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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.

The Times explains in more detail how K2 works - and has undercover footage of people who run it.


No 10 'looking into' releasing ministers' tax returns

The Press Association's Political Correspondent James Tapsfield tweeted that Downing Street is looking into whether ministers will have to disclose their tax returns.


No10 says still "looking into" releasing ministers' tax returns, but "not a v near future thing"

Miliband adviser: PM should now look at his own party on tax

Stewart Wood, a shadow cabinet minister and adviser to Labour leader Ed Miliband, has tweeted that David Cameron should now look at those in his party that use tax avoidance schemes:


Now that Jimmy Carr has apologised, I expect Cameron will be moving on to those in his party & social circles who also use tax avoidance.


Jimmy Carr's apology for tax avoidance scheme in tweets


I now realise I’ve made a terrible error of judgement.


Although I’ve been advised the K2 Tax scheme is entirely legal, and has been fully disclosed to HMRC (Her Majesty’s Revenue and Customs),


I’m no longer involved in it and will in future conduct my financial affairs much more responsibly. Apologies to everyone. Jimmy Carr

Carr's apology for tax avoidance scheme in tweets


I appreciate as a comedian, people will expect me to ‘make light’ of this situation, but I’m not going to in this statement


I met with a financial advisor and he said to me “Do you want to pay less tax? It’s totally legal.” I said “Yes.”

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