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Anti-Avoidance

Detailed Budget Measures

Tax Agreements with Isle of Man, Jersey and Guernsey

The UK has agreed a comprehensive package of measures with the Isle of Man, Guernsey and Jersey governments to clamp down on those who choose to hide their money offshore..

The package consists of:

HMRC has signed Memoranda of Understanding with each of the Crown Dependencies.

CCH Comment:

The key to the Government’s offshore evasion strategy is greater sharing of information between governments. The automatic exchange of information agreement with the US last year

was undoubtedly ground-breaking. These latest agreements with the Isle of Man, Guernsey and Jersey are expected by HMRC to raise £1 billion. We can expect the Government to conclude further agreements with other jurisdictions.

Mark Cawthron, Tax Writer.

Industry Comment:

“This sends out a strong message: the Government is determined to seek out tax evaders wherever they are and make them pay their dues.  Those with undisclosed assets should be under no illusion of HMRC’s stated intention to flush them out.  They would be well advised to take steps now to get their affairs in order.”

Derek Scott, Director in KPMG’s Tax Investigations Practice.

The setting up of new disclosure facilities to include the Isle of Man and the Channel Islands affords non-compliant taxpayers further potential to disclose on a voluntary basis. The yield is expected to be £1bn over the next 5 years which is indicative of the scale of funds potentially at risk.”

Paul Belsman, National Head of Tax at RSM Tenon.

General anti-abuse rule (GAAR)

Legislation will be introduced in Finance Bill 2013 for a GAAR to counteract tax advantages arising from abusive tax avoidance schemes.

The GAAR will apply to income tax, corporation tax (and amounts treated as corporation tax), CGT, inheritance tax, SDLT, the annual tax on enveloped dwellings and petroleum revenue tax.

For more details see the Tax Information and Impact Note.

CCH Comment:

It barely seemed possible a few years ago but we will have soon have a GAAR.  The early signs are that it will be used to put a stop to abusive arrangements only. However, the fear remains that it could be extended to arrangements believed by most of us to represent reasonable tax planning.

Stephen Relf, Senior Tax Writer.

Industry Comment:

There was no surprise that the speech was heavy on rhetoric against aggressive tax planning. The General Anti-Abuse Rule (GAAR) comes in to effect in July (after Royal Assent to the Finance Bill 2013) and will change the face of tax planning in the UK. The detailed guidance that will run alongside the legislation will be out in the middle of April.

Of course, the GAAR is not intended to address issues raised by the debate over the tax paid by multi-nationals like Starbucks, Google and Amazon. The solution there is around the international tax treatment of items such as intellectual property and it will require organisations like the OECD and cross-country co-operation to provide rules fit for the modern digital world.

Francesca Lagerberg, Head of Tax at leading business and financial adviser Grant Thornton.

The announcement in yesterday’s budget confirming the UK government’s pursuit of a General Anti-Avoidance Rule (GAAR) to address abusive and artificial tax avoidance, runs the risk of further muddying the waters of what legitimate tax avoidance and illegal tax evasion is. A clear distinction of how to define what abusive tax avoidance is needs to be established to define the parameters of tax planning. 

In many ways the GAAR is a fly in the ointment for the UK’s standing as a competitive jurisdiction for attracting business and stands in surprising contrast to measures, such as the gradual reduction of the corporate income tax rate to 20% by 2015. The Government must learn lessons from the impact of similar legislation in other countries in order to avoid a potentially dangerous signal to global business. 

Frédéric Donnedieu de Vabres, Chairman of Taxand.

High-risk promoters

The Government will consult this summer on a package of information powers, penalties and other measures for tackling the behaviour of high-risk promoters of tax avoidance schemes, with a view to bringing forward legislation in Finance Bill 2014.

CCH Comment:

The Government has long had avoiders in its sights and now it is targeting those who make avoidance possible. New information powers and penalties are proposed as is the use of ‘naming and shaming’. It will be interesting to see just how far these measures go and to whom they will apply.

Stephen Relf, Senior Tax Writer.

Industry Comment:

The impetus on tackling avoidance at grass roots level remains to include extension of naming and shaming to Tax Promoters, consultation on penalties imposed on those who fail to settle their liabilities following defeated schemes and even a consultation to better understand the motivation of individual’s to avoid tax.”

Paul Belsman, National Head of Tax at RSM Tenon.

Inheritance tax: limiting the deduction for liabilities

The IHT provisions which allow a deduction from the value of an estate for liabilities owed by the deceased on death, will be amended in the following circumstances:

The new rules will also apply to settled property with the exception that the unpaid liabilities rule will not apply to the calculation of the value of the estate for the purposes of the ten year anniversary charge.

The measure will have effect for deaths and chargeable transfers on or after the date that Finance Bill 2013 receives Royal Assent.

CCH Comment:

This measure is aimed at stopping IHT mitigation schemes and arrangements using contrived loans and as HMRC say ‘for most estates, liabilities owed by the deceased in the normal course of events where the debt has been repaid after death will continue to be deducted as they are now’. However as the details of the rules have not yet been published there is a fear that the implications could be more wide ranging and possibly affect individuals who have taken out loans for genuine commercial reasons and not as part of a tax avoidance scheme.

Meg Wilson, Tax Writer.

Industry Comment:

Unless it is drafted carefully, this will further discourage wealthy, international individuals from spending and investing in the UK through increasing their exposure to UK inheritance tax.

It will also have the unintended consequence of hitting entrepreneurs who have tried to grow their business by borrowing against their homes, as it will potentially restrict inheritance tax relief on those businesses. This will affect GPs, dentists and farmers across the country.

It will remove business property relief through the back door and will prevent the transfer of whole businesses and farms to the next generation.

Chancellor Osborne says he wants to create an aspirational nation, but this measure says otherwise.

Damian Bloom, Private Client Partner at City law firm Berwin Leighton Paisner.

Offshore employment intermediaries

The Government will consult on strengthening obligations to ensure the correct income tax and NICs are paid by offshore employment intermediaries, with a view to legislating in Finance Bill 2014.

This is a result of the review announced in Autumn Statement 2012.

CCH Comment:

We were warned in the 2012 Autumn Statement that the government were reviewing this area, so it was to be expected that there would be a formal consultation undertaken. Any workers using offshore employment intermediaries may be affected by the legislation.

Meg Wilson, Tax Writer.

Industry Comment:

It is right to ensure that UK employees, working exclusively in the United Kingdom for the benefit of companies located here, are all treated the same for employment taxes purposes irrespective of the location of their payroll.

Offshore employment intermediaries remain important for businesses needing internationally mobile workers who can be based all over the world, especially in the oil and gas sector.  Care will be needed to prevent any unintended consequences for businesses with important commercial reasons for using offshore employment intermediaries.  It would be a shame if we rushed through the consultation process resulting in the UK becoming less attractive as a hub for some of our key industries.

Mary Monfries, Head of Tax Policy at PwC.

Tax and Procurement

Following the consultation announced at Autumn Statement 2012, the Government has confirmed that from 1 April 2013 suppliers to central government will have to certify tax compliance when bidding for Government contracts. The responses to the consultation are published today which details important changes.

The consultation was based on a proposal that, for central government contracts advertised in the Official Journal of the European Union on or after 1 April 2013, potential suppliers to Government would have to self certify that they had complied with their tax obligations. Criteria were set out which, if satisfied, would indicate that a taxpayer had failed to fulfil such an obligation and could be excluded, or not selected. The criteria included a tax return being found to be incorrect by reason of the new general anti-abuse rule (GAAR), any targeted anti-avoidance rule (TAAR), or the “Halifax” abuse principle or because the taxpayer was involved in a failed tax avoidance scheme to which the disclosure of tax avoidance schemes (DOTAS) rules apply.

Any ‘occasion of non-compliance’ within a set time period (a 10 year ‘look-back’ period was suggested) would need to be declared and mitigating factors set out. The Contracting Authority would then consider the information provided to decide whether to exercise discretionary exclusion of that supplier from the procurement process.

Taking into account responses received to the consultation, the Government has decided that;

This means suppliers will only have to keep track of future occasions of non-compliance, ensuring the policy focuses on their future decisions on tax arrangements.

For more details see the Summary of Consultation Responses.

Loss buying: 'targeted loss buying' rules

Legislation will be introduced in Finance Bill 2013 to prevent 'loss buying', where companies pass the potential to gain access to corporation tax relief to unconnected third parties. The legislation will:

These changes have effect from 20 March 2013.

For more details see the Tax Information and Impact Note.

Loss buying: 'loss loophole closure' rules

Legislation will also be introduced to address arrangements which seek to circumvent the longstanding loss buying rules in Part 14 of CTA 2010.

In particular the rules will cover reliefs, deductions, allowances and expenses for which it is possible to dictate or predict in advance the timing of their 'crystallisation' since, where timing can be dictated or predicted, ownership or part ownership changes can take place in advance of the crystallisation of the loss enabling the current anti-'loss buying' rules in Part 14 of CTA 2010 to be bypassed.

The Government therefore proposes, in certain circumstances, to bring the tax treatment of unrealised loss, involved in a transfer between unconnected parties, more closely into line with the longstanding treatment of realised losses.

The proposed changes will introduce three separate rules to combat 'loss buying' which, when triggered, will not remove the ability to relieve relevant losses but merely stop their set-off against other profits (including by way of group relief).

This will also have effect from 20 March 2013.

For more details see the Tax Information and Impact Note.

Stamp Duty Land Tax (SDLT) avoidance

Legislation will be introduced in Finance Bill 2013 to put beyond doubt that certain SDLT avoidance schemes that abuse the transfer of rights rules do not work.

These changes will have retrospective effect to 21 March 2012.

For more details see the Tax Information and Impact Note.

Corporation tax deductions for employee share acquisitions

Legislation will be introduced in Finance Bill 2013 to clarify the rules that determine the availability of corporation tax deductions in connection with share options or awards granted to employees.

This legislation will have effect from 20 March 2013 in relation to company accounting periods ending on or after that date.

For more details see the Tax Information and Impact Note.

Close company loans to participators

Legislation will be introduced in Finance Bill 2013 to close three loopholes used to attempt to avoid the tax charge on close company loans to their participators.

The changes will:

These changes will have effect for loans, payments, repayments and repayment arrangements made on or after 20 March 2013.

For more details see the Tax Information and Impact Note.

Partnerships

The misuse of the partnership rules has been a feature of many avoidance schemes closed down in recent years.

The Government announced in Autumn Statement 2012 that it would consider whether partnerships should be reviewed, as part of the rolling examination of high risk areas of the tax code. The Government has now announced that it will consult on measures to:

A consultation document will be published with proposals to address both issues in the spring, with legislation to be introduced in Finance Bill 2014.

Debt Recovery

A package of measures has been announced and more information will be published later in the year.

Debt - Improving coding out

The Government will consult on improving its collection of tax debts through the PAYE system (coding out), to make the process fairer and more equitable.

This will include increasing the size of debts that can be recovered through coding out from those with higher incomes. Changes will be made through secondary legislation in due course.

Debt - Increasing the use of charging orders

HMRC will increase the use of Charging Orders, used to secure a tax debt against a debtor's assets.

Debt - Better data

HMRC will improve its ability to target resources in collecting tax debt by making new connections between the Department's datasets.

Debt - Automated telephony

HMRC will update its telephone system to allow tax debts to be paid via an automated process.