British bookmakers' schemes to avoid tax by basing operations overseas including Ireland are being threatened by the British government.

Legislation is being put in place to stop British companies from avoiding tax at home by diverting income to offshoot businesses in havens such as Guernsey, Jersey, the Isle of Man, Gibraltar and Ireland.

Britain loses about £1 billion sterling (€1.55 billion) a year in tax revenue due to firms which divert income to subsidiaries in so-called preferential regimes.

Victor Chandler moved its phone-betting service to Gibraltar earlier this year, meaning customers pay a 3 per cent "voluntary levy" rather than the previously-imposed 9 per cent tax.

And the other big bookmaking firms have been planning to follow suit: William Hill announced last week that it planned to employ 100 people in a telephone betting operation in Athlone.

But from yesterday legislation - which will be formally introduced in next year's Finance Bill - will clamp down on controlled foreign companies (CFCs) which bypass the system.

The rules work by requiring UK firms to pay an amount of CFC tax equal to any tax that would otherwise be avoided. Various exemptions ensure the rules apply only where a firm is involved in UK tax avoidance. The legislation will set aside the normal requirement that a company is within the CFC rules only if it has paid tax at a level less than 75 per cent of that which it would have paid had it been resident in Britain.

Several countries have introduced regimes designed to enable companies to get round CFC rules. These are sometimes referred to as "designer rate regimes", as they enable companies to pay just the right amount of tax needed in any given situation to side-step CFC rules.

The British government intends bringing forward anti-avoidance legislation in the next Finance Bill to stop the loss of tax through these regimes.