Anti-avoidance: Another £12bn to come

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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.
John Stokdyk
Editor
AccountingWEB.co.uk
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By mumpin
17th Mar 2016 10:00

literal...

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...

I cant make sense of this. Is it missing a "not"?

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17th Mar 2016 10:57

Who defines "correct"

"would be forced to pay the correct tax"

But they were already paying the tax correct at the time ...

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By NeilW
17th Mar 2016 11:21

What about employment avoidance?

"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.'

Why not simply require the public sector to employ people on direct employment contracts? Let the agents act as agents. Wouldn't that get rid of all this nonsense? 

Why is the public sector, or all entities, trying to avoid employment responsibilities when it hires employees?

 

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17th Mar 2016 11:55

Aggro avoidance

NeilW wrote:

"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.'

Why not simply require the public sector to employ people on direct employment contracts? Let the agents act as agents. Wouldn't that get rid of all this nonsense? 

Why is the public sector, or all entities, trying to avoid employment responsibilities when it hires employees?

 

 

Because over the years successive governments have contrived to make it ever harder and more costly to employ people (often with little benefit being felt in the pockets of the employees). This to the point where even government itself is avoiding employing people directly!

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21st Mar 2016 12:04

public sector employment contracts

because public sector pensions already cost the british taxpayer in excess of £39billion a year! a fact often forgotten during wages and conditions negotiations.

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By vstrad
17th Mar 2016 19:30

Disguised employment?

IR35 was introduced to tackle the problem (at least, the Government thought it was a problem) of disguised employment. But, since the HMRC tests will be based, however unclearly and un-objectively, on employment law, if the public sector engager decides that the contractor is caught by IR35, his employment can hardly be considered to be "disguised". So look out for the first cases of contractors asking for holiday pay, parental leave, pension contributions, sports club membership etc. on the basis that they are actual employees.

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21st Mar 2016 11:32

If everyone and I mean 'everyone' was employed through PAYE, whether working for them selves or not, we would all be paying the correct tax and NI, and on time! there would be no need to keep changing legislation or chasing people trying to avoid paying their fair share, Its not rocket science! 

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PAYE for everyone? Everyone?? You said it twice.

What about, say, my window cleaner? He gets about £15 a month from me and no doubt countless others. Are you suggesting that I should deduct PAYE and NI. from the £15? I'm on PAYE myself. I don't fancy registering as an employer just so I can made deductions from my window cleaner's £15. Would all of my window cleaner's customers also have to be employers?

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21st Mar 2016 12:42

@jackiesmith

If HMRC and Government and I mean "HMRC and Government" kept their noses out and allowed the "market place" to choose employment status the rest of your post would equally apply.

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22nd Mar 2016 08:03

12 Billion

I find the 12 billion figure a little on the high side but who knows.

It made me laugh during the Chancellors speech he advised some global Companies use the same expense in more than one country.  This ties into what I have always said, some tax avoidance schemes are nothing more than ludicrous and transparent fraud,a lot of people say clever lawyers and Accountants create loopholes to be exploited, i say if HMRC were any good they would have closed down half of the tax avoidance schemes years ago.

 

 

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12 bIllion

I'm old enough to remember exchange controls. A large American finance company I did business with in the 1970s in the UK  had a way round exchange controls and at the same time avoided taxation. I have to say that I only heard about this after the event and I would not have approved.

The American co set up an "insurance" company in a Caribbean tax haven. They would regularly send large sums to this insurance company as premiums on "kidnap" insurance. This was on the face of it legitimate for exchange control purposes and it also avoided tax on profits in the UK. However, the risk of someone in the American co being kidnapped was completely remote! The premiums sent abroad were therefore bogus. The so-called insurance co in the Caribbean built up huge assets as it was just a letterbox company and there was no local taxation to pay. Just to completely take the urine (!) the American co then borrowed back substantial amounts from it's phantom Caribbean insurance company, and paid interest, again falsely sheltering profits against taxation.

 

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