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

Have you tried new the Independent Digital Edition apps?
ebookA unique anthology of reporting and analysis of a crucial period of history
Life and Style
Arts and Entertainment
Southern charm: Nicolas Cage and Tye Sheridan in ‘Joe’
filmReview: Actor delivers astonishing performance in low budget drama
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
Arts and Entertainment
Up my street: The residents of the elegant Moray Place in Edinburgh's Georgian New Town
tvBBC's The Secret History of Our Streets reveals a fascinating window into Britain's past
Albus Dumbledore, the headmaster of Hogwarts School of Witchcraft and Wizardry has been the teaching profession's favourite teacher
Luis Suarez looks towards the crowd during the 2-1 victory over England
Life and Style
Cheesecake frozen yoghurt by Constance and Mathilde Lorenzi
food + drinkThink outside the cool box for this summer’s frozen treats
John Barrowman kisses his male “bride” at a mock Gretna Green during the Commonwealth Games opening ceremony
peopleBarrowman's opening ceremony message to Commonwealth countries where he would be sent to prison for being gay
Sir Bradley Wiggins removes his silver medal after the podium ceremony for the men’s 4,000m team pursuit in Glasgow yesterday
Commonwealth games Disappointment for Sir Bradley in team pursuit final as England are forced to settle for silver
Alistair Brownlee (right) celebrates with his gold medal after winning the men’s triathlon alongside brother Jonny (left), who got silver
England's Jodie Stimpson won the women’s triathlon in the morning
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
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 General

SQL Report Analyst (SSRS, CA, SQL 2012)

£30000 - £38500 Per Annum + 25 days holiday, pension, subsidised restaurant: C...

Application Support Analyst (SQL, Incident Management, SLAs)

£34000 - £37000 Per Annum + excellent benefits: Clearwater People Solutions Lt...

Embedded Software / Firmware Engineer

£40000 - £45000 per annum + Pension, Holiday, Flexi-time: Progressive Recruitm...

Developer - WinForms, C#

£280 - £320 per day: Progressive Recruitment: C#, WinForms, Desktop Developmen...

Day In a Page

Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform