How the K2 tax avoidance scheme works

The Times investigation into individual tax avoidance in the UK said comedian Jimmy Carr used an offshore wealth management scheme called K2.

K2 is used by more than 1,000 high earners and was described by Prime Minister David Cameron as "very dodgy." Here is the basic premise of how it operates:

• UK earners 'quit' their job
• They then sign new employment contracts with offshore shell companies
• The offshore companies 'rehire' their new employee to the UK but take their earnings

• The offshore company pays the employee a much lower salary each month, but 'loans' them several thousand pounds
• These loans can be written down as tax liabilities, thus substantially reducing tax payable to the Government