K2 was an
offshore wealth management
Wealth management (WM) or wealth management advisory (WMA) is an investment advisory service that provides financial management and wealth advisory services to a wide array of clients ranging from affluent to high-net-worth (HNW) and ultra-high ...
scheme in which salaries of individuals in the United Kingdom were channelled through
shell corporation
A shell corporation is a company or corporation that exists only on paper and has no office and no employees, but may have a bank account or may hold passive investments or be the registered owner of assets, such as intellectual property, or s ...
s in
Jersey
Jersey ( , ; nrf, Jèrri, label= Jèrriais ), officially the Bailiwick of Jersey (french: Bailliage de Jersey, links=no; Jèrriais: ), is an island country and self-governing Crown Dependency near the coast of north-west France. It is the l ...
,
Channel Islands
The Channel Islands ( nrf, Îles d'la Manche; french: îles Anglo-Normandes or ''îles de la Manche'') are an archipelago in the English Channel, off the French coast of Normandy. They include two Crown Dependencies: the Bailiwick of Jersey, ...
. In June 2012, media reporting of people using K2 for the purposes of
tax avoidance
Tax avoidance is the legal usage of the tax regime in a single territory to one's own advantage to reduce the amount of tax that is payable by means that are within the law. A tax shelter is one type of tax avoidance, and tax havens are jurisdi ...
was followed by the
United Kingdom's Prime Minister David Cameron characterising the scheme as "morally wrong".
[ Later that year the UK government began to introduce legislation to deter people from using such schemes.
]
Operation
The K2 scheme was promoted by a Kirkcaldy-based accounting firm, Peak Performance. The scheme involved companies having their main operations in the UK and shell companies offshore. An employee of the UK company would quit their job and then be rehired by the offshore company
The term "offshore company" or “offshore corporation” is used in at least two distinct and different ways. An offshore company may be a reference to:
* a company, group or sometimes a division thereof, which engages in offshoring business pr ...
to the UK. The offshore company would pay a lower salary than the person was originally on but would additionally loan them a large sum of money. Those loans would then be written down as tax liabilities to reduce the amount of tax payable.
Controversy
On 19 June 2012, ''The Times
''The Times'' is a British daily national newspaper based in London. It began in 1785 under the title ''The Daily Universal Register'', adopting its current name on 1 January 1788. ''The Times'' and its sister paper '' The Sunday Times'' (f ...
'' published an investigation into individual tax avoidance, estimating that around 1,100 people had been using the K2 scheme to avoid making tax payments totalling around £168million. ''The Times'' report named comedian Jimmy Carr
James Anthony Patrick Carr (born 15 September 1972) is a British-Irish comedian, presenter, writer, and actor. He is known for his deadpan delivery of controversial one-liners and distinctive laugh, for which he has been both praised and criti ...
as the K2 scheme client who was largest beneficiary of these arrangements, claiming that he was sheltering £3.3million per year and only paid 1% tax through using the scheme. That evening, Carr was challenged on the matter at a show in Royal Tunbridge Wells
Royal Tunbridge Wells is a town in Kent, England, southeast of central London. It lies close to the border with East Sussex on the northern edge of the High Weald, whose sandstone geology is exemplified by the rock formation High Rocks. ...
. When an audience member told him he didn't pay tax, Carr responded with "I pay what I have to and not a penny more." Speaking to ITV News, the Prime Minister of the United Kingdom at the time, David Cameron, called the scheme "morally wrong". Carr responded and issued a series of statements on his Twitter account; he apologised for using the scheme, stating it was a "terrible error of judgement" and that he had ceased using the K2 scheme. '' The Herald'' reported that the accounting firm promoting the scheme may have taken around 15% in commission. The Institute of Chartered Accountants of Scotland
The Institute of Chartered Accountants of Scotland (ICAS) is the world's first professional body of Chartered Accountants (CAs). It is a regulator, educator, influencer and thought leader.
ICAS act as a thought leader and voice of the professiona ...
(ICAS) said they would investigate the K2 scheme and Peak Performance.
HMRC crackdown
HM Revenue and Customs
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(HMRC) viewed K2 as a scheme for aggressive tax avoidance. In 2012, HMRC stated that they would be investigating how to challenge the scheme, stating if it worked technically, they would challenge it in court. In December 2012, the UK Government introduced the 2013 Finance Bill, which included a General Anti-Abuse Rule (GAAR) and a residency test, measures to deter people from using schemes like K2. In October 2013, Cameron announced an intention to publish a register of the owners of shell companies. In January 2014, having stopped using the K2 scheme, analysis of the accounts of Carr's company FN Good Limited suggested that corporation tax payments of around £500,000 were now being made. In March 2016, ''The Herald'' reported that firms running schemes like K2 had disappeared.
References
{{Reflist, 30em
Tax avoidance in the United Kingdom
Taxation in the United Kingdom
Financial services in the United Kingdom
Financial services in Jersey