How does the K2 tax avoidance scheme work? 



'As bad as benefits cheats': Minister attacks Jersey tax avoidance scheme that Jimmy Carr 'has £3.3m in'

  • Comedian Carr is 'largest beneficiary' of scheme which shelters £168m a year from taxman
  • Danny Alexander, Chief Secretary to the Treasury, says rich tax dodgers are 'moral equivalent of benefit cheats'
  • He warns Government is 'coming to get them'

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How does a tax avoidance scheme work?

  • Tax avoidance is the process of dodging taxation law without actually breaking it.
  • The company K2, used by comedian Jimmy Carr, works by transferring salaries from mainland investors into a Jersey-based trust which then gives the money back to investors in the form of loans.
  • Loans are not subject to income tax.
  • Jimmy Carr used the aggressive, but legal, scheme to protect some £3.3 million a year, a Times investigation uncovered. He is said to be one of more than 1,000 beneficiaries who shelter some £168 million from the taxman each year using K2.




HMRC has confirmed that it is looking into the workings of an offshore tax avoidance scheme used by a number of wealthy individuals - as part of the Government's high profile clampdown on individual tax avoidance which is estimated to cost the Treasury £4.5bn each year.

The Times newspaper, which ran a high profile story on tax avoidance today, says that the K2 scheme enabled participants to pay as little as 1% tax on their earnings, instead of the 50% many would pay under standard PAYE conditions.

Almost £170m is believed to be sheltered from the UK tax authorities each year via the scheme, which boasts comedian Jimmy Carr as a significant member.

Roy Lyness from Peak Performance Accountants told a reporter from the Times that a hypothetical tax bill could be slashed to a mere 1.25% via the scheme, which has an estimated 1,100 members.