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Autumn Statement 2016: Tax avoidance

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  • Publish date: 26 October 2016
  • Archived on: 01 January 2019

ICAEW Tax Faculty provides analysis of the announcements relating to tax avoidance, evasion and compliance in the 2016 Autumn Statement.

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At the beginning of the Avoidance and Evasion section in the Green Book the government publishes the following statement:

“The government believes that all individuals and businesses have a responsibility to pay the tax they owe. Since 2010, the government has secured around £130bn in additional tax revenue as a result of tackling avoidance, evasion and non-compliance. The UK’s tax gap, the difference between the amount of tax due and the amount collected, remains one of the lowest in the world. The UK has played and continues to play a leading role in Europe, the G20 and through the 2013 G8 Presidency in bringing about a step change in international tax transparency and ensuring that profits are taxed where the economic activity takes place. Following the publication of the OECD Base Erosion and Profit Shifting outputs in October 201531 and the endorsement by G20 leaders in November 2015, the business tax road map set out a comprehensive package to take further action, to modernise the tax rules in the UK and to ensure these rules are applied effectively to multinationals.”

In his actual statement the Chancellor of the Exchequer said: “These measures – and others set out in the Autumn Statement document – raise around £2bn over the forecast period.”

The policy announcements on avoidance and evasion that are going to have the greatest impact on the public finances are the changes to the VAT flat rate scheme (£695m), the further measures to target disguised remuneration avoidance schemes (£630m) and the HMRC counter-avoidance measures (in excess of £500m).

VAT flat rate scheme: anti-abuse

This is covered in the VAT section.

Disguised remuneration

As discussed in the ‘Personal and employment taxes’ section, the government will extend the scope of the Budget 2016 changes, which targeted employers and employees using avoidance schemes, to tackle the use of disguised remuneration avoidance schemes by the self-employed.

The government will also reduce the attractiveness of disguised remuneration avoidance schemes for employers by denying tax relief for an employer’s contributions to such schemes unless tax and national insurance are paid within a specified period.

Tax enabler legislation

The government published a consultation document in the summer Strengthening tax avoidance sanctions and deterrents to which Tax Faculty responded in October ICAEW REP 153/16. The Tax Faculty argued that the proposals in the consultation document were too widely targeted and “could catch ordinary commercial transactions and damage the UK as a place to transact business”.

The Tax Faculty made five practical recommendations:

  1. The definition of ‘enablers’ should be amended.
  2. TAARs should be removed from the definition of ‘relevant defeat’ but if they are to be retained only specific TAARs should be included.
  3. The proposed penalties should be recalibrated.
  4. There should be improved safeguards including a defence of ‘reasonable excuse’.
  5. The impact of the new provisions should be on prospective, future, advice and not affect advice that has already been given.

At the moment we do not know what HMRC is going to propose but on 5 December, or shortly afterwards, HMRC will publish draft legislation together with a paper summarising the responses to the consultation. Tax Faculty is likely to be meeting HMRC before Christmas to discuss these latest proposals.

HMRC counter-avoidance

The three areas of change are anticipated to bring in about £500m in the period to 2021/22.

  • HMRC and the taxpayer will be given powers to bring enquiries under self assessment and CT self assessment to a close in respect of a part of an enquiry when that individual element has been brought to a conclusion even though some elements of the enquiry remain unresolved.
  • Under its Litigation and Settlement work, HMRC will increase the number of cases challenged under the General Anti-Abuse Rule (GAAR), accelerate litigation and follower notices and expand litigation settlement activity amongst those who have used avoidance schemes
  • Finally, HMRC will, starting in 2017/18, develop its ability to identify emerging insolvency risk using external analytical expertise. This will be used in HMRC’s debt collection activity and is intended to provide support to struggling businesses and minimise HMRC’s losses caused by business insolvency.

Offshore tax evasion

The government will introduce 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.

The government will consult on a new legal requirement for intermediaries arranging complex structures for clients holding money offshore to notify HMRC of the structures and the related client lists.

Hidden economy

The government will legislate to extend HMRC’s data-gathering powers to money service businesses in order to identify those operating in the hidden economy.

The government will consult on whether to make access to licences or services for businesses conditional on them being registered for tax. It will also develop proposals to strengthen sanctions for those who repeatedly and deliberately participate in the hidden economy. Further details will be announced in Budget 2017.