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
ebooks
ebooksA special investigation by Andy McSmith
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

SThree: HR Benefits Manager

£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

Recruitment Genius: Office Manager / Financial Services

£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

Jemma Gent: Year End Accountant

£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

Jemma Gent: Management Accountant

£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

Day In a Page

The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
Yvette Cooper: We can't lose the election. There's too much on the line

Yvette Cooper: We can't lose the election. There's too much on the line

The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

It's not easy being Green

After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

Gorillas nearly missed

BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

The Downton Abbey effect

Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
China's wild panda numbers have increased by 17% since 2003, new census reveals

China's wild panda numbers on the up

New census reveals 17% since 2003