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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.

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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.

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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:

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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.

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Jimmy Carr's apology for tax avoidance scheme in tweets

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

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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),

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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

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

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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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