Tory Apprentice star Karren Brady embroiled in tax avoidance loophole row

The small business tsar and Conservative peer said she supported the party because she believed in “fairness” and that “everyone should pay their taxes”

Apprentice star Tory Karren Brady has insisted that “everyone should pay their taxes” – but is on the board of a firm linked to an alleged offshore avoidance scheme worth up to £10million.

In an interview the small business tsar and Conservative peer said she supported the party because she believed in “fairness”.

But small business campaigners say the Government must crack down on tax avoidance to tackle the “big business ethics deficit”.

Baroness Brady is a director of Sir Philip Green’s Arcadia which is accused of avoiding up to £10million in corporation tax.

A Sunday Mirror probe found the UK operation of the retail giant could have reduced its bill after buying the department store chain BHS using an entirely legal loophole the Government failed to close three years ago.

Arcadia was bought in 2002 by Taveta Investments – it in turn belongs to Jersey-based Taveta Ltd, owned by Sir Philip’s wife Lady Christina Green and family.

When Taveta took over BHS in 2009 it invested £200m into the chain in the form of loans from firms ultimately controlled by Monaco resident Lady Christina Green and her immediate family.

But because the loans – known as quoted eurobonds – are listed on the Channel Islands Stock Exchange interest payments are paid to the offshore lender ¬tax-free.

And the interest due on the loans is deducted from the “borrower’s” profits, reducing its corporation tax liability.

The Sunday Mirror has found that Taveta racked up £40.4million in interest on these loans to Lady Green’s firms in three years between 2010 and 2013.

By reducing its profits in the UK, Taveta may have slashed the firm’s corporation tax bill by up to £10million.

Without the loophole – which is estimated to cost UK taxpayers £500million each year – HMRC could deduct a 20 per cent “withholding tax” from payments and the overall tax saving would be almost wiped out.

There is no suggestion that Baroness Brady, 46 – who is herself ¬estimated to be worth £82million – is personally involved in any tax avoidance schemes.

But links to Sir Philip’s complex tax dealings are embarrassing for David Cameron.

He made Brady a peer last year, and has been accused of surrounding himself with cronies linked to offshore finance.

Public Accounts Committee chair Margaret Hodge blasted: “It’s no good George Osborne and David Cameron proclaiming their disgust at tax avoidance if they deliberately choose tax advisors from firms that exploit mechanisms which have no other purpose than to avoid UK tax.”

The Labour MP added: “Karren Brady has just been ennobled.

“She is supposed to be a champion of small businesses yet Arcadia’s tax avoidance policies simply disadvantage small British businesses and many British jobs.”

After a consultation in 2012 and meetings with business chiefs and the major ¬accountancy firms HMRC decided not to close the quoted eurobonds loophole.

But Shadow Chancellor Ed Balls said: “Tax avoidance hits businesses who play by the rules and pay their fair share.

“A Labour Government will tackle avoidance by closing loopholes, increasing ¬transparency and ensuring we have tougher independent ¬scrutiny of the tax system.”

Brady was appointed as the Government’s small business advisor in 2013 and is set to play a prominent role in the upcoming general election campaign.

Richard Whittell, from research group Corporate Watch, said: “The Government chose to keep this loophole open after lobbying by companies benefiting from it.

“If David Cameron is serious about cracking down on corporate tax avoidance, why is he hiring people who turn a blind eye to it in their own business?”

Phil Orford, chief executive of the Forum of Private Business, said: “Cracking down on tax avoidance is one way to correct the big business ethics deficit that the British public wants action on.”

An Arcadia spokesperson said the company “felt there was nothing to comment on” as the loans have been openly in the parent company accounts since 2009.

Baroness Brady was contacted directly for comment but did not respond.