Journalists from The Times have been undercover exposing the tax avoidance industry. Even comedian Jimmy Carr took part in a Jersey tax saving "strategy" to pay just 1% in tax.
The reporters attended a tax avoidance seminar run by Peak Performance Accountants which outlined their "K2" strategy. Basically, the K2 scheme like many similar schemes, involves ensuring that your income paid offshore so that it ends up in a trust. The trust then loans you back your money. The trust pays no tax because it is offshore, you pay no tax because you are in receipt of a loan which is not income and it comes from a trust with independent trustees. HMRC highlights this type of arrangement in its anti-avoidance Spotlights.
According to the press, comedian Jimmy Carr has invested millions into this scheme. These schemes attract "investment" by many entertainers and top sports people as well as high net worth individuals.
Scheme promoters rely on the fact that even though scheme details have to be disclosed under the Disclosure of Tax Avoidance Scheme (DOTAS) regulations HMRC is seen as being very slow to do anything about them. This delay by HMRC means that some promoters have been given a free hand to sell their wares. By the time HMRC changes the rules new schemes have been designed. It is expensive for HMRC to take cases to the Tribunals, and most scheme promoters ensure that they have tax counsel's opinion for their scheme.
Subsequent to The Times, report, ministers have been popping up on TV and radio condemning this type of scheme; with no economic benefit deriving from giving away your income to a foreign trust the strategy is increasingly seen as no better than benefits fraud. David Gaulke says that HMRC will now move to close down the K2 scheme.
What now?
The public must eventually realise that MPs have taken an unbelievably long time to notice the extent of the tax avoidance industry. This possibly peaked under the last government. HMRC's strategy is unclear, it seems to have been more interested in "sweetheart deals" with big business in the past and perhaps failed to notice the extent of the problem too. The question which should properly be asked is what effect this has on the economy and will the tide change on taxes in the UK? Recently a Greek official commented that if all Greeks paid their taxes their country would not be in an economic crisis.
