Is Comedian Jimmy Carr having a laugh with tax avoidance scheme K2?

HMRC has confirmed that the K2 scheme is under investigation and has vowed to “challenge it in every way available to them,” stating that the “Government does not intend anyone, no matter who they are, to get away with paying less than they should.”  The tax scheme is understood to protect £168m a year from the taxman in Jersey, with Jimmy Carr its largest beneficiary.

According to a special investigation by the Times newspaper, thousands of high earners in Britain use such schemes to carefully do their accounting “under the radar.”

It claims an accountant disclosed that Mr Carr had sheltered £3.3m a year through the company. Lawyers for the comedian have confirmed he is a member of K2, but categorically denied any wrongdoing. Instead, they said the scheme had been disclosed to the relevant authorities in line with the law.

The Government has already announced a crackdown on individual tax avoidance, which is estimated to account for £4.5bn of the £7bn lost in tax each year.  HMRC does not intend anyone, no matter who they are, to get away with paying less than they should

A game of cat and mouse

Chancellor George Osborne has claimed he was left “shocked” after finding the extent to which multi-millionaires were exploiting tax loopholes and vowed to take “action.”

But shortly after he announced this year’s Budget, the Times alleges the K2 scheme assured its members “most of the powerful tax-saving opportunities survived unscathed.”

It has now published the details of an undercover investigation, in which an accountant promised to cut the tax bill on a £280,000 salary from £127,000 to just £3,500.

Roy Lyness, from Peak Performance Accountants which run the K2 scheme, told a seminar of businessmen: “It’s a game of cat and mouse. The Revenue closes one scheme; we find another way round it.

“It’s like a sat nav. I’m driving to Manchester, get a message saying there’s a smash at Stoke, and press the button to re-route. That’s all we do with tax avoidance.” He added the company did not broadcast the scheme because doing so would be like a “red rag to a bull.”

As much as £168m from taxman has been ringfenced.

The regime, called K2, is provided by accounting firm Peak Performance Accountants and allows its 1,100 of its clients to pay as little as 1% income tax.

It works by transferring salaries into a Jersey-based trust, which lends investors back the money. As the loan can technically be recalled, it is not subject to income tax.

The K2 arrangement is one of a range of schemes continuing to operate, despite the government’s vow to crack down on the “morally repugnant” practice. It is estimated by the Inland Revenue that tax avoidance by individuals alone costs the economy £4.5bn out of £7bn lost in tax every year.

Indeed, the lawyers for stand-up comedian and TV presenter Jimmy Carr – best known for his roles hosting 10 O’Clock Live, 8 Out of 10 Cats and regular guest appearances on QI and Have I Got News For You – have confirmed he is one of the scheme’s beneficiaries. They denied any wrongdoing and said that the scheme had been disclosed to the relevant bodies.

According to the Times’s investigation, he safeguarded as much as £3.3m from the taxman through the arrangement.

How Does a Remuneration Trust Work?

A company owner, director, LLP partner, partner in a business partnership, sole trader or someone with income that is not processed through the PAYE system can use a remuneration trust.

The basics are: Income or company profits are contributed to a remuneration trust. Because the contribution is being paid into a trust there is usually no tax payable on the contribution.


Behind the scenes the construction of a remuneration trust is often extremely technical and complex, but paperwork when applying is often quite straightforward.

A remuneration trust is designed to deliver more versatile financial options for companies, partnerships and sole traders when reaching tax management decisions. It extends the incentive resources available via legal wealth-saving techniques and reduced liabilities.

The current economic environment, as well as the difficulties it creates for business and financial management, has led to more organizations and individuals seeking sensible approaches to offer remuneration incentives to their suppliers and service providers.

Whilst conventional salary payment models, such as bonuses and dividends, are helpful, a remuneration trust could also be used as a possible incentive that could offer more significant financial freedom, and improve the funds available.

A remuneration trust may be used as a device to enable profit from a UK limited company to be deducted as an expense. The trust then enhances the accessible wealth by minimizing liabilities and making the funds available to trust beneficiaries via a more profitable channel.

General guidance on remuneration trusts

The content presented here is of a general nature. Utilizing a remuneration trust is actually a complicated area, demanding specialized knowledge.

Consequently, our recommendation is that professional guidance is sought for every unique set of circumstances of your business and employees.

We will not accept any legal responsibility for any action taken resulting from the information contained in this article, and this isn’t supposed to be a comprehensive legal declaration in respect of the common use of remuneration trusts. A remuneration trust may not be suitable for your particular circumstances and we always advise that you take advice. It is now possible (due to changes in legislation) to provide remuneration strategies that are not contentious.

Quite clearly, the K2 scheme that has saved people such a considerable amount of tax is no laughing matter. But it really depends whether you are the beneficiary of such a scheme or a taxpayer who has not received effective tax planning advice!

Who knows HMRC may have the last laugh on Jimmy Carr!

Ray Best can help you protect your financial future. To find out more, simply click here!

About Ray L Best

Ray Best has had over 30 years experience of advising on complex financial matters. A published author of a number of books including “Partnership and Shareholder Protection”, Inheritance Tax Simplified”. We provide an initial meeting at no cost and only engage with clients when we can add significant value.

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