Barclays Bank has been forced to admit it paid just £113m in UK corporation tax in 2009 -- a year when it rang up a record £11.6bn of profits.
The admission stunned politicians and tax campaigners. It was revealed on the eve of a day of protests planned against the high street banks by activists from UK Uncut, a group set up five months ago to oppose government cuts and corporate tax avoidance.
The Labour MP Chuka Umunna, who lobbied Barclays' chief executive, Bob Diamond, to reveal the tax paid by the bank, described the figure -- just 1% of its 2009 profits -- as "shocking".
The current rate of corporation tax in the UK is 28%, although global banks such as Barclays -- which has hundreds of overseas subsidiaries, including many in tax havens -- do not generate all of their profits in their domestic market.
Max Lawson, of the Robin Hood Tax Campaign, said: "This is proof that banks live in a parallel universe to the rest of us, paying billions in bonuses and unhampered by the inconvenience of paying tax.
"If banks paid their fair share we could avoid the worst of the cuts and help those hit hardest by the financial crisis they did nothing to cause."
UK Uncut, which has also campaigned against Vodafone, Boots and Top Shop, intends to take its first national day of action against the banks on Saturday with protesters expected to bring more than 30 high street branches of Barclays to a standstill.
On Tuesday -- when Barclays announced 2010 profits of £6.1bn and a 23% rise in average pay in its investment banking arm, Barclays Capital -- the tax campaigners turned a London branch of the bank into a library.
The disclosure of the size of Barclays' corporation tax bill was made in a letter by Diamond to Umunna, who had asked the Barclays boss about the tax paid by the bank when he appeared before the Treasury select committee of MPs last month.
Diamond told the committee that Barclays paid £2bn in taxes to HM Revenue & Customs in 2009, but it is now clear that most of this is payroll taxes for employees. Umunna argued that the sum paid directly in corporation tax to the exchequer is the best reflection of a bank's contribution to the country.
At the time, Diamond said the period of "remorse and apology" for banks was over. Lord Oakeshott, the Liberal Democrat peer who resigned as the party's spokesman in the Lords, said : "I agree with Bob -- the time for remorse is past, but what British taxpayers need now is behaviour change from Barclays. Our banks must pay their full whack in corporation tax , not derisory drops in the ocean like this."
Barclays' bill for corporation tax illustrates a dramatic fall in the banking industry's contribution to the exchequer. Before the financial crisis, the industry paid more than £10bn in corporation tax, but this had halved by 2009.
Treasury minister Lord Sassoon admitted this week, in response to a question by former City minister Lord Myners, that while the banks would pay around £20bn in tax in 2010-11 most of that total would be income tax and national insurance paid by employees which the banks hand over on their behalf.
Only 20%, said Sassoon, which would come from corporation tax.
Myners said: "The combination of tax avoidance strategies with subsidiary companies together with losses brought forward means that banks will be not be making a meaningful contribution to corporate tax for some years."
Diamond also confirmed to Umunna that the bank had 30 subsidiary companies in the Isle of Man, 38 in Jersey and 181 in the Cayman Islands but stressed that the bank was making efforts to liquidate some of these of operations in the crown dependencies.
With regards to the Cayman Islands, Diamond was insistent that the majority of these are subject to tax in the UK.
Barclays said it complied with tax laws in the UK and all the countries where it operates and that in 2010 it paid over £2.8bn in taxes in the UK and £6.1bn globally. The £2.8bn UK bill again includes payroll taxes.
The bank said: "The corporate tax affairs of an organisation with the global footprint of Barclays are complex and not reducible to simplistic comparisons. Any link between Barclays Group profits and the amount of tax paid to the UK government is inappropriate - there is no direct correlation between the two."
Umunna blamed the coalition for not being tough enough on banks, but Tories said the Barclays tax bill related to a period when Labour was in government.
A government spokesman said: "As a result of negotiations by this government, banks will pay less in bonuses, more in tax and lend more than they otherwise would have done this year."