Lloyds are now accused of avoiding tax to artificially boost profits.
Is this the same as the ‘Lehman-style’ offshore scheme?
Well the story has come out as the senior tax manager of the bank told an employment tribunal that Lloyds were involved in a long-running battle with Revenue and Customs after it embarked on a hostile relationship with the tax authority over multimillion-pound corporation tax bills whilst involved in extensive manipulation of the way it accounted for unpaid taxes.
The story is quite interesting and frankly I don’t think it is any different to a number of other types of representations by various companies and people seeking to offset their tax bills but it is of course now partly owned by the taxpayer and so it will attract much more publicity than is usually does.
Between 2005 and 2007, he said, the bank insisted that finance staff develop more elaborate ways to lower tax bills, many of them involving the now collapsed Lehman Brothers and the discredited financial products division of AIG, the American insurer that cost the US government £80bn to rescue.
By 2007, the bank was excluding more than £900m of potential tax in its accounts, allowing it to inflate profits by the same amount.
Lloyds, which is now 41% owned by the taxpayer following its government-backed takeover of HBOS two years ago, denied the charges, which it said were investigated and found to be “without merit”.
The bank said:-
“Lloyds Banking Group strongly believes it complies with all of its obligations under tax law, both in the UK and overseas. We will vigorously defend any claims that suggest otherwise.”
However, the bank’s former head of tax compliance, Andrew Constantine, told the employment tribunal that Lloyds refused to listen to staff who voiced concerns about the tactics adopted by the finance department or institute reforms that would put its finances on a legal footing.
For three years he made representations to board members that the tax planning adopted by the bank was unethical and amounted to false accounting. He also warned that a breakdown in the relationship with HMRC would damage the bank and lead to even higher tax bills.
His testimony echoes claims by Paul Moore, the former head of group regulatory risk at HBOS, who alleged he had repeatedly been threatened after claiming internally that the bank’s lending policies posed “a serious risk to financial stability and consumer protection”.
Constantine, 54, was made redundant last September in a move he said was driven by the desire to silence a whistleblower. He said his early retirement also contravened laws on age discrimination.
Last year, following a long-running investigation, HMRC accused Lloyds at a tax tribunal of disguising loans to American banks as investments in order to avoid potentially large tax payments. Lawyers for HMRC said Lloyds and other UK banks were involved in moving funds worth hundreds of millions of pounds from one jurisdiction to another to avoid tax.
Lloyds was accused by MPs on the Treasury select committee of bending the rules to maximise profits, which also resulted in large bonuses for executive directors.
Lloyds Banking Group’s chief executive, Eric Daniels, who is the only surviving chief executive of a taxpayer-owned bank, told the committee: “I would tell you that we do not do anything other than adhere to the spirit and letter of the law”.
Constantine, who has since become head of tax at the FTSE 100 insurance group Aviva, said it was a longstanding aim of the Lloyds board to limit its tax charge, but it was only in 2006 that the use of artificial vehicles to hide potential liabilities began to make a significant impact.
“If the finance director wanted a new tax figure their staff worked to that figure and they delivered it too,” he said. “The tail was wagging the dog in that the need to hit the bank’s effective tax rate forecasts was driving the business.”
Lloyds said it did not dispute that Constantine told senior executives of his deep misgivings. It said: “Mr Constantine’s allegations about the Group’s tax planning were fully investigated and found to be without merit. The Group maintains an open and transparent dialogue with HM Revenue and Customs. We have made adequate provisions for all our tax liabilities.
“Like any organisation, we will seek to reduce tax impact where it is practical and appropriate but we will always comply with all aspects of tax regulations in all the jurisdictions within which we operate.”