• Bank insists profits will not be affected
• Schemes were disclosed voluntarily to HMRC
• Treasury says £500m will be saved
Barclays insisted its profits would not be dented by the government's dramatic decision to shut down two tax avoidance schemes that the Treasury has argued will bring in at least £500m of revenue.
Just hours after the minister responsible for the unusual retrospective move said the bank has suffered "a substantial reputational hit", Barclays said it took its responsibilities as a "corporate citizen very seriously".
David Gauke, the exchequer secretary, who stunned the City on Monday after taking action to stop a bank using two schemes to avoid paying more than £500m in tax, continued to refuse to identify the bank. But Barclays has now confirmed it is the bank involved.
Only fortnight ago, when Barclays announced its full-year profits, its chief executive Bob Diamond had stressed the bank's commitment to "citizenship", a theme that he has been exploring since he took the helm last year.
On Tuesday, the bank stressed this "citizenship" again.
"Barclays takes its responsibilities as a corporate citizen very seriously. Barclays ensures that all transactions that it undertakes are fully in accordance with relevant tax law wherever it does business," the bank said.
The detail was complex, but could have implications for any bank that is buying back its own debt – which has fallen in value because of the financial crisis – and making a profit as a result.
One of the schemes being shut down allowed the bank to avoid paying corporation tax on the profit it makes from buying back its own debt.
The second scheme involves authorised investment funds where the bank aims to convert non-taxable income into an amount carrying a repayable tax credit to secure a repayment from the exchequer even though tax has not been paid. There is speculation that this second scheme was being put in place for a client.
Reuters has calculated that Barclays could face a tax hit of £120m on the profit from the bond buyback it began in December. But the bank said that the change to the tax laws would "not have material impact" on its profits.
Barclays said: "This situation arose when Barclays voluntarily disclosed to HMRC in a spirit of full transparency that it had repurchased some of its debt in a tax efficient manner. This was based on guidance from professional advisers that the treatment was both legal and compliant with the tax code, and given others had used a similar treatment. Barclays also disclosed its participation in an authorised investment fund which is also legal and compliant with the tax code."
The bank indicated that it believed other companies had been using the same tax treatment, saying that after it had submitted its schemes "HMRC has decided that it intends to work with the government to change the tax laws retrospectively to prevent any company from using such treatment again".
Barclays is among dozens of banks across Europe that have bought back debt – it started doing so on 5 December. The Treasury has said that the retrospective element of its changes would date back to the start of December.
Justifying the decision to take retrospective action, Gauke said he "wasn't informed" which bank had approached HM Revenues and Customs with the two schemes, which he had then taken action to prevent.
Banks, and other companies, are required to disclose any tax avoidance schemes to HMRC and Gauke said that the bank in question "hasn't actually broken the law".
"They haven't fooled us all, they've been found out. There will be no benefit to the bank ... they've clearly taken a substantial reputational hit," Gauke told the BBC Radio 4 Today Programme.
"I suspect the bank in question is regretting what it's done," he said.
The bank had signed the government's code of conduct under which it pledged to comply with the spirit and not just the letter of the law. Gauke admitted that there was no particular punishment for breaking the code.
He said banks and other companies "have a legal requirement to disclose tax avoidance schemes". The system works and means that "HMRC is able to respond quickly to aggressive and abusive tax avoidance behaviour".
He said: "There is no evidence banks aren't disclosing these schemes, that would be a very serious matter."
He said the government tried not to take retrospective action on tax but would if necessary. "It may send a shock to this bank," he said.
Barclays insisted: "In the UK we comply with the letter and spirit of all our obligations under the HMRC code of practice and have open and transparent dealings with HMRC."
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