Barclays ordered to pay £500m by HMRC

The bank is in trouble for two tax avoidance schemes it created last year. But did it do anything wrong?

by Emma Haslett
Last Updated: 06 Nov 2012
It’s no secret the Government’s relationship with the financial services sector has become deeply weird, but this might just take the biscuit: HM Revenue & Customs has just ordered Barclays to pay it £500m in taxes it tried to avoid paying. So far, so straightforward. The strange part is that not only was Barclays the one that told HMRC about its clever avoidance schemes in the first place, but that the Government has now taken the unprecedented step of introducing ‘retrospective’ legislation to do something about it.

As every accountant worth his or her salt will tell you, tax avoidance is perfectly legal – it’s tax evasion that’s against the law. But that hasn’t stopped the Government from trying to crack down on avoidance anyway. Under hastily-written legislation introduced in 2004, anyone working in financial services (bankers, accountants, lawyers, etc) has to tell the Government if they come up with a way to avoid paying tax. Thus, when Barclays came up with two new schemes last year, they were straight on the blower to HMRC…

The slightly embarrassing thing for Barclays is that in 2009, it signed up to the Banking Code on Taxation, under which all the UK’s biggest banks promised not to engage in tax avoidance. The code (another hastily-introduced missive) was introduced after various newspapers ran stories on ‘large-scale’ tax avoidance by banks. For banks, though, it’s a difficult one: on one hand, they’ve got a responsibility to their shareholders to keep profits as high as possible; on the other, they’ve got the collective wrath of the nation to contend with.

Now the Government has decided to introduce legislation to block the two schemes the bank used, which involved buying back its own debt at a discount to reduce corporation tax liability, and generating tax-credits on untaxable income. While some may see that as reactionary, David Gauke, the Exchequer Secretary to the Treasury, reckons it’s absolutely justified. ‘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,’ he said.

For its part, Barclays seems confused, pointing out that although the two schemes it came up with were new, they weren’t far removed from tax avoidance schemes its competitors use. Which is a fair point. In fact, it’s arguable that this sort of thing is simply part of the nuts and bolts of running a publicly-listed company. Just like the scorpion that got itself into trouble by stinging the frog, you can’t exactly blame it. Doing everything in its power (and within the law) to keep its bottom line healthy is just in its corporate nature.

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