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Tax avoidance and fraud

Tackling tax evasion, avoidance and ‘unfair outcomes’

The Chancellor announced a number of measures designed to tackle tax evasion, avoidance and what are described as ‘unfair outcomes’ for the UK taxpayer.

The initiative builds on previous policies to reduce tax leakage. The Government claims that additional tax revenues of £185 billion have been raised since 2010 as a result of its compliance measures introduced so far.
Tax debts in business insolvencies.

In a significant move, the Government proposes to reintroduce preferential status for HMRC in respect of certain business taxes owed when an entity fails. The taxes are those deemed to be held ‘on trust’ by a business, including PAYE, VAT and NICs. Financial institutions holding fixed charges over assets will, however, remain above HMRC in the hierarchy of creditors. The change will apply from 6 April 2020 and is expected to raise over £185 million a year – a significant proportion of the targeted £2.1 billion that the full set of new compliance measures is designed to raise by 2023/24.

Another proposed measure will make directors or shareholders jointly and severally liable for tax debts where tax avoidance, evasion or phoenixism is involved – a move expected to raise a more modest sum of £35 million.

Business taxes
The Government has resisted calls to abolish Entrepreneurs’ Relief (which attracts a capital gains tax rate of 10% on relevant business disposals), but instead has tweaked existing rules. For example, it has made changes to the ‘personal company’ tests and doubled the minimum qualifying holding period for assets to two years. In addition, further changes to the Diverted Profits Tax, introduced in 2015, will be made in order to prevent UK businesses artificially shifting profits to low profit jurisdictions. Research and development tax relief credits will also be restricted, to prevent abuse.

In relation to VAT, the Government announced that anti-avoidance rules will be introduced to prevent some insurance companies from setting up offshore in order to gain a VAT advantage over purely UK-based competitors.

In a much anticipated move, the Chancellor confirmed that the so-called IR35 off-payroll rules would be extended to the private sector, but not until April 2020. Only medium-sized and large companies using workers through personal service companies will be affected.

Tax evasion
HMRC is to publish a call for evidence in respect of Electronic Sales Suppression (ESS) tools, which a business may use to evade tax by manipulating sales data. ESS is  becoming a major issue for tax authorities across the globe as tax fraudsters embrace the technological age.

Following an earlier consultation on ‘tax conditionality’ measures, in 2019/20 a tax registration check will be introduced  linked to licence renewal processes for some public sector licences.  Applicants would need to provide proof of this check  to  be granted a license.

Last but not least, in order to support international tax enforcement and compliance, new legislation will be introduced to allow disclosure between jurisdictions of offshore structures that could be used to avoid tax. HMRC will also publish an updated offshore compliance strategy.