Zero tax for RBS on massive profits from bond trades

State-owned bank used similar method to the one which has earned Barclays condemnation

Royal Bank of Scotland paid zero tax in 2009 on trades similar to the one which this week saw Barclays harshly criticised for tax avoidance.

Like Barclays, the state-owned RBS bought back its own bonds in the market in a way that meant it did not have to pay tax on the £3.8bn profits the deals made. At the time, these were not taxable – a loophole closed off by the Government the following year.

Such a return would have been taxed at more than £1bn if RBS had paid normal corporation tax at the time, although the bank's loss-making status means that would have been far less in practice.

The 2009 deals were made just a month after the launch of the Government's asset protection scheme, which in effect guaranteed billions of pounds worth of RBS's assets with taxpayers' money.

The Treasury this week described Barclays' use of debt buybacks as being "highly abusive" to the tax system.

The RBS case is clearly less egregious than that of Barclays because the trades were carried out before the 2010 Banking Code of Practice on Taxation in which banks committed not to engage in tax avoidance.

RBS said it bought back the bonds primarily for business rather than tax reasons and points out that it did similar transactions the following year after the loophole was closed, meaning it did pay tax.

The Independent began inquiring about British banks' use of such trades after Barclays yesterday issued a statement claiming others were doing the same thing.

Sources at Lloyds Banking Group said it had bought back debt in the market under Project Seaview – the bank's codename for the process of buying its way out of the asset protection scheme. However, it paid tax in full.

Barclays would not name the professional advisers which guided it on the schemes. Its auditors are PricewaterhouseCoopers. The bank would not comment on seeking redress.

John Cryer MP on the Treasury Select Committee told the news agency Bloomberg: "The reaction of the man and woman in the street who just work and pay their taxes will be incredulity."

The bank said: "Barclays takes its responsibilities as a corporate citizen very seriously."

Barclays admitted it had repurchased some of its debt in a "tax-efficient manner", but added: "This was based on guidance from professional advisers that the treatment was legal and compliant with the tax code, and given that others had used a similar treatment."

HMRC took a different view and advised the Treasury to close the loophole urgently and retrospectively.

City analysts fretted that the revelations could prove damaging to Barclays.

Bruce Packard of the stockbroker Seymour Pierce warned: "Over the last few years some investment banking talent has learnt that sailing close to the wind is not always the wisest course to steer, due to the risk of fines and damage to their reputations. Others find it harder to change."

Loopholes closed

HMRC is shutting off tax dodges. Here are some being closed:

1. Contrive to artificially create a pension surplus, allowing funds to be removed tax-free

2. Avoid PAYE and NI contributions by paying staff through family trusts

3. Get Gift Aid by donating to dubious charities in return for shares from a non-UK "philanthropist"

4. Avoid property stamp duty by reducing purchase prices, making up the difference with side-payments

5. Buy a yacht with VAT-paid status while actually paying no VAT at all

News
Russell Brand was in typically combative form during his promotional interview with Newsnight's Evan Davis
peopleReports that Brand could stand for Mayor on an 'anti-politics' ticket
News
The clocks go forward an hour at 1am on Sunday 30 March
news
Arts and Entertainment
The Doctor finds himself in a forest version of London in Doctor Who episode 'In the Forest of the Night'
TVReview: Is the Doctor ever going stop frowning? Apparently not.
News
Voluminous silk drawers were worn by Queen Victoria
newsThe silk underwear is part of a growing trade in celebrity smalls
PROMOTED VIDEO
Sport
footballMatch report: Real fight back to ruin Argentinian's debut
News
Candidates with surnames that start with an A have an electoral advantage
newsVoters are biased towards names with letters near start of alphabet
Arts and Entertainment
Isis with Lord Grantham (Hugh Bonneville)
TV
Arts and Entertainment
Jay James
TVReview: Performances were stale and cheesier than a chunk of Blue Stilton left out for a month
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Data Analyst/Planning and Performance – Surrey – Up to £35k

£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?