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Tax avoidance at the top of the agenda?

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To quote David Cameron, the subject of “tax avoidance” is “at the top of the agenda”.

It was the report that student loans chief Ed Lester had avoided taxes by his use of a personal service company that started 2012’s rash of avoidance headlines and led to a review of the perceived abuse of ‘off-payroll arrangements’.

The year ended with an amendment to the IR35 rules relating to ‘office holders’, but with the government declining to adopt the proposals arising from its consultation on the Taxation of Controlling Persons.

IR35 is commonly considered to be ineffective in meeting its objectives, principally because the party that could best be relied on to seek and achieve compliance in the process - the engager - has no role. Simply, if the contract is with the PSC and the payee is the PSC, then all compliance boxes are ticked.

While HMRC can target the individuals behind the PSCs, it is always going to be an uphill struggle to tackle all of the suspected non-compliance.

Last year also brought the public accounts committee review of off-payroll arrangements. The outcome of the review is that government departments, the NHS and other bodies covered by the Treasury’s Managing Public Money guidance must implement an onerous new set of rules for existing and new off-payroll appointments.

So what is in store for local government? Interestingly, the PAC’s review said: “The Local Government Association told us that returns from seven out of the nine regional employers had identified only 13 people nationally, employed on personal service contracts for more than £50,000 a year. We are sceptical about these numbers.”

While the private sector is unaffected, the position of local government is less clear, especially given the PAC’s scepticism.

Shortly after the review, it emerged there would be consultation on proposed changes to IR35 aimed at tackling off-payroll engagements of ‘controlling persons’ - those with significant corporate or financial responsibility.

HMRC’s new approach would include:

  • strengthening the helpline and the specialist teams who investigate IR35 risks;
  • increasing the number and type of investigations where IR35 is the main risk; and
  • publishing new guidance.

“These changes, together with the targeted measures introduced in the public sector, are sufficient to prevent the loss of tax and national insurance through disguised employment,” the review said.

Is this an example of ‘putting one’s house in order’? Or is it why the tax avoidance debate continues to polarise the nation?

Duncan Groves, partner and public sector tax services, RSM Tenon




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