Jackpot: Camelot avoided £10m in tax from lottery - thanks to a legal loophole and Canadian teachers - Home News - UK - The Independent

Jackpot: Camelot avoided £10m in tax from lottery - thanks to a legal loophole and Canadian teachers

The great Eurobond tax scandal

Camelot, the company behind the National Lottery, has avoided millions of pounds in corporation tax by exploiting a legal loophole that HMRC failed to close.

The company saved an estimated £10m in tax in the last two years through interest on loans taken from its Canadian owner via the Channel Islands Stock Exchange. Its owner is  one of Canada’s largest pension plans, the Ontario Teachers’ Pension Plan board. The revelation comes as the National Lottery has doubled the price of its tickets to £2.

In the second part of a joint investigation by Corporate Watch and The Independent, it can also be revealed that HMRC considered closing the loophole that Camelot and others are using last year – but decided against it after lobbying from major accountancy and finance firms.

The Government estimated in 2012 that the loophole was costing the public purse some £200m, but publicly available accounts suggest the true cost could be more than £500m – and probably higher.

Camelot is one of more than 30 major UK companies that will be named in The Independent this week as benefiting from the legal loophole known as the quoted Eurobond exemption.

Margaret Hodge, chair of the Commons Public Accounts Committee, said last night she would be raising the issue at a hearing with HMRC on Monday. “I find it extraordinary  that HMRC could be so naive as to send out a consultation document on closing a tax loophole to a group of vested interests, including some of the very people who benefit, or whose clients benefit, from it – and then accept their response seemingly without challenge,” she said.

Camelot could have avoided more than £10m in tax over the past two years after interest of £38.7m on £172.6m it owes to its owner, the Ontario Teachers’ Pension Plan, helped wipe out its UK profits. The loss meant the company declared a tax credit of £10.3m for 2012 and £5m the previous year. The savings will increase as more interest is paid or accrued in future years.

It is not clear exactly how much tax was avoided because Camelot will not disclose how much interest HMRC deemed suitable for tax relief. If its owners had invested the money in shares instead of debt, any dividends would be paid after tax.

HMRC would usually deduct a 20  per cent “withholding” tax on interest payments going overseas, making the tax savings from the interest deductions negligible. But as the loans are issued as “quoted Eurobonds” on the Channel Islands Stock Exchange, an exemption means they leave the UK tax-free.

The 12.5 per cent interest rate on the loans taken by Camelot is significantly higher than the 5 per cent average rate it is paying on loans from third parties such as banks.

A Camelot spokesman said: “The UK transfer pricing legislation exists to ensure the tax relief arising from transactions between connected parties are based on the internationally recognised ‘arm’s length principle’ (which ensures that such transactions are market-based). As a result, only a portion of the interest payable on the Eurobond debt issued by the group is eligible for UK tax relief, with the rest being disallowed for UK tax purposes.”

A spokesman for the Ontario Teachers’ Pension Plan said: “Ontario Teachers’ Pension Plan abides by all regulatory, tax and legal requirements in the jurisdictions that it invests and operates in.” A HMRC spokesman said: “For legal reasons, HMRC cannot comment on the affairs of individual taxpayers.”

Yesterday, The Independent revealed how nine care companies with lucrative government contracts were using the loophole.

Camelot: Millions made from creating millionaires

Camelot was awarded the franchise to run the National Lottery almost two decades ago and made its first prize draw on 19 November 1994. 

The company was originally owned by a consortium of businesses including Cadbury.

It proved controversial from the outset due to the salaries and bonuses paid to its senior executives.

According to the National Lottery Commission, Camelot hands back 40 per cent of the money it makes from selling tickets and has invested  £30bn in good causes,  including the 2012 Olympic  and Paralympic Games.

It has also given out over £40bn in prize money and created more than 2,000 millionaires.

In March 2010, shortly after winning its third franchise, Camelot was sold for almost £400m to the Ontario Teachers’ Pension Plan board, a pension fund that looks after the interests of 289,000 Canadian teachers.

Since then, the group has  been forced to contend with  the economic downturn as  well as competition from  Richard Desmond’s Health Lottery, which is a collection of regional lotteries promoted nationally.

Another test for the Lottery came in September when the price of its flagship Lotto draw was raised for the first time, doubling to £2.

The move is an attempt to tackle the fact that Lotto is in decline – sales have more than halved from its peak of £4.7bn a year.

Jamie Dunkley

Lottery firm’s owner has $130bn in assets

The Ontario Teachers’ Pension Plan board is not as unlikely an owner for Camelot as it might first appear. One of the world’s largest institutional investors, it has some $129.5bn (£80bn) in net assets, much of which is invested here.

It pays pensions and invests plan assets on behalf of more than 300,000 teachers in Canada.

Acorn Care – one of the care firms reported in The Independent as using the same legal tax loophole – is also owned by the board. A spokesman said: “Ontario Teachers’ Pension Plan abides by all regulatory, tax and legal requirements in the jurisdictions that it invests and operates in.”

Emily Dugan

News
John Travolta is a qualified airline captain and employed the pilot with his company, Alto
people'That was the lowest I’d ever felt'
Life and Style
healthIt isn’t greasy. It doesn’t smell. And moreover, it costs nothing
News
peopleThe report and photo dedicated to the actress’s decolletage has, unsurprisingly, provoked anger
Property
Home body: Badger stays safe indoors
property
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
News
The programme sees four specialists creating what they believe are three perfect couples, based on scientific matchmaking. The couples will not meet until they walk down the aisle together
tvUK wedding show jilted
Arts and Entertainment
US pop diva Jennifer Lopez sang “Happy Birthday” to Gurbanguly Berdimuhamedow, president of Turkmenistan
musicCorporate gigs become key source of musicians' income
Arts and Entertainment
You've been framed: Henri Matisse's colourful cut-outs at Tate Modern
artWhat makes a smash-hit art show
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
filmsDaniel Craig believed to be donning skis as 007 for first time
Sport
Mikel Arteta pictured during Borussia Dortmund vs Arsenal
champions league
Voices
Yes supporters gather outside the Usher Hall, which is hosting a Night for Scotland in Edinburgh
voicesBen Judah: Is there a third option for England and Scotland that keeps everyone happy?
Arts and Entertainment
Pulp-fiction lover: Jarvis Cocker
booksJarvis Cocker on Richard Brautigan
Arts and Entertainment
Robin Thicke and Pharell Williams in the video of the song, which has been accused of justifying rape
music...and he had 'almost no part' in writing it
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 General

Senior QA Engineer - Agile, SCRUM

£35000 - £50000 per annum + benefits: Ashdown Group: Senior QA Engineer (Agil...

Marketing Executive - West Midlands - £28,000

£26000 - £28000 per annum: Ashdown Group: Digital Marketing Executive (SEO, PP...

Retail Business Analyst

£40000 - £50000 Per Annum: Clearwater People Solutions Ltd: Our retail client ...

Senior C++ Developer

£400 - £450 Per Annum possibly more for the right candidate: Clearwater People...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week