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Spring Budget 2017: Avoidance, evasion and compliance

ICAEW Tax Faculty provides analysis of the announcements relating to tax avoidance, evasion and compliance in the Spring Budget 2017.

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Since the general election in May 2015 the government has announced 35 measures to tackle avoidance, evasion and aggressive tax planning. This is in addition to the 40 measures in the previous, 2010 to 2015, parliament which together, on the government’s estimate, have secured £140bn of additional tax since 2010.

By comparison with the impact of these past announcements the measures in the current Budget, which are costed in the Red Book, will bring in £825m over the next five years with three quarters of that total coming in equal measure from the changes to the overseas pension scheme and on VAT on phone calls outside the EU.

The enablers legislation

This legislation will apply a penalty to individuals and entities which enable the use of tax avoidance arrangements which HMRC later defeats. The Tax Faculty submitted its response to the draft legislation, published last December, in ICAEW REP 20/17.

The legislation will be revised to clarify when and how the General Anti Abuse Rule (GAAR) Advisory Panel will consider enabler cases. The enablers regime will also apply to arrangements that seek to avoid NIC, and there will be consequential changes to the Promoters of Tax Avoidance Scheme (POTAS) legislation. There will also be further details as to when enablers will be named. Finally, the ‘reasonable care’ defence to a penalty levied under the enablers rules will not be available if the person concerned relied on ‘non-independent advice’.

The penalty on enablers will apply prospectively to enabling activity after Royal Assent.

The changes relating to the reasonable care defence also come into effect at Royal Assent but will apply to inaccuracies in documents relating to tax periods which begin on or after 6 April 2017?. There will also be other minor amendments made to the draft legislation, published in December 2016, in order to improve the targeting and clarity of the provisions.

Promoters of tax avoidance schemes

Promoters will no longer be able to circumvent the POTAS regime by reorganising their business by either sharing control of a promoting business or putting a person or persons between themselves and the promoting business.

Disclosure of indirect tax avoidance schemes

The regime for the disclosure of indirect tax avoidance schemes is to be strengthened by making scheme promoters primarily responsible for disclosing schemes to HMRC and the scope of the legislation will be extended to include all indirect taxes, including the Soft Drinks Industry Levy. Details of the tests to apply to arrangements to determine if they should be disclosed to HMRC will be contained in regulations. These measures will come into effect on 1 September 2017.

Qualifying recognised overseas pension schemes

There will be a 25% charge of transfers to QROPS with exceptions when there is a genuine reason for a tax free transfer – see above under Pensions and savings.

Tax treatment of appropriations to trading stock

From 8 March 2017 it will no longer be possible to appropriate capital assets standing at a loss to trading stock to create a trading loss.

Hidden economy

As announced at Autumn Statement 2016, the government will take further action to tackle the hidden economy. It will:

  • develop further proposals on conditionality (the principle of making access to certain licences or services conditional on tax registration);
  • consider the design of a stronger ‘failure to notify’ hidden economy penalty which may take account of past behaviour – this will be delivered as part of the longer term HMRC Penalties Review;
  • strengthen monitoring of taxpayers found to be operating in the hidden economy, to keep them compliant.

VAT: split payment method

The government will consider how to tackle overseas businesses selling goods to UK consumers via online marketplaces without paying VAT. A call for evidence will be published on 20 March 2017. The intent will be to harness technology to allow VAT to be extracted directly from transactions at the point of purchase. This type of model is often referred to as split payment.

VAT: fraud in the provision of labour in the construction sector

A consultation will be launched on 20 March 2017 on a range of policy options to combat supply chain fraud in supplies of labour within the construction sector. Options include a VAT reverse charge mechanism so the recipient accounts for VAT. It will also consider other changes including to the qualifying criteria for gross payment status within the Construction Industry Scheme.

VAT: penalty changes in fraud cases

A penalty is to be introduced for participating in VAT fraud. Following consultation on the draft legislation some minor changes have been made to improve the clarity of the measure and also to limit the naming of a company officer to instances where the amount of tax due exceeds £25,000. The new penalty will take effect once Finance Bill 2017 receives Royal Assent.

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