Two “highly abusive” tax loopholes have been closed by HMRC after Barclays used them to try to avoid paying more than £500 million.
The move will prove particularly embarrassing for Barclays as the bank is signed up to a code of conduct specifically designed by the Treasury to curb tax avoidance. Barclays has also previously stressed the importance of good citizenship in banking.
In a statement, Barclays said: "This situation arose when Barclays voluntarily disclosed to HMRC in a spirit of full transparency that it had repurchased some of its debt in a tax efficient manner."
The bank went on to say it complied "with the letter and spirit of all our obligations" under the HMRC Code of Practice and that is maintains open and transparent dealings with HMRC.
Unlike tax evasion, tax avoidance schemes are legal, but the Government decided that Barclays had breached the code of practice, which has seen all major banks promise to pay their fair share of taxes.
The closure of the loopholes marks the first time the Government has clawed back revenues retrospectively and should ensure billions of pounds of tax are paid in the future.
Exchequer secretary to the Treasury David Gauke said the Government was clear that "business must pay the tax they owe when they owe it".
He added: "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."
Barclays has long faced questions about the way it pays tax and whether it attempts to take advantage of the differences in rules around the globe.
One of the tax schemes involved Barclays avoid paying corporation tax on profits it made buying back its own IOU-notes. The Treasury said it will move to block the recent use of the scheme by the bank and by any other company.
The other scheme - believed to be devised by Barclays - saw investment funds trying to receive tax credits from the Treasury on non-taxable income. The Government brought in legislation yesterday to block future use of the scheme.Reuse content