Avoidance scheme ring-fences £168m from taxman

by Calum Fuller

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19 Jun 2012

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A "BELOW THE RADAR" TAX AVOIDANCE SCHEME that ring-fences £168m from the taxman annually has been exposed.

The regime, called K2, is provided by accounting firm Peak Performance Accountants and allows its 1,100 clients to pay as little as 1% income tax, an investigation by The Times has revealed.

It works by transferring salaries into a Jersey-based trust, which lends investors back the money. As the loan can technically be recalled, it is not subject to income tax.

The K2 arrangement is one of a range of schemes continuing to operate, despite the government's vow to crack down on the "morally repugnant" practice. It is estimated by the Revenue that tax avoidance by individuals alone costs the economy £4.5bn out of £7bn lost in total every year.

Indeed, the lawyers for stand-up comedian and TV presenter Jimmy Carr – best known for his roles hosting 10 O'Clock Live, 8 Out of 10 Cats and regular guest appearances on QI and Have I Got News For You – have confirmed he is one of the scheme's beneficiaries. They denied any wrongdoing and said that the scheme had been disclosed to the relevant bodies.

According to The Times's investigation, he safeguarded as much as £3.3m from the taxman through the arrangement.

Peak Performance Accountants' Roy Lyness told an undercover reporter from the newspaper it was "a game of cat and mouse".

"It's like a satnav. I'm driving to Manchester, get a message saying there's a smash at Stoke, press this button to re-route. The Revenue closes one scheme; we find another way round it," he said.

Despite the chancellor's promise to tackle aggressive tax avoidance in the Budget, Lyness told his clients: "We're delighted to inform you that most of the powerful tax-saving opportunities survived unscathed."

The government last week published a consultation document for a general anti-abuse rule (GAAR), designed to stop such artificial schemes.

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