In the papers last week was the news that comedian Jimmy Carr has had to pay a £500,000 tax bill to HMRC after he stopped using the controversial K2 tax avoidance scheme last year.
“Throwing Acid is wrong in some peoples eyes”
His company FN Good Limited made a £2.5m Net Profit in the year ending 31st April 2013 and has had to pay corporation tax at 20% as shown on its latest published accounts.
In June 2012, Carr apologised via Twitter for using the scheme and said it was an “error of judgement” on his behalf He added in another tweet, “Although I’ve been advised the K2 Tax scheme is entirely legal, this has been fully disclosed to HMRC. I’m no longer involved in it and will in future conduct my financial affairs much more responsibly. My apologies to everyone”.
It is estimated that the Jersey-based K2 scheme, has sheltered £168m from the Treasury per year, with the government losing approximately £66m in tax per annum.
I looked into K2 when it first appeared some years back, so here is a quick explanation of the basics of the scheme.
There were lots of wealthy fat cats and show-biz types that were involved in the scheme yet Jimmy Carr seems to take the full brunt of the media attention. Was his only mistake not supporting the right political party? I seem to recall that Gary Barlow was also involved but was awarded an MBE and sang at the Queen’s Birthday party in the same year as news of this dubious tax avoidance scheme hit the press.
I would also like to point out the blindingly obvious that despite all the bile and invective thrown at Jimmy Carr, what he did was actually legal. The use of the phrase “tax avoidance scheme”, is now associated with negative connotations by the press and other media; but I have never seen ISA’s, Salary Sacrifice, Childcare Vouchers, Pension Contributions etcetera referred to in this way, so why attach this negative label on something that is legal?
I regularly advise clients to switch from self-employment into their own bespoke limited company and how to structure their salary and dividend payments in order to minimise their tax liability within the law. I for one would not appreciate being labelled as a promoter of dubious tax avoidance schemes?
It seems to me that the calculation of how much tax is paid and the media and political frenzy surrounding it is confined to direct taxes only. I imagine that both JC and his wife drive big cars and live in big house. Therefore he pays VAT on the purchase of the car, VAT and duty on his fuel bills, higher rates of road tax, large sums of Stamp Duty, much higher council tax bills, VAT on the purchase of other items bought from the taxes saved, employers NIC on his staff salaries, etc etc etc etc.
So does JC really pay the same amount of tax?
Hard working and entrepreneurial UK citizens pay a huge amount of tax and they have no option under the law but to pay indirect taxes. Therefore if they wish to use the same “law” to mitigate their direct taxes then one can hardly blame them.
And please, let us not talk about morality; I’m sure many in the media who were all over JC like a rash, have in the past paid cash to builders, cleaners and gardeners.
David Jones is the Senior Partner and Founder of Morgan Jones & Company. Born in Liverpool and an Accountancy graduate of the University of Wolverhampton, David spent twenty years working for the Customs & Excise in London then Shrewsbury before starting his own business. David's depth of knowledge of the UK tax system and his ability to communicate this learning has seen Morgan Jones & Company grow into Shropshire's most respected Accountancy Practice.