Barclays foots £300m bill for PPI tax avoidance

by Gill Montia

Story link: Barclays foots £300m bill for PPI tax avoidance

Barclays is facing a £300 million tax bill in connection with its controversial payment protection insurance (PPI) business.

The bank set up two companies writing PPI business in Dublin, where the rate of corporation tax is 10%, rather than the 30% applied in the UK.

The Republic of Ireland has special tax rules for Dublin’s International Financial Service Centre, which are designed to attract foreign investment.

However, under international rules to prevent tax avoidance, it is assumed that Barclays’ UK operations receive a commercial commission for the service of introducing customers to the Irish-based companies.

Customers of Barclays (and its Woolwich and First Plus businesses) who have been taking out insurance on loans and credit cards, have been mostly unaware that their agreements are with Barclays Assurance (Dublin) Ltd and Barclays Insurance (Dublin) Ltd.

PPI is an extremely profitable market for Barclays, with the businesses based in Eire producing profit of over £200 million in the 12 months to October 2007.

The bank is now facing a tax bill in the region of £300 million and the prospect of this payment will be a further blow to investors still recovering from Barclay’s failure to win the takeover battle for ABN Amro.

The news that the bank has been avoiding paying tax on its PPI business is bad publicity indeed because earlier this year Barclays was exposed by thisismoney.co.uk for failing to repay premiums on cancelled PPI policies.

In addition, only last month the Financial Services Authority described the PPI market as a “protection racket”.