More than 1,600 including celebrities in £1.2bn Liberty scheme

by Calum Fuller

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10 Jul 2014

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Image credit - Featureflash via Shutterstock

SEVERAL CELEBRITIES, along with senior executives and QCs, are among those found to have invested in a £1.2bn tax avoidance scheme.

The structure generated huge artificial losses offshore which members could then use to avoid tax on other income.

Approximately 1,600 people including singer Katie Melua (pictured), four members of the Arctic Monkeys, George Michael and Sir Michael Caine contributed to the scheme, the Times reports.

HM Revenue & Customs spent more than ten years investigating the Liberty scheme, but is only due to challenge it in tribunal in March next year.

However, due to HMRC's accelerated payment powers brought in with the Finance Bill, investors are likely to face tax bills before the case goes before a judge.

Berg Kaprow Lewis tax partner David Whiscombe said: "I always love it when cant and hypocrisy among the great and good are exposed. Aggressive tax avoidance always strikes me as being a bit like picking your nose when you're sitting in a traffic jam: it's not very nice, no-one admits to it but it's surprising how many people can't resist it.

"More seriously, the Times has done us all a favour in setting out the extent to which outrageously artificial schemes had become routine planning. It had to stop."

Watt Busfield founding partner Rebecca Busfield said people were motivated to invest in avoidance schemesdue to an expected anonymity.

"There was also a perception that everyone else was benefiting from clever schemes," she said. "This and other recent cases show that confidentiality is not guaranteed. HMRC are continuing to fight against schemes which they believe make the tax system unfair and to put people off using them in the future"

Charity Christian Aid said use of such schemes was morally wrong "because it undermines vital public services such as hospitals and schools and forces up taxes on people who are too poor or too honest to use such schemes".

It added: "We have campaigned against tax dodging for a number of years because of the way individuals and multinationals use tax avoidance to deprive developing countries of funds needed for crucial services. Companies, and individuals, often make the right noises about paying tax, but don't live up to them; this is why we have been campaigning for greater transparency on tax."

Image credit: Featureflash/Shutterstock

How Liberty works

A syndicate or partnership of UK investors is formed partly with personal money but largely with borrowed money. At that point, two overseas companies are formed, one owned by the other. One of the two overseas companies declares a dividend but the other company sells its right to receive that dividend to the syndicate of UK investors. The syndicate investors claim tax relief on the cost of the dividend right they have bought but do not have to pay tax on the dividend itself. The dividend is used to pay off the borrowings.

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