Barclays Bank named Culprit in £500M Tax Avoidance Schemes

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Barclays (LSE:BARC) confirmed they are the bank involved in the crackdown of HM Revenue & Customs for tax avoidance schemes, which was announced the day before.

Exchequer Secretary David Gauke, announced on Monday, 27th February they had stopped two schemes of an unnamed bank, which could have generated £500 million in taxes, in a rare act of “retrospective legislation”.

Which Schemes?

Referring to them as “highly abusive” and “aggressive” tax avoidance schemes, HMRC identified the complex strategies that attempted to avoid taxation.

The first scheme allowed the bank to avoid paying corporation tax on the profit it makes from buying back its own debt.

The second scheme secures a tax credit from the Exchequer on non-taxable income converted into funds used in investment funds, even before tax could be paid.

HMRC said those schemes were in violation of the anti-tax avoidance law and the Banking Code of Practice on Taxation, signed by more than 200 banks, including Barclays.

“The government is clear that these are not transactions that a bank that has adopted the code should be undertaking,” a spokesperson from the Treasury stated.

These schemes were disclosed by Barclays itself, in compliance with regulations before utilising them or marketing them to clients.

More than 2,000 schemes have been disclosed in the last eight years since the code was executed in 2004.

Reprecussions

The retrospective nature of the decision by HMRC will be applied to any institution engaged in a similar manner.

Several banks, such as Lloyds Banking Group, Banco Santander, and Bank of America Merrill Lynch have been buying back their debt instruments from bondholders, after a significant dropped in prices of these IOU’s brought about by the financial crisis hitting the market.

Declaring these schemes illegal, and any similar investment vehicles, would save a further £2 billion in tax that could otherwise be gone, sources in the Treasury estimated.

Revolving around tax issues, HSBC Holdings revealed in its annual report yesterday that they may face £3 billion in taxes from its’ Asian and European subsidiaries if they lose their case with the HMRC.

Serious Stance

Amidst volatile economic conditions, the British Government is taking a serious stance to block any future scheme of the same nature, as well as apply the ruling retrospectively to banks which used similar schemes in the past.

“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,” David Gauke stated.

“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.”

Company Spotlight

Barclays is a British financial institution providing universal banking solutions in retail and business banking, corporate and investment banking, and wealth management.

Listed on the London Stock Exchange, shares of the banking group fell 2.65 pence, or 1.1% below yesterday’s close, to 240.8 pence at 10:45 AM GMT, following the news.

References
 Company History
↑ Barclays confirms tax avoidance schemes closed
 Barclays named in £500m tax avoidance action
↑ Barclays Bank told by Treasury to pay £500m avoided tax
 Barclays confirms tax avoidance schemes closed
↑ Barclays Tax Schemes Targeted
↑ Barclays slammed by HM Revenue & Customs for avoiding tax bill

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