it in every way available to them.

“Government does not intend anyone, no matter who they are, is going to get away with paying less than they should.”

The investigation involved an undercover reporter, posing as an IT consultant on a £280,000 annual salary, getting in touch with a number of tax avoidance specialists, The Times said.

Peak Performance Accountants’ Roy Lyness said he could reduce a hypothetical tax bill from £127,000 to £3,500 through legal methods, resulting in a tax rate of 1.25 per cent, the paper claimed.

Lyness was quoted as saying: “It’s a game of cat and mouse. The Revenue closes one scheme, we find another way round it.

“It’s like a sat-nav. I’m driving to Manchester, get a message saying there’s a smash at Stoke, press this button to reroute. That’s all we do with tax avoidance. The Revenue puts a block in, we just go round the block.”

Speaking at the G20 summit in Mexico, chancellor George Osborne said: “I don’t want to get into the tax affairs of individuals. I’m very clear I have done what I can to make the UK tax code simpler and more competitive. But I do expect people to pay their taxes. we will take the action necessary to ensure that they do.

“Tax avoidance is a problem. I made the point that egregious, aggressive tax avoidance was morally repugnant. I absolutely stand by that.

“Of course, one of the challenges is that it is not illegal. What you can do on tax avoidance is prevent it by shutting down loopholes or changing the law in other ways.”

HMRC probes £168m tax avoidance scheme in Jersey

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