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

Start your day with The Independent, sign up for daily news emails
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Business Development Executive - Affiliates & Partnerships

£20000 - £35000 per annum: Recruitment Genius: This multi-award winning foreig...

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor