Tax loopholes closed after bank bid

Updated: 
BarclaysThe Treasury has closed two "highly abusive" tax loopholes after a leading bank - believed to be Barclays - tried to avoid paying more than £500 million.

The move is the first time the current Government has clawed back taxes which have been avoided in the past and will ensure billions of pounds of tax are paid in the future.

Although the Treasury has not named the bank, the schemes have been widely linked to Barclays, which will cause the bank embarrassment because it has signed up to a code of practice against tax avoidance and has stressed the importance of good citizenship.

Barclays flagged up the schemes to HMRC but the Government decided they were not suitable for a company that had signed up to the code of practice.

It has been reported that Barclays does not agree with the Treasury's estimate of a £500 million loss, saying the real figure is less than £200 million.

One of the tax schemes involved a bank avoiding corporation tax on profits it made buying back its own IOU-notes. The Treasury said it will move to block the recent use of the scheme by the bank and by any other company.

The other scheme - understood to be devised by the same bank - involved investment funds trying to receive tax credits from the Treasury on non-taxable income. The Government brought in legislation yesterday to block future use of the scheme.

Exchequer secretary to the Treasury David Gauke said the Government was clear that "business must pay the tax they owe when they owe it".

He added: "The Government wants to ensure that the tax system is fair for all and we will not allow those who seek to benefit from this aggressive avoidance to get an unfair advantage. 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."

Tax avoidance - unlike tax evasion - is not illegal but the UK's major banks have agreed to a code of practice to pay their fair share with the Government.

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