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Wednesday, August 29, 2012

Tax Avoidance - How the High Earners Are Getting Away With It

Earning over £150,000 a year means tax rates of 50% - that’s thousands of pounds poured into government – so many celebrities and high-earners are doing what they can to keep as much of their salary as possible. Compared by some to benefit frauds, tax-avoiders are, by contrast, working completely within the law. Perhaps the most infamous tax dodger at the moment is comedian, Jimmy Carr, who sneaked £3.3 million every year into a tax-avoidance scheme called ‘K2.’
Tax Avoidance - How the High Earners Are Getting Away With It

According to figures, K2 protects approximately 1,100 of British high-earners from steep tax rates, doing the UK population out of £168 million a year in tax. K2 accepts earnings into a trust and then grants interest-free loans, on which no tax is owed. The borrowers “forget” to pay back these loans, which the trust deducts off the earnings they have kept safe.

This means Carr and other K2 tax-avoiders were paying tax rates of 1% a year on their millions of pounds. If Jimmy Carr was to pay the tax due, he would owe almost £1.7 million.

And that’s not where it ends for Jimmy Carr: he bought his house through a company in order to duck tax deductions and had his fingers in many tax-avoidance pies, including a scheme shut down by HM Revenue & Customs (HMRC).

In light of these findings, HMRC is investigating K2, and if K2’s practices are deemed to be unlawful, their tax-avoidance club will have to pay out millions of pounds in fees. Mud-slinging hasn’t stopped for identified tax-dodgers, as it is thought that tax-avoidance costs the UK up to £4.5 billion a year in taxes.

Some of the tricks high-earners use to duck taxes involve:
  • Offshore employee benefit trusts (EBTs) : similar to the K2 scheme, this method was used by Arsenal midfielder, Ray Parlour, to take out low-interest, non-taxable loans. This saved the football star over half a million pounds.
  • Payments in kind (PIKs) : instead of paying salaries in money, gifts such as gold, diamonds, and other high-value items were awarded, and often consequently sold for their value, completely bypassing tax.
  • Domiciled in an overseas tax haven : Sir Philip Green gave his wife, Lady Green, £1.2 billion in cash dividend, and because she lived in tax haven, Monaco, she missed a whopping £285 million in tax.
  • Partnership subsidies : Kenneth McFarlane claimed tax relief on his huge family home in London by directing it through his company’s partnership. Not only did McFarlane deprive the UK public of crucial taxes, but our taxpayers ultimately paid for 40% of his home.
Fortunately, many of these techniques have subsequently been made unlawful. Although manipulating tax loopholes is perfectly legal, it is unfair that the poorest people pay full-whack, whilst high-earners have the means to duck their taxes, even though they have more than enough disposable income to live very well for themselves. Important money doesn’t go into the vital welfare system and other public services that can be life-saving for many people. Their high salaries and lavish lives are built on the poorest demographic; it’s time that they shared their wealth around.


  1. No one should attempt to get away with not paying taxes. If you need help to figure out how to pay yours, meet with an experienced financial advisor to get it.

    1. Agreed, keyword queen, but I would actually suggest a tax lawyer or tax adviser.

  2. Tax loopholes always favor the rich. It seems those who can't afford to pay are the ones to be saddled with the highest bills.