Finance Bill confirms measures to crack down on tax avoidance

The 2017 Finance Bill was published on Monday 20 March, introducing dozens of initiatives with a focus on improving and modernising the tax system

The Treasury said the bill, which is over 700 pages in length, “continues the government’s crackdown on tax avoidance” and “improves the fairness of the tax system while modernising it for the digital age”.

As announced during the Autumn Statement and outlined by the chancellor in the Spring Budget earlier this month, the Finance Bill introduces a new penalty for those who enable the use of tax avoidance schemes that are later defeated by HMRC.

Enablers are those who design, market or otherwise facilitate tax avoidance.

According to the bill, “The penalty charged will be equal to the amount of consideration received or receivable by an enabler for their role in enabling the tax avoidance arrangements which were defeated.

“Where an enabler has enabled more than one person to implement the same proposal for arrangements, further rules will apply to determine when the penalties will be charged.”

The new penalty will apply to steps taken by an enabler and in respect of a taxpayer’s arrangements entered into on or after the date of Royal Assent to the Finance Act 2017.

Richard Morley, partner at BDO, said, “These measures to tackle tax evasion and avoidance were first announced in the 2015 Budget and again in the 2016 Autumn Statement.

“At the time the government outlined a new corporate criminal offence, as well as new penalties for those who assist tax evaders. It has also now indicated that it will remove the defence of having relied on non-independent advice as taking ‘reasonable care’ when considering penalties for a person or business that uses such arrangements.

“This announcement highlights the determination to further crack down on tax evasion and avoidance and punish not only taxpayers but those who help them to set up abusive tax avoidance schemes.

“This has been announced shortly before we will see the commencement of the serial tax avoiders regime from April 2017. The move also puts pressure on advisers to think twice before assisting clients enter into tax avoidance schemes in what could be deemed abusive arrangements if later defeated by HMRC and subject to these additional penalties.”

The bill also brings into effect measures to deter those who try to gain an unfair advantage by transferring their pension abroad as well as measures preventing businesses from attempting to exploit flexibility in the tax code to minimise their tax bill, by converting capital losses into trading losses.

The government will also seek to prevent the use of disguised remuneration schemes, which help people avoid tax.

According to the Treasury, these measures will raise over £1bn by 2021/22.

Jane Ellison, financial secretary to the Treasury, said, “With this Finance Bill we continue to take important steps towards a fair and sustainable tax system, that raises and protects the revenues needed to fund public services and ensures those with the broadest shoulders contribute the most.”

In a bid to crackdown on large multinationals, the bill also introduces measures ensuring that large businesses pay the right amount of tax in line with OECD recommendations that prevent them from reducing their taxable profits with excessive interest. It also brings new measures ensuring that corporations making substantial profits cannot offset all their tax liability with past losses.

The bill will reform the rules around salary sacrifice and end the permanency of non-dom status while encouraging greater investment in the UK through expanding the business investment relief as announced at the Autumn Statement last year.

The Finance Bill 2017 also legislates for Making Tax Digital (MTD) changes.

It confirms the digital record-keeping and reporting requirements will go ahead with effect from April 2018.

As announced by the chancellor at the Spring Budget businesses with turnover below the VAT registration threshold will have an extra year, until April 2019, before the introduction of digital record-keeping and quarterly updates.

Morley said, “A welcome, albeit limited, announcement was made that will see businesses with turnovers less than the VAT threshold of £83,000 delaying their implementation until April 2019.

Those businesses below the VAT threshold may welcome more time to implement digital record keeping. However, even with the one-year grace period there may be concerns amongst small business about the impact on them and that the timeframe for compliance, remains unrealistic. These businesses are likely to be disappointed that they were not excluded altogether from the new rules.”

The bill also takes steps to tackle childhood obesity, by introducing the soft drinks industry levy originally announced at Budget 2016, to encourage producers to reduce added sugar in their drinks.

Philip Hammond also confirmed that the Department for Education will be funded with the full £1bn originally expected from the soft drinks industry levy this Parliament to give children a better and healthier future, including investment in school sports and healthy living programmes.

As confirmed in the aftermath of the Spring Budget, the bill does not include any changes to National Insurance rates for self-employed individuals.

John Cullinane, tax policy director at the Chartered institute of Taxation criticised the length of the bill, calling for fewer measures in future.

“Today’s Finance Bill is the longest on record, beating the next longest by a country mile. This rate of change and quantity of additional legislation will make life more complex for taxpayers and tax advisers alike,” he said.

“In defence of the current chancellor most of the measures in this Budget originated before his time at the Treasury, in particular they result from the Budget a year ago, which contained 50 new tax measures.

“By contrast the Budget two weeks ago was the slimmest in a long time, with just 14 new tax measures. We hope that that will set the pattern going forward and today’s bill will be remembered as the last hurrah of the days when Finance Bills weighed in at heavier than a family-sized turkey.”