Corporation tax planning schemes are now “virtually dead” due to a series of government measures designed to clamp down on their use, according to a leading tax planning expert.
New figures obtained by top 15 firm UHY Hacker Young show that just 330 businesses informed HMRC they were using corporation tax planning schemes last year, down 42% from 2015/16 and 88% from a high of 2,860 four years ago.
Clive Gawthorpe, partner at UHY Hacker Young, believes that a series of government crackdowns over recent years have decimated aggressive corporation tax planning by businesses.
“The corporation tax planning scheme is now virtually dead – HMRC can legitimately claim to have won the war on aggressive tax planning by businesses,” said Gawthorpe.
“Once-commonplace schemes like Employee Benefit Trusts have now almost completely died out, with only a very small number remaining. Many of those businesses are likely to be in the process of settling or litigating with HMRC over them.”
HMRC has recently gained a number of new powers to tackle tax avoidance, including:
- Accelerated Payment Notices (APNs), which allow HMRC to demand payment of tax within 30 days, with no right of appeal, if a business has used a tax planning scheme that falls under its Disclosure of Tax Avoidance Schemes (DOTAS) regulations.
- New criminal penalties for ‘Enablers of Tax Avoidance’, targeting tax advisers and accountants whose clients use tax schemes.
- The General Anti-Abuse Rule (GAAR), often used to ‘sweep up’ tax planning not subject to a specific regulation.
HMRC ‘continues to add to its weaponry’
However, in spite of the falling numbers of businesses using corporation tax planning schemes, the government continues to add to their arsenal of anti-avoidance powers – something Gawthorpe called into question. [what have they added]
“So little aggressive tax planning is now taking place HMRC continues to add to its weaponry. These figures really raise the question of why that is necessary.”
One example Gawthorpe raised was the fact that promoters of defeated schemes can now be held liable for tax and penalties.
Corporation tax schemes still in use include:
- Employer Funded Retirement Benefit Scheme (EFRBS), where an employer pays into a discretionary trust for an employee’s retirement at much lower tax rates. The GAAR Panel has ruled that these arrangements are not reasonable.
- A scheme in which a business owner uses assets of the business to make a spread bet on the movements of the stock market, later taking the winnings tax-free. This was defeated by HMRC at the first tier tax tribunal.
Source: UHY Hacker Young