The tax authorities yesterday vowed to close down and claw back lost income from two legal tax-avoidance schemes that are estimated to have saved the comedian Jimmy Carr and members of Take That millions of pounds.
David Cameron looked to have scored a victory in his high-profile attack on Carr's tax affairs as "morally wrong" when the millionaire comedian issued a mea culpa saying he had made a "terrible error of judgement". Carr said he had now withdrawn from the Jersey-based "K2" scheme which reduced his income tax rate to about 1 per cent.
But amid anger in Tory ranks that Mr Cameron had drawn attention to tax-avoidance claims against its own billionaire donors, Downing Street was last night fighting a battle to avoid being drawn further into the row. Questioned by journalists, the Prime Minister refused to criticise Take That star Gary Barlow and – notwithstanding his comments on Carr – said he was not providing a "running commentary on different people's tax affairs".
The Conservative high command faced further charges of hypocrisy after No 10 signalled it had gone cool on plans for senior ministers, including the Prime Minister and Chancellor George Osborne, to disclose their tax returns.
Her Majesty's Revenue and Customs (HMRC) signalled its determination to shut down K2, whose beneficiaries – understood to number more than 1,000 – have avoided paying £168m annually to the taxman. Carr was reported to be the largest single beneficiary of the scheme, which is legal and works by paying its clients in the form of an off-shore loan.
HMRC said K2 was "already under investigation" and it would, if necessary, take a case to the Taxes Tribunal to ensure its closure. A spokesman added: "Government does not intend anyone, no matter who they are, to get away with paying less than they should."
HMRC, which estimates about £5bn a year is lost through tax avoidance by individuals, said it was also preparing action against Icebreaker 2, a separate scheme designed to fund projects in the music industry.
According to The Times, Barlow, a Conservative supporter who was made an OBE this month, and his fellow band members Howard Donald and Mark Owen, along with their manager Jonathan Wild, have invested £26m in the scheme. HMRC said it had already "successfully challenged" a predecessor scheme – Icebreaker 1 – and was now preparing a case against its successor. Icebreaker Management Services, which oversees the schemes, strongly denied HMRC claims, saying its products were "categorically not avoidance schemes" and that Icebreaker 1 had been recognised as a "legitimate trade".
Carr, who had previously lampooned tax-avoidance schemes, said via Twitter: "I now realise I've made a terrible error of judgement. Although I've been advised the K2 tax scheme is entirely legal, and has been fully disclosed to the HMRC, I'm no longer involved in it and will in future conduct my financial affairs much more responsibly."
Carr was teased by the comedian Sean Lock last night during the filming of 8 Out Of 10 Cats, due to air on Channel 4 tonight. Lock told him: "We all like to put a bit of money away for a rainy day, don't we? But I think you're more prepared than Noah."
Tax affairs: The Tories, the donors - and the advisers
International Development Secretary
Mr Mitchell is involved in two property investment schemes that operate from the British Virgin Islands. The islands are a British overseas territory beyond the full jurisdiction of UK corporate tax laws.
Tory party donor
Scrap metal dealer's son was the rags-to-riches success story the Tory party believed defined its new identity. Rowland, then based in Guernsey, was briefly party's largest donor. Moved to England from the Channel Islands to make donations legitimate.
MP for Richmond South
Worth: More than £200m
Before becoming an MP at the last election, he had non-dom status. Details of the Goldsmith trust are private, though some of his UK-registered properties are owned by companies listed in the Cayman Islands. His non-dom status, based on his father's overseas residency, has since been changed.
His property firm Castlemead pays him share dividends rather than a wage. Moving his shares into the name of his wife, who pays lower taxes, limited his involvement in higher tax rates. Both arrangements are legal and could save up to 25,000 a year.
Personal wealth: £3.8m
The son of a millionaire investment manager who ran offshore funds in several tax havens, David Cameron was forced to deny claims that he was worth £30m in 2009 – but has said he is "very relaxed" about publishing details of his tax returns in future.
Former Tory party co-Treasurer
Worth: £850m to £1bn
Cruddas, who recently quit his party post, is being investigated for trying to secure funds for the Tories from foreign sources, which is illegal. He is the largest single donor to the Conservatives and is based in Monaco to reduce his UK tax bill.
Worth: £5m plus
Wealth is ring-fenced in a trust fund. Although a 15 per cent shareholder, he said recently his only income was his Cabinet pay. Does not pay highest tax rate. The fund's structure offers inheritance tax savings. The arrangements are legal.
Former Tory party co-chairman
Enobled in 2000, his tax status was the subject of speculation until 2010, when it emerged he had not paid tax on overseas earnings because he held both British and Belize nationality. In 2006 he loaned party £3.6m.
Worth: £800m plus
Based in Monaco, he was made a peer in 2004, before new law barred non-UK residents from entering the Lords. He is one of the largest Tory donors, giving almost £3m in three years. Vowed to become UK resident before taking up seat but later refused to comply.
Sir Philip Green
Government's efficiency tsar
UK Uncut claims his Arcadia retail empire has avoided paying hundreds of millions in tax while channelling £1.2bn through the accounts of his wife, Tina, who is based in Monaco. He denies she is a tax exile and claims to have paid £400m in tax in five years.Reuse content