Exclusive: Ex-UK govt tax adviser caught up in tax avoidance scheme

A leading economist and former UK government adviser on tax avoidance policy was caught up in a tax avoidance scheme that was successfully challenged by HM Revenue and Customs, ITR can reveal.

Sir Paul Collier, who also served as an adviser to the World Bank, has been a member of the Cobalt Data Centre 2 LLP scheme since 2011.

In 2013, while a registered member of the LLP, the Oxford University professor published an article in Prospect Magazine highlighting his role in advising the UK government on corporate tax avoidance.

A functioning society relies on people and companies paying taxes, he wrote.

“If every citizen pushed right up against the limit of the laws, it would be unworkable. Society relies on people having a degree of mutual respect,” he added in the article, titled “Cracking down on tax avoidance”.

The Cobalt Data Centre 2 was detailed last month in an investigation by the Financial Times. The newspaper revealed that two England and Wales High Court judges also held financial interests in the scheme, maintaining their investment while ruling on tax avoidance cases.

Collier’s investment, found by ITR through Companies House records, raises similar concerns around background checking for conflicts of interest.

However, in response to a request for comment, Collier explained how he ended up investing in the scheme.

“I initially invested in this project because it brought jobs to the North East [of England], a purpose in which I believe,” Collier told ITR.

“I quickly discovered that it was a tax scam and promptly and voluntarily paid all possible tax liabilities immediately to HMRC – this being more than my entire investment.

“This was accepted by HMRC, which confirmed that I had no further liabilities with them. I have had no further dealings with the company,” he added.

HMRC successfully challenged the scheme at the England and Wales Court of Appeal in October 2022, when judges ruled that investors had received tax credits that they were not entitled to.

Specifically, investors were promised a 67% tax profit on their investments through an enterprise zone allowance (EZA) tax credit.

HMRC successfully challenged the Upper Tribunal’s previous decision, from 2019. That court had ruled that the scheme had aimed to access legitimate tax credits, despite noting in its ruling that “the principal purpose of the LLPs was to obtain the benefit of the EZAs for their members”.

Senior tax manager at PFK-Francis Clarke, David Wase, reported in an article that in 2011 – when all of the 402 original partners became investors – Cobalt Data Centre 2 was advertised to investors wishing to mitigate income tax.

As well as Collier and the high court judges, LLPs in Cobalt Data Centre 2 include the Arsenal Football Club manager Mikel Arteta and former England football player Wayne Rooney.

Comedian Jimmy Carr was also a member of the LLP, but he resigned in 2016.