According to a statement issued by the Treasury yesterday, the schemes were voluntarily disclosed to HM Revenue & Customs by the bank. The Treasury said the “aggressive tax avoidance” schemes were designed to “work around legislation introduced in the past to block similar attempts at tax avoidance”.
Due to the nature of one of the schemes, the Treasury said it has taken the unusual decision to introduce legislation to not only prevent the scheme’s use again in the future, but to retrospectively block its recent use by the bank. The scheme was aimed at dodging corporation tax when it purchased its own debt.
The Treasury added that the second scheme, which it is to block from future use, including in the instance raised by Barclays, involved Authorised Investment Funds and aimed to convert non-taxable income into an amount carrying a repayable tax credit in an attempt to secure ‘repayment’ from the exchequer of tax that has not been paid.
Banking Code of Practice on Taxation
The Treasury, while not naming Barclays, also said the bank in question had adopted the Banking Code of Practice on Taxation which contains a commitment not to engage in tax avoidance. In reference to this it said it is clear “these are not transactions that a bank that has adopted the Code should be undertaking”.
In the statement David Gauke, exchequer secretary to the Treasury, said: “We do not take today’s (Monday’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.”
Gauke added, while the government is committed to creating a competitive tax system, “we are absolutely clear that business must pay the tax they owe when they owe it”.
In response, Barclays said it “takes its responsibilities as a corporate citizen very seriously” and ensures all “transactions that it undertakes are fully in accordance with relevant tax law wherever it does business”. Barclays also goes so far as to say it complies with “the letter and spirit” of all its obligations under the HMRC Code of Practice.
Perhaps offering an excuse, Barclays said that it planned to use the schemes based on “guidance from professional advisers that the treatment was both legal and compliant with the tax code, and given others had used a similar treatment”. It added it had also voluntarily disclosed its participation in the authorised investment fund “which is also legal and compliant with the tax code”.
In a statement the bank said: “On the basis of that approach, HMRC has decided that it intends to work with the government to change the tax laws retrospectively to prevent any company from using such treatment again.
“Barclays respects the decision of HMRC and the government to adjust the tax laws and will, of course, comply with the modified law once it is in place. The retrospective change in legislation enacted would not have a material impact on Barclays profits and would not cause Barclays to alter its Preliminary Results which were published on 10 February.”
