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No tax please, we're celebrities
Image © Joel Ryan - AP
British comedian Jimmy Carr is among a host of stars facing a media backlash this week, after it emerged that he used a controversial tax-avoidance scheme to pay as little as 1% tax.
Cut your tax bill by 98%
The Times revealed the 39-year-old stand-up was a leading member of K2, an artificial tax-avoidance scheme that allows its members to pay as little as 1% of their earnings in tax (something for which he has since apologised).
Carr paid £3.3 million a year into Jersey-based K2, which is promoted by Scotland-based Peak Performance Accountants.
Carr was one of an estimated 1,100 of the UK's rich and famous - including highly paid celebrities, musicians and sports stars - paying some or all of their earnings into a Jersey-based trust. This trust then gives no-interest or low-interest loans to members, who pay negligible tax on these advances. In theory, these loans are repayable; in practice, they are written off against untaxed earnings paid into the trust.
Carr is said to have been the biggest participant in K2, into which Britain's elite pour £168 million each year so as to avoid UK income tax and National Insurance Contributions (NICs). In effect, they are squirrelling their money offshore, to be returned to them as lightly taxed loans.
Prime Minister David Cameron has waded into the debate, describing Carr's tax arrangements as "morally wrong".
This morning, Carr issued a statement indicating he was no longer involved in the tax shelter in question.
Since the revelation came to light, Carr has become something of a laughing stock after repeated taunts on Twitter and Facebook. The outspoken host of panel show 8 Out of 10 Cats was also heckled at his Tuesday night gig in Tunbridge Wells, Kent. When an audience member yelled out, "You don't pay tax", Carr responded, "I pay what I have to and not a penny more".
Of course, Carr could be right, in that the K2 scheme may be entirely legal under current tax legislation. Even so, almost all Brits regard such offshore tax dodges as contrived devices created to allow the rich to pay artificially low rates of tax.
For example, if Carr does indeed pay £3.3 million a year into K2 and pays just 1% of this in UK tax, then his yearly tax bill would be just £33,000. On the other hand, were he to earn this sum through Pay As You Earn (PAYE), then his tax bill would be closer to £1.7 million.
Thus, thanks to K2, Carr coughs up roughly a fiftieth of the tax he would otherwise pay, saving himself a tidy £1.66 million a year.
Furthermore, the funny man has previous form as a tax-dodger. For instance, to avoid paying full stamp duty on the purchase price, Carr bought his family home through Offence Defence with Carr, a company he co-owns. Also, he was a member of a previous aggressive tax-avoidance scheme that was closed down by Her Majesty's Revenue and Customs (HMRC).
Following these reports, Carr has been called a hypocrite, not least because he lampooned Barclays' tax-dodging efforts in a Ten O'Clock Live skit. Watch Cashier Number 4, Please to see Carr describe the bank using "the world's biggest, most aggressive team of blood-hungry amoral tax lawyers".
In another blow to Carr's reputation, he was likened to a benefit thief by chief secretary to the Treasury, Danny Alexander who described Carr and other tax-avoiders as "the moral equivalent of the people who cheat the benefit system".
Image © Joel Ryan - AP
Take That and Terry Venables
Tax-dodging has gained even greater coverage following news that the stars of best-selling boy band Take That also stand accused of aggressive tax avoidance.
Gary Barlow, Howard Donald, Mark Owen and their manager Jonathan Wild are investors in a music industry investment scheme known as Icebreaker LLP (limited liability partnership).
Allegedly, the four invested £26 million of their combined earnings into the scheme, which HM Revenue & Customs (HMRC) argues improperly lowers investors' tax bills by claiming tax relief for investing in loss-making music projects.
It's also been revealed that ex-England manager Terry Venables is an investor in Icebreaker. Overall, more than 1,000 rich Brits have contributed £480 million to 62 different partnerships investing in the music industry.
While HMRC argues that Icebreaker and similar schemes cause 'unacceptable tax losses', its operators argue what they do is legal and provides valuable support to recording artists. The case will be decided at a tax tribunal in November.
If HMRC successfully outlaws K2, Icebreaker and similar schemes, then its members would face paying millions of pounds of back taxes. This could lead to some pretty stiff cutbacks for free-spending British celebrities.
Everyone hates taxes
While people are lining up to criticise rich tax dodgers, the truth is that not one of us is keen to pay more tax than we absolutely must. After all, 20 million Brits legally dodge tax by investing in Individual Savings Accounts (ISAs) in order to collect tax-free savings interest, share dividends, bond income and capital gains. Likewise, by paying into pensions, we reclaim billions of pounds each year from HMRC in tax relief at rates ranging from 20% to 50%.
Nonetheless, many of us see paying taxes as a civic duty, creating the glue that binds together British society. Hence, we get angry when we see wealthy tax avoiders breaking this 'pact between the people'.
In truth, like Jimmy Carr, not one of us wants to pay 'a penny more' in tax than we owe, and it is important to remember that while tax evasion is a criminal offence, tax avoidance is not illegal. And yet, despite this, we feel a sense of outrage when everyday tax planning turns into abusive tax avoidance.
Invention versus prevention
Likewise, instead of criticising greedy celebrities and mercenary Premier League players for legally lowering their tax bills, shouldn't we instead be demanding that MPs tighten up our tax laws? For example, a simple rule requiring those earning over, say, £100,000 a year to pay a minimum of 35% of their earnings in tax would undo offshore-loan schemes such as K2.
In short, what offends us most about Carr's tax-dodging is its sheer scale. As US hotel tycoon Leona Helmsley said (ironically, before she was jailed for tax evasion): "Only the little people pay taxes". It is this high-handed arrogance that makes modest-earning 'little people' so angry.
Finally, here's a quote from Paul Baxendale-Walker, a tax lawyer who invented EBTs (Employee Benefit Trusts), a now-outlawed tax dodge similar to K2: "For my clients, tax is a cancer."
This kind of attitude certainly makes hard-working Britons feel sick...
So what do you make of it all? Should celebrities be criticised for avoiding tax, or is the government to blame for allowing these loopholes to exist? Share your views in the comments section below.
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However, I suspect succesive Governments continue to allow these tax avoidance schemes to exist so that MP's can take advantage of them themselves.
I doubt if Jimmy Carr is the only celeb to avoid paying the right amount of tax, isn't that why the rich employ accountants!
There is always a name & shame when it comes to benefit cheats why not the same for tax dodgers?
i do not condone tax dodgers , but this country takes more off its working people than any other country, in income tax , perchase tax , fuel tax , then gives its , m.p`s huge expenses and pensions , while knocking the working people for complaining about the taxes they pay , double standards
It's not illegal but it is morally wrong.
I work in the rail industry and do 60+ hours a week. My pay (with overtime) just put's me into the 40% tax bracket (and i mean just). I work bloody hard and as such live in a nice area in a nice house with a car thats a couple of years old. I wouldn't say i'm well off as i have to watch the pennies but i'm "o.k."
My next door neighbours have an identical house, BRAND NEW car and are always away on trips, holidays etc. And how many hours a week do they work? 0, nothing, nowt, never been to work in their live's. How's that ever right?
Am I wrong but didn't David Cameron receive the benefits of a Trust Fund from his father a couple of years ago? This Trust Fund was presumbably set up to avoid taxation which would have been paid - so I find it morally repugnant that the Prime Minister should so label others who seek legally to avoid tax.
Politicians need to be very careful when jumping on the 'Moral horse'. I notice that they have no problem in altering agreed Pension deals for the rest of the country, but they are having a much greater problem sorting out their own 'platinum coated pensions' - I wonder why? It is still being reviewed!
I do not seek to defend those who 'avoid' taxation - to me they are despicable - but surely it is not beyond the wit of our politicians to sort it out - if they want to! But do they really!
It is not illegal what he did but it made me laugh when the rich prime minister says it is morally wrong.
Him and all his rich friends got a £50 000 bonus in the budget for every million they earn each year and that ain't morally wrong either HA HA
As I say it is not illegal and that is what all these over paid people do is avoid paying it.
Look at people like England hero Wayne Rooney on £250,000 a week I bet he does'nt pay 45 percent tax on it?? No his accountants find legal ways for him to pay less.
I have no problem with paying taxes that I owe. I also have no issue with someone employing legal 'Tax Avoidance' measures that everyone is legally and morally entitled to do so as to avoid paying more than one's fair share. However what Jimmy Carr and other Rich and Famous people have been doing is A DIFFERENT THING ALLTOGETHER.
Paying only 1% on £3.3 million/year is not Tax Avoidance... IT IS 'Tax Evasion' and an all out afront on the HMRC, on the paying public, on the government, on society... Why do these people think that they are better than the rest of us just because they happen to have lucked out in life and been lavished with fame and fortune...?! Why is it that our government and society tolerates (especially now) these people whom can afford it the most but allows them to pay the least..???!!!
Cameron, Milliband, et Al all need to sort this out or otherwise the general public will vote not only with their feet, but also with their fists...!
Unfortunately, the UK is far too greedy and irresponsible in the way it's citizens are taxed. The revenue generated is not spent with integrity and morality. We are paying billions of tax payers' money in payments to outsiders and unworthy or futile causes. Why should we pay more taxes than we need to pay? The tax deducted as I write is disproportionate to the wages we earn in this country. If you look at the amount of tax generated from Jimmy Carr's input it is about 50% of the whole amount. At the lower end of the wages scale it translates as a disinsentive to go to work. Where is the sense in that?
Lower taxes and nothing spent on those who should not be in this country please.
Less griping about problems created by successive governments who do not understand the basics of good business practice.
Sir (as he was then) Lester Piggott, the Royal jockey was stripped of his knighthood for income tax evasion and stuck in prison for it, if my memo serves me right. How times have changed?
The likes of Jimmy Carr (not funny, taking the **** during the Jubilee celebrations), Gary Barlow (up for a gong supposedly for the same) and his cohorts in Take Crap, are of course extracting the oracle by not paying their taxes in this country, but so are the likes of: Ken Livingstone, Sir Philip Green and Rupie Murdoch and co, encouraged by gaping loopholes in our tax system left open by this and previous governments.
Why are so many oligarchs and the like coming here to reside methinks, when in their own countries tax avoidance is considered a much more serious offence there, than it is here?
While the rest of the country is trying it's best to ride out austere times, the talking heads at Downing Street and HMRC have been sitting on their derrieres doing sweet FA about these schemes for quite some time now. I mean it's not like they never knew what was going on here, is it?
Go well and be lucky.
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