Another Budget and another vow from the Chancellor to raise HMRC’s target for protecting revenue from tax abuse.
During his speech, the Chancellor promised “further steps in this Budget to stop tax evasion, prevent tax avoidance and tackle imbalances in the system will raise £12bn for our country over this Parliament".
The detail was scattered around the usual collection of Budget reports and tax information and impact notes.
Public sector and intermediaries legislation
After years in suspense, people whose antennae twitched at any mention of IR35 were poised for dramatic news when George Osborne flagged up that “those who choose to contract their work through personal service companies” would be forced to pay the correct tax. But the tough words applied to a specific targeted anti-avoidance measure for contractors working for public sector bodies.
From April 2017, individuals working through their own company in the public sector will decide whether the intermediaries legislation applies to their situation. Instead, this decision - and the associated responsibility for paying and reporting the relevant tax and national insurance contributions will shift to the employer, agency, or third party that pays the worker’s intermediary. After “full consultation” HMRC promised to introduce “clear, objective tests” to help employers decide the contractor’s employment status, and would develop a digital tool to help resolve ambiguous cases.
Even though existing intermediaries rules would continue to apply for businesses and agencies working outside of the public sector, they would also be entitled to use of the new digital tool, HMRC said.
Could this separation be a brief interlude before further refinements of the legislation, speculated Philip Fisher in his post-Budget AccountingWEB column. “This seems an obvious first step towards a change in the basis of taxation for all personal service companies and those that make use of their skills,” he wrote.
EBT “disguised employment” schemes
If we didn’t get the message in November’s autumn statement, the HMRC paperwork makes it very clear that the department isn’t going to put up with schemes that use loans from offshore employee benefit trusts and other structures to disguise employment income. “The government will introduce legislation to put beyond doubt that all loans or debts from a disguised remuneration scheme will be taxed as earnings if they haven’t already been fully taxed or repaid on or before 5 April 2019.”
The long-running Rangers EBT case continues to rumble its way towards the Supreme Court, but until it is resolved HMRC is taking the stance that similar schemes do not work and is collecting the income tax and national insurance contributions that would have been avoided. The new legislation will levy an unspecified charge on loans paid through disguised remuneration schemes that have not been taxed and are still outstanding on 5 April 2019.
Since the government enacted legislation to blog such disguised remuneration in 2011, it claims to have “successfully protected £3.9bn”. The latest round of legislation in Finance Bill 2016 will raise another £2.5bn, HMRC said.
Levelling the playing field
Significant though they are, these changes won’t add up to the promised £12bn. Any outstanding sums are likely to emerge from the wider business tax roadmap that seeks in part to implement the OECD’s base erosion and profit shifting (BEPS) reforms to international tax rules.
The measures, designed to ensure a level playing field between small UK companies and multinationals that are coming include:
- Capping interest payments designed to shift profits offshore to 30% of UK taxable earnings, with a £2m threshold limit to protect smaller organiations.
- New rules on withholding tax on intragroup royalty payments to shift profits from the UK to low-tax jurisdictions.
- Restrictions on hybrid mismatch arrangements used by some multinational companies to exploit in national rules to avoid paying tax in either country. These rules will be introduced in Finance Bill 2016, and come into effect from 1 January 2017.
- Further Finance Bill 2016 clauses to stop offshore structures avoiding UK tax on profits that are generated from developing property in this country. This measure will be backed by a new HMRC taskforce focusing on offshore property developers.