UK Autumn Budget 2017 – avoidance and evasion

Dec 04, 2017

The usual suspects of evasion and avoidance measures also featured in the Autumn Budget announcements. The further steps announced in the Budget are forecast to raise £4.8 billion between now and 2022-23.

Requirement to notify HMRC of offshore structures

The government will publish a consultation response on the proposed requirement for designers of certain offshore structures, which could be misused to evade taxes, to notify HMRC of these structures and the clients using them. This work will be taken forward in conjunction with the OECD and EU.

Extending offshore time limits

Following a consultation in Spring 2018, the assessment time limits for non-deliberate offshore tax non-compliance will be extended so that HMRC can always assess at least 12 years of back taxes without needing to establish deliberate non-compliance.

VAT fraud - construction sector labour provision

Following a consultation into this area, a VAT domestic reverse charge will be introduced to prevent VAT losses. This will shift responsibility for paying VAT along the supply chain to remove the opportunity for it to be stolen. These changes will take effect from 1 October 2019 to give businesses time to prepare for the change. 

Hidden economy: conditionality

The government will consult further on how to make the provision of some public sector licences conditional on being properly registered for tax.

Employment Allowance

The government believes it has found evidence of some employers availing of the NIC employment allowance by using offshore arrangements. To crack down on this, HMRC will require upfront security from employers with a history of avoiding paying NICs in this way. This will take effect from 2018 and could raise up to £15 million a year.

Disguised remuneration

The government will continue to tackle disguised remuneration avoidance schemes used by close companies by introducing a close companies’ gateway and measures to ensure liabilities from the new loan charge are collected from the appropriate person.

Profit fragmentation

The government will consult in 2018 on the best way to prevent UK traders or professionals from avoiding UK tax by fragmenting their UK income between unrelated entities.  

Intangible fixed assets: related party step-up schemes

The intangible fixed asset rules were amended, with immediate effect, so that a licence between a company and a related party in respect of intellectual property is subject to the market value rule, and to ensure that the tax value of any disposal of a company’s intangible assets is correct, even if the consideration is in something other than cash.

Depreciatory transactions

The 6-year time limit within which companies must adjust for transactions that have reduced the value of shares being disposed of in a group company has been removed. This is aimed at ensuring any losses claimed are in line with the actual economic loss to the group.

This change took effect for disposals of shares or securities in a company made on or after 22 November 2017.

Carried interest

To prevent the avoidance of legislation designed to ensure that asset managers receiving carried interest pay capital gains tax on their full economic gain, the government removed the transitional commencement provisions with immediate effect.

Double tax relief

From 22 November 2017, a restriction was introduced to the relief for foreign tax incurred by an overseas branch of a company, where the company has already received relief overseas for the losses of the branch against profits other than those of the branch.

This is aimed at ensuring the company does not get tax relief twice for the same loss. The Double Taxation Relief targeted anti-avoidance rule will also be amended to remove the requirement for HMRC to issue a counteraction notice, and extend the scope to ensure it is effective.

Double taxation arrangement: multilateral instrument

With effect from the Royal Assent of the Finance (No. 2) Act 2017, the powers giving effect to double taxation arrangements will be amended to allow the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting to be implemented.