Jimmy Carr: Comedian or Tax Avoider?

Politics editor┬áHelen Louise Cox explains Jimmy Carr’s recent brush with Her Majesty’s Revenue and Customs.

Jimmy Carr hit headlines earlier this summer when it was discovered that he had been using a tax avoidance scheme to save himself a hefty tax bill. Carr immediately apologised when the news went public, saying he had “made a terrible error of judgement”, and actually benefitted from the publicity ÔÇô David Cameron controversially┬á branded him as ÔÇ£morally wrongÔÇØ, but the following evening viewer ratings for his show ÔÇÿ8 out of 10 CatsÔÇÖ soared by an extra half-million.

So what had he actually been doing? He had been using a tax-minimising scheme called K2, run by the accounting firm ÔÇ£Peak that is actually entirely legal. Tax avoidance is different to tax evasion, the former being the one in question here and the latter being against the law.

[pullquote]There is nothing the Treasury can do to reclaim this tax[/pullquote]

Under the K2 tax scheme, Jimmy CarrÔÇÖs earnings went to a parent company by which he was ÔÇÿemployedÔÇÖ for tax purposes. This allowed him to be paid a basic salary with a low tax rate, and then receive the rest of his earnings in the form of a loan, which would not require taxation. It has emerged that the Treasury has been aware of these tax avoidance schemes for years, with thousands of wealthy individuals taking advantage of them and sheltering money from the Treasury. It is not just Carr that has been involved in this ÔÇô it has emerged that Frankie Boyle and Gary Barlow have also used similar schemes, leading to calls from Labour for the latter to return his OBE.

Currently, there is nothing the Treasury can do to reclaim this tax, as it is all perfectly legal, just frowned upon. It is up to the government to change the rules regarding taxation if they wish to put a halt to these avoidance schemes. Whilst Jimmy Carr accepted full blame for his tax avoidance, Frankie Boyle took the other route and claimed it was false reporting, saying on Twitter that 40% of his income had gone towards tax (making his overall contribution £2.7 million).

Despite David CameronÔÇÖs attack on Carr, the Prime Minister refused to comment on Gary Barlow and Frankie Boyle. Labour leader Ed Miliband decided not to attack Jimmy Carr’s tax arrangements, saying: “I’m not in favour of tax avoidance obviously, but I don’t think it is for politicians to lecture people about morality.ÔÇØ

Labour has accused Mr Cameron of having a partial view of “what’s dodgy in the tax system”. Shadow Commons leader Angela Eagle said: “The Prime Minister rushed to the TV studios to condemn the tax avoidance scheme used by Jimmy Carr, but he did not take the opportunity to condemn as morally repugnant the tax avoidance scheme used by Conservative supporter Gary Barlow, who’s given a whole new meaning to the phrase ‘Take That’. If it’s all so morally repugnant, why has he just been given an OBE in the Birthday Honours List?”

It remains to be seen whether or not the Treasury can reclaim CarrÔÇÖs tax, or whether he will repay it himself as a gesture of goodwill and an attempt to increase publicity. Ultimately, the real issue here is that tax avoidance remains perfectly legal and the government seem to be selective about whom they condemn.