Almost £5bn is set to be raised over the next five years from a package of avoidance and evasion measures that George Osborne hailed as one of the largest ever presented at a Budget.
But plans to ban companies with a past history of tax avoidance from bidding for public sector contracts have been dropped after the government said that looking back 10 years would not achieve the “aim of changing future behaviour”.
The narrowing of the scope of the proposed new procurement rules were greeted with relief by businesses. Will Morris, chair of the CBI tax committee, said: “Businesses completely understand the government’s wish to exclude companies who engage in abusive tax planning from public sector contracts. The new proposals rightly focus on enforcing this for future contracts only, supporting the government’s aim to influence company behaviour going forward, rather than retrospectively litigating the past.”
Kevin Nicholson, head of tax at PwC, professional services group said: “There were serious concerns about whether the rules would work in practice. The revisions announced today make the rules more workable but in a way that should still achieve the governments objectives.”
Mr Osborne signalled the government’s determination to tackle avoidance by highlighting the imminent introduction of a general anti-abuse rule and proposals to “name and shame” promoters of tax avoidance schemes. He said: “My message to those who make a living advising other people how aggressively to avoid their taxes is this: the government is not going to let you get away with it.”
The crackdown on avoidance was largely focused on new restrictions on the transfer of corporate tax losses and planned to curb the misuse of partnerships, both of which were expected to raise about £1bn over the next five years. The Treasury also expects to raise £340m over the next five years from a crackdown on schemes involving offshore employment intermediaries.
The Treasury said it would consult on measures to remove the presumption of self-employment for limited liability partnerships and to counter the artificial allocation of profits to partners. The Institute of Directors said it was concerned that the withdrawal of the presumption of self-employment for members of limited liability partnerships might catch legitimate businesses.
The Treasury also said it would consult on strengthening obligations to ensure the correct income tax and NICs are paid by offshore employment intermediaries which are thought to employ at least 100,000 workers. PwC said it would need to take care to prevent unintended consequences for businesses, especially in the oil and gas sectors, that had important commercial reasons for using offshore employment intermediaries.