Barclays Bank was yesterday told by HM Treasury that it must pay some £500m in tax which it has attempted to avoid paying by using two controversial tax-dodging schemes.
The two schemes involve different mechanisms to avoid tax. In the first, the bank buys back its own debt and avoids paying tax on the balance. In the second, the bank generates tax credits against Authorised Investment Funds when tax was not paid in the first place.
Barclays claim that they believe that both the schemes are consistent with similar schemes run by other high street banks; however, Barclays have been singled out by the Government and 'named and shamed'.
The Government claim that Barclays should not be using such schemes as they were willing signatories to the Banking Code of Practice on Taxation. This was started in 2009 and amongst other things commits signatories to notifying Her Majesty's Revenue and Customs (HMRC) of any tax avoidance scheme before it is marketed to customers or used, even if the scheme is technically 'legal'.
David Gauke is the Exchequer Secretary to the Treasury.
"The Government is clear that these are not transactions that a bank that has adopted the code should be undertaking," he said of the actions taken by Barclays.
"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," he added.
The law in question is being retrospectively applied to transactions. Commentators estimate that as a result of the Government's actions Barclays will be forced to pay somewhere between £120 and £180m in avoided tax.
However, the move has angered the Barclays' chief executive Bob Diamond who has written a complaint to MPs about the Government's handling of the affair.
"The way in which this situation was handled seems to us to have been completely unwarranted," he wrote.
"Unnecessary damage was placed on Barclays' reputation just at a time when the focus should be on rebuilding confidence and accelerating growth, not undermining it," he added.
Source:
Barclays Bank told by Treasury to pay £500m avoided tax (BBC)
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