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.