Comedian Jimmy Carr may not have such a grin on his face this week, as the latest news surrounding the often controversial funny man, has revealed how he’s been making use of the tax avoidance scheme ‘K2’.
These types of tax avoidance schemes may sound familiar to many contractors across the UK, as they were heavily marketed to freelancers around the time IR35 was introduced, however, it is never worth the risk as Jimmy Carr is finding out the hard way.
A full HMRC investigation of K2 is now underway, with the tax scheme believing to protect £168million a year from the taxman in Jersey, with many wealthy Britons using this to pay as little as one per cent income tax.
The K2 scheme works by relocating salaries into a Jersey-based trust, which will then lend investors back the money – the loan will not be subject to income tax.
A spokeswoman for HMRC said, “This scheme (K2) was already under investigation by HMRC. If, as is alleged, it depends on the use of loans it will not work.
“HMRC are looking into this. If the scheme does work technically, HMRC will challenge it in every way available to them.
“Government does not intend anyone, no matter who they are, to get away with paying less than they should.”
Treasury minister MP David Gauke told the BBC’s World at One: “Most people are paying the right amount of tax and it is not right that there is a minority that are getting away with it.”
Using offshore and tax avoidance schemes can be risky and many of the companies selling them can be very persuasive. Some schemes can promise returns as high as 80% plus, however, if you traded through your own legitimate UK limited company your returns would typically be 75% – 80% and it would all be legal without any risks.