New Tory star in hypocrisy storm over tax avoidance ploy as a £3m City banker

Sajid Javid received huge bonus when he worked as a City banker

At least £50,000 allegedly channelled through a tax haven by MP

Former Treasury Minister was recently promoted to Culture Secretary



In his previous role Mr Javid was highly critical of tax-avoidance schemes



Tory Cabinet Minister Sajid Javid was accused of hypocrisy last night after it emerged that a huge bonus he received as a £3 million-a-year City banker was channelled through a tax haven.

Mr Javid, 45, was promoted to Culture Secretary earlier this month from his berth as a Treasury Minister, where he was highly critical of City tax-avoidance schemes.

But an investigation by The Mail on Sunday has established that when he was a high-flying executive at Deutsche Bank, Mr Javid was among a group of senior staff who were paid bonuses worth at least £50,000 each through shares in a Cayman Islands company – to lower the company’s total tax bill.

Bonus row: Culture Secretary Sajid Javid with his wife Laura

Accountants said the scheme would have allowed both the bank and its staff to make tax savings. Bank insiders said the scheme was intended to benefit staff rather than the bank.

Mr Javid, a protege of Chancellor George Osborne who has been tipped as a future Tory leader, was promoted to the position of Culture Secretary following the resignation of Maria Miller over her expenses.

During his 18-month tenure at the Treasury, Mr Javid spearheaded the Government’s drive to stamp out tax-dodging, declaring that the Treasury was ‘closing down all avenues for tax avoidance, whether it is companies or individuals’.

‘We have to be very strong on tax avoidance and Britain is leading the way,’ he said.

He joined Deutsche in 2000, rising to become managing director in 2004, before relocating to Singapore as its head of private equity business.

He left the bank in 2009 during the global financial crisis, and won the safe Tory seat of Bromsgrove in the following year’s General Election.

HOW THE SCHEME WORKED

Under the plan, top bankers at Deutsche were approached in late 2003 asking if they wanted to have their bonuses paid through a Cayman Islands company. Around 300 staff returned an application form volunteering to take part.

The scheme enabled staff to receive more of their bonuses than they would have done if paid in cash, court papers reveal.

If a banker was due to receive a bonus of £100,000, after tax the amount received would fall to £60,000 – the remainder would have been paid as tax at 40 per cent tax. On top of that the bank would have to pay £12,000 for National Insurance contributions.

Under the Deutsche scheme, the bank could put in £100,000, the banker would receive £100,000, and no NI payments were due.

The system exploited a loophole in tax rules that meant if bankers were paid in special shares – called ‘restricted securities’ – no tax was due. Instead of taking all their bonus in cash, bankers were given the option to take part of it in shares in a Cayman Islands company called Dark Blue Investments, set up by another investment bank, Investec. The shares could not be sold for at least two months.

When they were sold, bankers would have had to pay capital gains tax – amounting to just 10 per cent if the shares were held for two years or more. But no other tax was payable by the individuals. Bankers who volunteered for the scheme could take a maximum of 90 per cent of their total bonus in shares. Some of the bonuses were worth over £2 million.

HMRC has not pursued any individuals in the case, but instead is demanding £49 million from Deutsche in income tax and NI it claims the bank should have paid on to the taxman.

This month Deutsche won the right to appeal against an initial decision in favour of HMRC. The bank said it was ‘pleased’ with the Appeal Court’s decision but declined to comment further.

Top bankers at Deutsche were approached in late 2003 asking if they wanted to have their bonuses paid in the form of ‘restricted’ shares in a Cayman Islands-based company.

Javid was one of 300 who returned an application form volunteering to take part.

According to the rules in place at the time, the shares attracted only a 10 per cent capital gains tax bill rather than income tax and National Insurance contributions.

At the height of his career at Deutsche, Mr Javid was earning an estimated £3 million a year, of which a substantial proportion was in the form of bonuses. He would have to have been paid a minimum of £50,000 in bonuses in 2003 to take part in the Cayman Islands tax scheme.

Two years ago, a tax tribunal ruled that the ‘carefully planned’ £50 million scheme was invalid because Deutsche effectively controlled the offshore firm, and ordered the bank to repay the money to Her Majesty’s Revenue and Customs. Deutsche appealed against the ruling and the case is still going through the courts.

Last night, Labour’s Shadow Treasury Minister Cathy Jamieson said: ‘Sajid Javid claimed when he was at the Treasury to be very focused on tax avoidance. Now we learn there are accusations that he himself signed up for a scheme whereby bonuses were paid through questionable arrangements whilst a senior banker at Deutsche Bank.

‘The public facing a cost of living crisis won’t take kindly to any double standards.

‘Sajid Javid needs to make absolutely clear what he knew about this scheme, what his reasons for agreeing to be involved were and whether he himself or his employer profited from the arrangements in respect of his own bonuses.’

Mr Javid – the son of a Pakistani bus driver who grew up with his parents and four siblings in a two-bedroom flat, but who now lives with his wife Laura and four children in a £4 million home in Fulham, West London – is the first Asian Secretary of State.

His electorally powerful rags-to-riches story, and his closeness to Mr Osborne, have combined to turn him into the fastest-rising political talent in the Conservative Party.

A spokesman for Mr Javid said: ‘This is a matter between Deutsche Bank and HMRC. Sajid was paid with all tax deducted already.