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Our regular look at tax news mainly focusing on corporate tax avoidance and how HMRC are regulating their practices. This month we turn the spotlight on:

THE ANDERSON GROUP SCHEME

Last Friday, the BBC dramatically unveiled its undercover investigation into an ‘aggressive’ tax avoidance scheme, being secretly pedalled by the Anderson Group, one of the recruitment industry’s most high-profile companies.

The scheme works by exploiting the government’s Employment Allowance, which many tax experts are calling “abusive”. The scam could deprive the Treasury of tens of millions of pounds of National Insurance payments.

The Anderson Group says that all of its services are fully compliant with UK tax laws and claims it is “totally incorrect” to say that Anderson Group is promoting the scheme as the product being offered by one of its clients.

The Anderson Group, which calls itself the UK’s “leading provider of support services to the recruitment industry”, has hundreds of agencies and thousands of contractors on its books and is promoting the tax avoidance scheme which works by exploiting the government’s Employment Allowance which was introduced last year.

The allowance enables companies to claim £2,000 off their annual employers’ National Insurance bill and was meant to encourage small businesses to take on more workers.

BBC Secret recording

The BBC secretly recorded Anderson Group’s sales manager, Ian Moran, promoting the tax avoidance scheme to a recruitment agency. Mr Moran suggested that if the recruitment agency were to set up more than 100 limited companies with a handful of workers in each of them, each company could then claim the £2,000 allowance.

By Mr Moran’s calculations the agency’s National Insurance bill would then fall from £300,000 a year to zero.

Mr Moran suggested that if the agency used the scheme they might like to spend the £300,000 on Bentleys and ski chalets.

HMRC losses

Mr Moran told the recruitment agency that 10,000 workers were now being employed through these companies, and the goal was to increase that to 20,000. He suggested that HMRC could lose £20m in National Insurance contributions.

At the meeting, Mr Moran admitted that the Employment Allowance was being misused: ”It wasn’t intended to be used exactly like this,” he said. ”Let’s be straight, but they set the rules, we’ll build a product.”

Tax experts’ view

Robin Williamson, head of the low income tax reform group at the Chartered Institute of Taxation

Robin Williamson

Robin Williamson, head of the low income tax reform group at the Chartered Institute of Taxation, has called the scheme “highly aggressive” and “abusive”. He says it drives a coach and horse through the legislation: ”To use the colloquial – they are taking the p##s.”

The BBC found on the Companies House website more than two thousand limited companies created by those behind the tax avoidance scheme and asked Jennie Granger, head of compliance at HMRC, what she thought.

“Schemes like this don’t work and anyone thinking of using it should think again.Failing to disclose an attempted avoidance scheme is punishable by a fine of up to £1m.”

Jennie Granger, head of compliance at HMRC

Tax expert and financial reform campaigner Richard Murphy thinks the scheme’s promoters are banking on the idea that by the time HMRC catch up with them, there’ll be no money to recover. ‘”What they’ll say is: well, there’s no money in any of these companies, they’re all empty shells, therefore, you can sue us, you can put us in to liquidation, but there’ll be nothing for you to have,” he said.

None of the tax experts the BBC spoke to were surprised that this scheme was operating within the recruitment industry. For years this sector has been dogged by allegations of tax avoidance and exploitation of low paid workers. The Treasury has stated that it is consulting on ways to clean up the sector’s shady practices, but whether or not they’ll move quickly enough, remains to be seen!

For legitimate and outsourced accountancy practices see our accounts page

NEXT HIT WITH £22 TAX BILL

High street and online retailer Next has been hit with a £22.4m tax bill after a court found it diverted profits made in the UK to offshore foreign subsidiaries to avoid paying tax.

jim-harra HMRCs director of general business tax

Jim Harra

Next was found to have used a tax avoidance scheme called a rate-booster, which works by exploiting rules designed to prevent double taxation of company profits, firms were able to claim credit for tax paid on money they made overseas, which are then paid back to the UK parent firm.

Some companies, like Next exploited the rules through the creation of artificial arrangements involving what HMRC referred to as “complex circular movements of money between companies in the same group, so they can claim there has been double taxation”. Known as rate-booster schemes, they enable companies to avoid corporation tax by diverting profits made in the UK to foreign subsidiaries.

The foreign subsidiary then pays tax on those profits, invariably at a lower rate of corporation tax, before the profits were paid back to the UK parent company. The UK parent company then receives credits from HMRC for the tax already paid by its subsidiary and as a result, companies were able to claim far more tax had been paid on their overseas profits than was actually the case.

The Next case is the second to reach court, following a 2013 ruling against P&O Ferries, although P&O appealed against the decision and an appeal judgement is outstanding. HMRC said about £130m in tax was at stake across 20 rate-booster cases, which were awaiting the P&O and Next decisions.

HMRC’s director general of business tax, Jim Harra, said that about 70 rate-boosters have already been conceded by companies that wanted to avoid going to court and this has brought in more than £500m in tax. “This case shows how HMRC takes effective action against big businesses that try to avoid paying tax through convoluted, artificial avoidance schemes. HMRC expects all businesses will steer well clear of such schemes in future.”

margaret-hodge MPdoesn't think RTI is a panacea for payroll tax reform

Public Accounts Committee Margaret Hodge, one the driving forces behind the Google tax

AMAZON BLINK FIRST

Online retailer Amazon, apparently as a direct result of the impending introduction of the so-called ‘Google Tax’, has announced that it is changing the way it records sales in a move that will see it paying more tax.

Transactions carried out in European markets were previously recorded in Luxembourg, with which Amazon had a low-tax agreement. Now sales made through subsidiaries in the UK, Germany, Spain and Italy will be registered in those countries, the retailer has said.

“As of 1st May 2015, Amazon EU is recording retail sales made to customers through these branches in the UK, Germany, Spain and Italy, which were previously recorded in Luxembourg.” the company said in a statement.

As the EU is also looking into Apple’s tax dealings in Ireland, coffee-shop chain Starbucks’ dealings in the Netherlands, and Italian carmaker Fiat’s agreement with Luxembourg amongst othes, these companies have started to make noises which suggest that they are likely to follow Amazon’s lead soon.

Which just leaves Google, but I suspect that even this global giant will eventually have to cave in, which means that George Osborne’s aim of collecting an extra £5billion from tax avoidance might just be possible.

 

If any of you would like more detailed information on any aspect of UK Tax Avoidance, send me an e-mail and I’ll be pleased to advise further.

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