Barclays confirmed today that it has been ordered by the Treasury to pay back £500m in avoided tax. HM Revenue and Customs yesterday hurriedly drafted legislation to close down two "aggressive" tax avoidance schemes being run by an unnamed high street bank, now known to be Barclays.
The government took an unusual step in introducing retrospective legislation to halt the practice. On this morning's BBC Radio 4 Today programme, David Gauke, the minister responsible, said:
There will be no benefit to the bank ... they've clearly taken a substantial reputational hit.
The first of the schemes allowed the bank to avoid paying corporation tax on profits that it made buying back its own debt. The new law could have implications for other banks making money in similar ways.
The BBC reports the second scheme, also devised by Barclays, "involved investment funds claiming that non-taxable income entitled the funds to tax credits that could be reclaimed from HMRC".
Gauke, the exchequer secretary to the Treasury who refused yesterday to name the bank involved, said:
The bank that disclosed these schemes to HMRC has adopted the Banking Code of Practice on Taxation which contains a commitment not to engage in tax avoidance. The government is clear that these are not transactions that a bank that has adopted the code should be undertaking.
The government wants to ensure that the tax system is fair for all and we will not allow those who seek to benefit from this aggressive avoidance to get an unfair advantage.
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.