01743 271071 [email protected]
George Osbourne wants to increase tax reciepts

George Osbourne delivered his fifth budget

Laws and rule changes to counter tax avoidance and evasion have become a Budget tradition and after the headline grabbing headlines of last week, the small print has been published on what the government plans to do.

So here’s a summary of the main anti-avoidance measures:

Avoidance schemes: Upfront payments to start this year

Source Accounting Web

Taxpayers in a dispute with HMRC will have to pay the money up front without the right of appeal if the scheme is registered with the Disclosure of Tax Avoidance Schemes (DOTAS) or if a similar one has been defeated in the courts.

Taxpayers will have to settle the dispute within 90 days after HMRC sends them a “follower notice” – or a further 30 days if they appeal. Currently, even if HMRC closes an avoidance scheme through litigation, there is little incentive for other scheme users, or those using essentially similar arrangements, to accept the court’s findings and pay any underpaid tax, HMRC said.

The revised law for settling tax disputes was first announced in last year’s Budget and is predicted to raise £340m in tax receipts in 2014-15 and £1.23bn in 2015-16.

The Chartered Institute of Taxation (CIT) said that although it sympathises with the government attempts to close mass-marketed tax avoidance schemes, allowing HMRC to “act as prosecutor, judge and jury” on DOTAS is going too far.

Avoidance schemes: Transfer of profits

Source Gov UK

Companies that are part of a group will not be able to avoid tax by transferring profits between themselves.

The legislation, first announced in last year’s Autumn Statement, blocks avoidance schemes where tax relief is claimed for payments between companies in the same group. In the avoidance scheme, a company enters into a derivative contract, known as a total return swap, with a parent company or another group company, which is typically located in a tax haven.

All of the company’s profits of the company are paid away in return for much smaller payments back. A deduction is claimed for the payment under the contract, leaving little or no profit chargeable to tax.

The CIT commented that the change in tax law seemed to be aimed at small and medium-sized companies.

LLP ‘disguised employment’ rules go ahead

Limited Liability Partnerships (LLPs) are a hybrid between partnerships and limited companies and have become flavour of the month in recent years. A partner is taxed as self-employed but has the benefit of limited liability protection; thus in an LLP, one partner is not responsible or liable for another partner’s misconduct or negligence.

However, in spite of a call from the House of Lords last week to delay the measure, the government is pressing ahead with legislation affecting the taxation of LLPs.

The new measures address HMRC’s concerns, about “disguised employment”, where tax was being avoided by LLP members who were not true partners, and who should therefore should be taxed as employees. This will particularly affect junior partners who currently have 80% or more of their remuneration guaranteed.

HMRC are bringing in a “disguised employment test”, which involves 3 conditions; to remain taxed as self-employed, the individual will need to ensure they can ensure that at least one of the conditions is not met:

  1. He or she performs services personally for the partnership and is paid a fixed profit share. If paid a mixture of fixed and variable profit elements, the variable element must represent 20% of the total profit allocation to meet this condition.
  2. He or she does not have significant influence over the affairs of the partnership.
  3. The individual’s contribution to the LLP (ie capital at risk) is less than 25% of the total amount of disguised salary they are likely to be paid as a member of the LLP.

Beefing up of the GAAR rules

The General Anti-Abuse Rules (GAAR)) that came into force on 17 July 2013 are not only being beefed up (as if HMRC needed even more powers!) but their scope has been extended to not only cover Income tax and Corporation tax, but also Capital Gains Tax, Inheritance Tax & Stamp Duty Land Tax.

GAAR’s are a wide-ranging measure which has created a good deal of uncertainty for taxpayers and their accountants. Now, as well as complying with specific anti-avoidance legislation, you will need to ensure that any arrangements you put in place will not be caught by the general provisions of GAAR.

The problem is, how you can be certain that this will be the case, as you can’t be certain which tax arrangements might be considered “abusive” by HMRC.

For more info on GAAR’s go to http://www.hmrc.gov.uk/avoidance/gaar.htm

And finally –

Unscheduled announcements of changes in tax law

The Government is introducing a so-called “Protocol” to be able to make unscheduled announcements of changes in tax law, which (and this is the scary part) can be retrospective.

It would appear the Big Brother really has now arrived – you have been warned!

Share
David Jones is the Senior Partner and Founder of Morgan Jones & Company. Born in Liverpool and an Accountancy graduate of the University of Wolverhampton, David spent twenty years working for the Customs & Excise in London then Shrewsbury before starting his own business. David’s depth of knowledge of the UK tax system and his ability to communicate this learning has seen Morgan Jones & Company grow into Shropshire’s most respected Accountancy Practice. Email David