No defence for flagrant tax scheme

EVEN the most one-eyed defender of tax structures in the Channel Islands will have winced at the scheme exposed by yesterday's in-depth report in The Times.

It may have all been perfectly legal 'tax avoidance' but to the majority of people who see paying taxes as a painful but necessary evil it was indefensible.

This was not remotely on the same scale as people who put their savings into a post-retirement nest egg and in the process save a few thousand in tax.

In this scheme, someone who earns £280,000 a year pays just £3,500 to the Government via a complicated employment process which can only be for one purpose.

The trust involved is based in Jersey but the damage to that island's reputation will spread to Guernsey. For outraged readers of such reports, the Channel Islands are so linked they might as well be in full political and economic federation.

Even more worryingly, it is not just UK readers who see it that way. HM Revenue and Customs will be embarrassed by The Times report and has already promised action. The slick operators who run the Jersey trust scheme may laugh such threats off but the islands have learned the hard way in recent months that UK Government's threats are not to be dismissed.

VAT relief, for example, was a harmless cottage industry for many years which local businesses used to sell cheap flowers and sundries. It was only when large businesses starting more flagrantly to abuse the system that the bad press started and Treasury were persuaded to act.

In the same way, schemes such as this do the Channel Islands' main industry few favours. Openly taunting the UK Government with indefensible tax schemes risks inviting measures which will damage all aspects of the finance sector.

If HMRC truly believes there is £7bn. lost to the exchequer through tax avoidance then action will inevitably be taken. The islands need to quickly and very publicly root out all schemes of this nature before LVCR starts to look like the opening skirmish.