One of London’s most senior hedge fund managers has suggested that rivals who are paid using dual contracts are guilty of tax evasion.

Nick Carn, investment director at Odey Asset Management, attacked the use of dual contracts for City workers living in Britain but nondomiciled for tax purposes. “That is not something we do and we’d consider it to be tax evasion,” he said in impromptu remarks at a City meeting. Dual contracts met neither the spirit nor letter of tax law, he added.

Widely used in the City, dual contracts allow UK-resident but nondomiciled workers to be paid for UK work under one contract but overseas work under another. With nondomiciled status, their overseas work can attract low tax rates.

“There’s no doubt this is a hot issue,” said Mr Carn, who is responsible for $4.3 billion (£2.17 billion) of hedge fund assets at Odey, one of London’s longest-established hedge fund managers.

The Government estimated four years ago that between £1.5 billion and £3 billion could be raised in additional tax receipts if nondomiciled workers lost favourable tax status.

Diana Davidson, a tax partner at the law firm Farrer & Co, said: “I imagine the figure would be much greater now.”

Several delegates to the Centre for the Study of Financial Innovation round table last week said that any threat to the rules could lead to an exodus of wealthy foreigners and could badly hit the wealth management industry.

Many nondomiciled City workers try to structure their jobs so that some of their work is for parts of the business based in low-tax jurisdictions. Bermuda and Switzerland are favourites.

David Butler, of Kinetic Partners, which advises hedge fund managers on tax and regulatory issues, said: “Dual contracts can be legitimate, but some people push the envelope too far. The Revenue requires a lot of convincing.”

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