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HM Revenue and Customs have accused high street bank, Barclays, of adopting two ‘aggressive’ tax avoidance schemes to avoid millions of pounds in tax…

HMRC are acting immediately to shut down the ‘highly abusive’ banking tax avoidance schemes in hopes of saving billions of pounds from being lost in tax and a payment of over half a billion pounds.

One of the ‘aggressive’ tax avoidance schemes adopted by Barclay’s allows the bank’s commercial profit from a buyback of its own debt to avoid payments of corporation tax. The second tax avoidance scheme used by Barclays surrounds Authorised Investment Funds (AIFs) and looks to give non-taxable income a repayment of tax credits from HMRC for tax that has never been paid.

Government legislation was introduced on 27 February and will be included in the 2012 Finance Bill. Chapter 4 of the Corporation Tax draft legislation (available on HMRC’s website) states that those likely to be affected include ‘companies that are subject to the corporation tax rules on loan relationships held between connected companies’.

Tax Information provided in the Corporation Tax draft legislation document states:

“This measure will amend legislation that applies to debts becoming held by a connected company. It will introduce a targeted anti-avoidance rule to counter arrangements that are entered into in order to avoid or reduce a deemed release where a connected creditor company acquires discounted or impaired debt, or where companies that are party to impaired debt become connected.”

The policy objective to ‘support fairness in the tax system’ will support HMRC’s ‘anti-avoidance strategy to protect revenues and deter and counter tax avoidance’.

As well as halting the use of both tax avoidance schemes in the future new legislation will also prevent Barclay’s bank recent use of the first tax avoidance scheme mentioned and companies that have also participated in a similar tax avoidance scheme in the same period.

Exchequer Secretary to the Treasury, David Guake, said:

“The Government wants to ensure that the tax system is fair for all and we will not allow those who seek to benefit from its aggressive avoidance to get an unfair advantage. We do not take today’s action lightly, but the potential tax loss from this scheme and the history of previous abuse in this area mean that this is a circumstance where the decision to change the law with full retrospective effect is justified.

“The Government is committed to creating a competitive tax system and we have brought in a range of corporate tax reforms, but we are absolutely clear that business must pay the tax they owe when they owe it.”

Barclays are now thought to be faced with an estimated tax bill of £500m tax that they have tried to dodge using the two ‘aggressive’ tax avoidance schemes.

Since the draft legislation came into play on 27 February Barclays have said that other banks also adopt similar tax avoidance schemes and that they had not been breaking the law by doing so.

Barclays bank released the following statement:

“This situation arose when Barclays voluntarily disclosed to HMRC in a spirit of full transparency that it had repurchased some of its debt in a tax-efficient manner. This was based on guidance from professional advisers that the treatment was both legal and compliant with the tax code, and given others had used similar treatment.”

Barclays adopted both tax avoidance schemes despite having adopted the Banking Code of Practice on Taxation; including a commitment to not be involved in tax avoidance

Kevin Kinsella Jnr, of KinsellaTax, said:

“Once again political pressure is applied to Barclays Bank to not adopt schemes that seem to be perfectly legal. Obviously for public relations policies Barclays have decided not to take advantage of perfectly legal schemes that put them in a bad light, whether or not morally they should relinquish those schemes is a matter for Barclays and its shareholders.”

Have you been involved in a tax avoidance scheme?

Our team of tax experts are here to help with any tax avoidance enquiry.

KinsellaTax staff consists of ex-HM Inspector of Taxes and ex-HM Customs and Excise Officers fully versed in all types of tax investigations.

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