Tax Avoidance - The Government's Record.
What if, in 2010, the Conservative manifesto had said – “over the next 10 years we will raise £200 billion by closing down loopholes and bringing in over 100 tax avoidance and evasion measures”? Ambitious? More ambitious than Labour’s (probably undeliverable) unilateral unitary taxation? You may even say £200billion is unrealistic.
The Conservative Government from 2010 to 2019 has implemented more tax avoidance measures than any Government in history. Accumulatively, these measures have, indeed, raised an additional £200billion.
Is anyone is impressed by “tackling tax evasion” in Labour’s manifesto? No? Really? What if they shout Amazon and Google at you? It really is quite pathetic in comparison.
This is a non-quite-exhaustive list of tax avoidance measures a Conservative Government has actually taken. These aren’t vague manifesto promises – this is the Conservative Party’s actual record of Government and it kicks Labour’s manifesto pledges out of the park.
[Reading the list is not mandatory. It is intended to be visual. You are welcome to read the list if you like, but I'm not responsible for any injuries caused by you failing to retain consciousness. It is, in many ways, impressive. Exciting it isn't.]
1. Prevent avoidance of corporation tax using accounting ‘derecognition’ rules in relation to loans and derivatives.
2. Prevention of tax avoidance involving the creation for corporate investors of a credit for UK tax where no UK tax has been paid.
3. Requiring security from employers where there is a serious risk that tax due under PAYE or Class 1 NICs will go unpaid.
4. An anti-avoidance rule that applies when a transfer of business sidesteps the rules for non-profit funds with unrecognised profits.
5. General Anti-Abuse Rule (GAAR) – to tackle abusive tax avoidance schemes.
6. Regulations to bring inheritance tax, as it applies to transfers of property into trust, within DOTAS, requiring disclosure of new and innovative IHT avoidance schemes involving transfers into trust.
7. New online notification system for road vehicles brought into the UK from 2013 in order to combat VAT fraud.
8. Legislation to address three Stamp Duty Land Tax avoidance risks that use the subsales rules, the Alternative Finance reliefs and the rules for exchanges of land.
9. Legislation to counter avoidance involving the leasing of plant or machinery where taxpayers claim capital allowances twice on one amount of expenditure.
10. Capital allowance anti-avoidance legislation widened to protect the Exchequer from a loss of tax revenue as a result of transactions to acquire plant or machinery which are part of a scheme or arrangement involving avoidance.
11. Disguised remuneration – legislation to target arrangements intended to disguise remuneration or avoid restrictions on pensions tax relief. The measure ensures that where a reward or a loan is provided, via a third party, in connection with the employee’s employment, an income tax charge arises and the employer is required to account for PAYE.
12. Legislation to counter avoidance involving investment companies retrospectively changing the functional currency they prepare their accounts in for tax purposes.
13. Group mismatches: legislation to prevent tax avoidance involving groups of companies using intra-group loans or derivatives to reduce the group’s tax bill.
14. VAT: supply splitting using printed matter.
15. VAT: prevention of supply-splitting using printed matter – legislation to withdraw zero-rating for ancillary printed matter where it is connected to the supply of a differently rated service.
16. Legislation to tackling dishonest tax agents.
17. Asset-backed pensions contributions - to prevent employers gaining excessive tax relief for asset-backed pension contributions to their pension schemes, legislation to ensure no excessive relief can arise for new arrangements.
18. The Government put beyond doubt that manufactured overseas dividends cannot be used to obtain repayment or set off of income tax that the Exchequer does not receive.
19. New measures to reduce the illicit trade in alcohol products, including a registration scheme for alcohol wholesalers.
20. SDLT: legislation to tackle the ‘enveloping’ of high value properties into companies to avoid paying a fair share of tax.
21. Debt buybacks – The calculation of deemed releases of debts becoming held by connected companies will be amended and a targeted anti-avoidance rule to counter arrangements that aim to circumvent the deemed release rules inserted.
22. Legislation to address a tax avoidance scheme which seeks to obtain tax benefits for a corporate investor in relation to a distribution made by an AIF where no underlying tax has been suffered.
23. Legislation to counter avoidance involving losses from a property business set against general income.
24. Legislation to prevent the exploitation of relief given for site restoration payments.
25. Changes to capital allowances rules to counteract disclosed avoidance schemes which seek to bring in an artificially low disposal value for capital allowances purposes at the end of a long funding lease.
26. Inheritance tax: legislation to close an avoidance scheme involving the acquisition of interests in offshore excluded property trusts.
27. Legislation to amend the settlements legislation in order to close an avoidance scheme involving corporate settlors.
28. High risk promoters – new powers to tackle non-cooperative promoters of tax avoidance schemes. These powers will include the ability to issue conduct notices, breaches of which will trigger enhanced information powers with large financial penalties for non-compliance.
29. Agreement between the UK and Switzerland – additional revenues reclaimed tax on money hidden in Switzerland.
30. HMRC powers - The Government will amend HMRC’s bulk data-gathering powers to allow it to issue notices to merchant acquirers, who process payment card transactions, to identify businesses who are not declaring their full tax liability.
31. Legislation in Finance Bill 2013 to put beyond doubt that certain SDLT avoidance schemes that abuse the transfer of rights rules do not work.
32. Inheritance Tax: legislation to close an IHT loophole that allows a deduction from the value of an estate for an outstanding debt regardless of whether or not the debts are paid after death, or how the borrowed funds have been used.
33. Close company loans to participators – legislation to close three loopholes used to attempt to avoid the tax charge on loans from close companies to individuals with a share or interest in the company.
34. Legislation in Finance Bill 2013 to implement the UK-US Agreement to Improve International Tax Compliance and to Implement FATCA. The Isle of Man, Guernsey and Jersey agreed to enter into similar automatic exchange agreements with the UK. Disclosure facilities with the Isle of Man, Guernsey and Jersey to allow investors to come forward and regularise their past tax affairs in advance of information being automatically exchanged.
35. Targeted anti-avoidance rules to the income tax and corporation tax provisions governing the relationship between rules prohibiting and allowing deductions.
36. Corporate ‘loss buying’ – targeted anti-abuse rules to prevent companies entering into arrangements with unconnected third parties where the potential to create corporate losses are bought and then relieved against profits unconnected from the activity from which they arose.
37. Improve the information collected under the Disclosure of Tax Avoidance Schemes regime.
38. Loopholes involving corporation tax loss relief rules – legislation to close down three loopholes, with immediate effect, within the corporation tax loss relief rules, which have enabled companies to access relief for losses either more quickly or in ways contrary to the underlying principles of the legislation.
39. Avoidance scheme using Total Return Swaps – legislation to close down a tax avoidance scheme, with immediate effect, which has enabled companies to pay their profits to a company in the same group located overseas, thus escaping a corporation tax liability.
40. Double taxation relief: closing loopholes – legislation to close 2 loopholes to reinforce the UK’s double taxation relief policy that relief for foreign tax should only be given where income has been doubly taxed, once in the UK and once in the foreign territory.
41. Oil and gas bareboat chartering – cap for the amount deductible for intra-group leasing payments for large offshore oil and gas assets, known as bareboat charters, and introduce a new ring fence to protect the resulting revenue.
42. Legislation to prevent a small number of high-earning, non-domiciled individuals from avoiding tax through the artificial division of the duties of employment between the UK and overseas.
43. Legislation to prevent abuse of the rules relating to compensating adjustments in the transfer pricing code.
44. Accelerated tax payment in avoidance cases – removes the cash advantage from sitting and waiting during a tax avoidance dispute by issuing new ‘pay now’ notices to taxpayers issued to taxpayers who are using tax avoidance schemes which have already been defeated in the courts.
45. VAT: Reverse charge for gas and power to prevent missing trader intra-community fraud in relation to those commodities.
46. Marketed tax avoidance schemes – legislation to provide that HMRC may issue a notice to the user of a tax avoidance scheme that they should settle their dispute with HMRC when the claimed tax effect has been defeated in other litigation. If the taxpayer does not settle they risk a penalty and must make upfront payment of the tax in dispute.
47. The requirement to pay upfront applied to the disputed tax associated with any scheme that falls within the disclosure of tax avoidance scheme rules (DOTAS) and with schemes that HMRC counteracts under the general anti-abuse rule (GAAR).
48. Avoidance schemes involving the transfer of corporate profits – closed down tax avoidance schemes, with immediate effect, involving other arrangements to transfer profits to a related company where the arrangements have a main purpose of securing a tax advantage.
49. Diverted Profits Tax - new tax to counter the use of aggressive tax planning techniques used by multinational enterprises to divert profits from the UK.
50. Country-by-country reporting – The government will introduce legislation that gives the UK the power to implement the Organisation for Economic Co-operation and Development (OECD) model for country-by-country reporting. The new rules will require multinational enterprises to provide high level information to HMRC on their global allocation of profits and taxes paid, as well as indicators of economic activity in a country.
51. Legislation addressing hybrid mismatch arrangements from 1 January 2017. (OECD BEPS)
52. Restricting the Corporation Tax relief a company may obtain for the acquisition of the reputation and customer relationships associated with a business (‘goodwill’) when the business is acquired from a related individual or partnership.
53. Legislation to ensure that the accelerated payments legislation works effectively where avoidance arrangements give rise to losses surrendered as group relief.
54. Legislation to counter the avoidance of Income Tax through miscellaneous loss relief by introducing anti-avoidance rule.
55. Legislation to remove the unfair tax advantage provided by special purpose share schemes, commonly known as ‘B share schemes’.
56. Legislation to ensure that sums which arise to investment fund managers for their services are charged to Income Tax. It will affect sums which arise to managers who have entered into arrangements involving partnerships or other transparent vehicles, but not sums linked to performance, often described as ‘carried interest’, nor returns which are exclusively from investments by partners.
57. Legislation on enhanced civil penalties for offshore tax evasion. Amends the existing offshore penalties regime to, include IHT, apply to domestic offences where the proceeds of non-compliance are hidden offshore, update the territory classification system to reflect the jurisdictions that adopt the new global standard of automatic tax information exchange, include a new aggravated penalty of up to a further 50% for moving hidden funds to circumvent international tax transparency agreements.
58. Legislation to strengthen the DOTAS regime, including through updating existing scheme hallmarks, adding new hallmarks, and removing ‘grandfathering’ provisions for the future use of schemes that were excluded by those provisions.
59. Employment intermediaries: restrict tax relief for travel and subsistence for workers engaged through an employment intermediary, such as an umbrella company or a personal service company, and under the supervision, direction and control of the end user.
60. Capital Gains Tax entrepreneurs’ relief: contrived structures – denies entrepreneurs’ relief (ER) on the disposal of shares in a company that is not a trading company in its own right.
61. Measures to tighten tobacco anti-forestalling rules and apply penalties for non-compliance, in order to prevent tax avoidance.
62. Implementation of the Common Reporting Standard - Laying of regulations to implement the UK’s Automatic Exchange of Information Agreements and adopt the updated EU Directive on Administrative Co-operation.
63. Anti-avoidance legislation to prevent companies from obtaining a tax advantage by entering contrived arrangements to turn historic tax losses of restricted use into more versatile in-year deductions.
64. Legislation to clarify the effect of capital allowances anti-avoidance rules where there are transactions between connected parties or sale and leaseback transactions.
65. Prevent investment fund managers from using tax loopholes to avoid paying the correct amount of capital gains tax (CGT) on the profits of the fund payable to them (known as carried interest). This measure will have immediate effect by requiring taxpayers who receive carried interest to pay the full 28% CGT charge on their award. Asset managers will no longer be able to use tax planning to reduce the value of the gain.
66. New VAT ‘use and enjoyment’ provisions so that it will be clear that all UK repairs made under UK insurance contracts will be subject to VAT in the UK.
67. Legislation for serial avoiders who persistently enter into tax avoidance schemes which are defeated. These include a special reporting requirement and a surcharge on those whose latest tax return is inaccurate as a result of a further defeated avoidance scheme, restricting access to reliefs for the minority who have a record of trying to abuse them, and developing further measures to name serial avoiders.
68. New requirement that large businesses publish their tax strategies.
69. Controlled Foreign Companies (CFC) loss relief restriction –remove the ability for companies to use UK losses and reliefs against a CFC.
70. Disposal of stock other than in trade – legislation relating to trading stock and intangible assets, to ensure that disposals made other than in the normal course of business are brought into account for tax purposes at full open market value. Prevents corporate groups from using a transfer pricing override to manipulate the value of assets in intergroup transfers.
71. Taxation of carried interest: Base cost shifting and cherry picking – legislation to ensure that sums which arise to investment fund managers by way of carried interest will be charged to the full rate of capital gains tax, with only limited deductions being permitted.
72. Stamp Duty and Stamp Duty Reserve Tax - Deep In The Money Options (DITMOs) – Shares transferred to a clearance service or depositary receipt issuer as a result of the exercise of an option charged the 1.5% higher rate of stamp duty based on either their market value or the option strike price, whichever is higher. This will prevent avoidance using DITMOs, which are options with a strike price significantly below (for call options) or above (for put options) market value.
73. A new criminal offence for tax evasion – new criminal offence that removes the need to prove intent for the most serious cases of failing to declare offshore income and gains.
74. New civil penalties for offshore tax evaders – The government will increase civil penalties for deliberate offshore tax evasion, including the introduction of a new penalty linked to the value of the asset on which tax was evaded and increased public naming of tax evaders.
75. New civil penalties for the enablers of offshore tax evasion including public naming of those who have enabled the evasion.
76. A new criminal offence for corporates failing to prevent tax evasion
77. An additional requirement to correct past offshore tax non-compliance - a new legal requirement to correct a past failure to pay UK tax on offshore interests within a defined period of time, with new sanctions for those who fail to do so.
78. General Anti-Abuse Rule (GAAR) – a new penalty of 60% of tax due to be charged in all cases successfully tackled by the GAAR. The government will also make small changes to the way the GAAR works to improve its ability to tackle marketed avoidance schemes.
79. Transactions in Securities rules - introduced a Targeted Anti-Avoidance Rule in order to prevent opportunities for income to be converted to capital in order to gain a tax advantage.
80. Capital allowances and leasing – amend legislation to counter 2 types of avoidance involving capital allowances and leasing. These changes prevent companies from artificially lowering the disposal value of plant and machinery for capital allowances purposes, and make any payment received for agreeing to take responsibility for tax deductible lease related payments subject to tax as income.
81. Corporation tax - intangible assets to related parties: partnerships and transfers of intangible assets – amended the intangible fixed asset rules to clarify the tax treatment on transfers of assets to partnerships. Ensures that partnerships cannot be used in arrangements that seek to obtain a tax relief for their corporate members in a way that is contrary to the intention of the regime.
82. Disguised remuneration schemes – a package of measures to tackle the current and historic use of disguised remuneration schemes, which are used to avoid income tax and NICs.
83. Offshore property developers – measure to ensure that profits from trading in UK land are always subject to UK tax by introducing specific rules to tax the full amount of such profits whether or not the person to whom they arise is UK resident.
84. Royalty withholding tax – changed the deduction of tax at source regime to bring all international royalty payments arising in the UK within the charge to income tax, unless those taxing rights have been given up under a double taxation agreement or the EU Interest and Royalties Directive to bring the UK more into line with international practice. UK withholding tax will apply to a wider definition of royalty payments, the UK will create a domestic anti-treaty abuse provision which will prevent, for instance, royalty payments being paid to tax havens without deduction of tax via the use of conduit companies and the UK will also ensure that withholding tax will apply to payments that are attributable to a UK permanent establishment, even if the payment of the royalty is not made from the UK.
85. Corporate interest restriction - rules for addressing base erosion and profit shifting through interest expenses from 1 April 2017 in line with the OECD recommendations. The new rules will limit the tax relief that large multinational enterprises can claim for their interest expenses.
86. Legislation to ensure that trading receipts in non-monetary form are brought into account for tax purposes at their full value.
87. Legislation to provide HMRC with strengthened powers for directing the appointment of a VAT representative and greater flexibility in respect of seeking a security, and enable HMRC to hold an online marketplace jointly and severally liable for the unpaid VAT of an overseas business that sells goods in the UK via the online marketplace’s website.
88. Fulfilment House Due Diligence Scheme – ‘fit and proper’ standards that fulfilment houses will need to meet in order to operate. Fulfilment houses will have an obligation to register and maintain accurate records once online registration opens in 2018. They will also have to provide evidence of the due diligence they have undertaken to ensure overseas clients are following VAT rules.
89. VAT: reverse charge on ‘airtime’ services – an anti-fraud measure to prevent Missing Trader Intra-Community fraud on wholesale supplies of electronic communications services.
90. Disguised remuneration schemes – extend the scope to tackle the use of disguised remuneration avoidance schemes by the self-employed to ensure that self-employed users of these schemes pay their fair share of tax and National Insurance.
91. New penalty for any person who has enabled another person or business to use a tax avoidance arrangement that is later defeated by HMRC.
92. Tackling exploitation of the VAT relief on adapted cars for wheelchair users – clarify the application of the VAT zero-rating for adapted motor vehicles to stop the abuse of this legislation, while continuing to provide help for disabled wheelchair users.
93. Hidden economy and money service businesses – legislation to extend HMRC’s data-gathering powers to money service businesses in order to identify those operating in the hidden economy.
94. Elections in relation to assets appropriated to trading stock - remove the ability for businesses to convert capital losses into trading losses.
95. Qualifying recognised overseas pension schemes (QROPS): introduction of transfer charge – The government introduced a 25% charge on transfers to QROPS. This charge is targeted at those seeking to reduce the tax payable by moving their pension wealth to another jurisdiction.
96. Withholding tax: royalties – withholding tax obligations extended to royalty payments, and payments for certain other rights, made to some low or no tax jurisdictions in connection with sales to UK customers. The rules will apply regardless of where the payer is located.
97. Offshore receipts in respect of intangible property - legislation to tax income from intangible property held in low-tax jurisdictions to the extent that it is referable to UK sales.
98. Requirement to notify HMRC of offshore structures – The government will publish a consultation response on the proposed requirement for designers of certain offshore structures, that could be misused to evade taxes, to notify HMRC of these structures and the clients using them.
99. VAT fraud in labour provision in the construction sector – introduce a VAT domestic reverse charge to prevent VAT losses. This will shift responsibility for paying VAT along the supply chain to remove the opportunity for it to be stolen.
100. The Intangible Fixed Asset rules – rules such that a licence between a company and a related party in respect of intellectual property is subject to the market value rule, and to ensure that the tax value of any disposal of a company’s intangible assets is correct, even if the consideration is in something other than cash.
101. Depreciatory Transactions – The government removed the 6-year time limit within which companies must adjust for transactions that have reduced the value of shares being disposed of in a group company. This will ensure that any losses claimed are in line with the actual economic loss to the group.
102. Double Taxation Relief – restriction to the relief for foreign tax incurred by an overseas branch of a company, where the company has already received relief overseas for the losses of the branch against profits other than those of the branch. This ensures the company does not get tax relief twice for the same loss.
103. Online VAT fraud: extending powers to UK businesses – legislation to extend HMRC’s powers to hold online marketplaces jointly and severally liable (JSL) for the unpaid VAT of overseas traders on their platforms to include all (including UK) traders. To help tackle the UK hidden economy and eliminate the risk of overseas traders establishing a UK shell company simply to escape the existing JSL regime.
104. Capital gains tax: tackling misuse of Entrepreneurs’ Relief - In addition to the current requirements on share capital and voting rights, shareholders must also be entitled either to at least 5% of the distributable profits and net assets of a company or to at least 5% of the proceeds if the company was sold to claim the relief. This is to address an identified abuse of the current rules.
105. Profit fragmentation legislation to introduce targeted legislation that aims to prevent UK businesses from avoiding UK tax by arranging for their UK-taxable business profits to accrue to entities resident in territories where significantly lower tax is paid than in the UK. The taxable UK profits will be increased to the actual, commercial level.
106. VAT grouping – legislation to extend the eligibility to join a VAT group to certain non-corporate entities. In addition, revised VAT grouping guidance will be issued to: amend the definition of ‘bought in services’ to ensure that such services are subject to UK VAT, and provide clarity to businesses on HMRC’s protection of revenue powers and treatment of UK fixed establishments.
107. VAT Specified Supplies Order – legislation to prevent a version of VAT avoidance (known as ‘looping’) that involves UK insurers setting up associates in non-VAT territories and using these associates to supply their UK customers. This allows them to reclaim VAT on costs that UK based competitors are unable to reclaim.