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Efforts to crack down on tax avoidance a ‘good first step’

Efforts by HMRC to crack down on those not paying their fair share in taxes are a good first step, according to one Treasury minister, though there was much more that could be done to rein in people who use tax avoidance schemes.

While some more aggressive tax avoidance schemes are actually quite legal, the chancellor attacked such practices in this year’s budget, referring to them as ‘morally repugnant’ and issuing promises that he would institute general anti-tax avoidance rules to strongly discourage the practice. The particular scheme that has been grabbing headlines recently, referred to as ‘K2,’ has gained massive notoriety after it was revealed comedian Jimmy Carr makes use of it, as him (and others) have been using the scheme to shelter around £168 million on an annual basis from the reach of HMRC.

The K2 scheme works by employees resigning from their companies, paying salaries into offshore trusts. The former employee then receives only a small percentage of the sum as ‘salary,’ with the remainder returning to him as a loan – which is not taxed. Such a scheme fits into the ‘morally repugnant’ descriptor the chancellor used, according to Treasury minister, David Gauke, with the contrived, artificial arrangements being undertaken purely to result in a reduction of tax liability and not for any legitimate financial reason.

Mr Gauke said that HMRC’s compliance record, when it comes to ferreting out duplicitous schemes of this nature, was quite good, as the £13 billion recovered from individuals participating in tax avoidance schemes is predicted to rise to £20 billion by the 2014-2015 tax year. However, this good first step leaves much more to do, according to the minister, though he did add that the actual success of the K2 scheme as a tax shelter is still being investigated.

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