Tax crackdown on partnerships aims for £7bn

Michael Bow
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A PACKAGE of measures to curb tax avoidance were included in yesterday’s Autumn Statement, in a move the chancellor says will raise nearly £7bn.

Osborne outlined a two-pronged crackdown on company partnerships used to reduces taxes for hedge fund managers’ salaries and disguise company employees as self-employed partners to avoid income tax.

“Most wealthy people pay their taxes and make a huge contribution to funding our public services,” Osborne said. “But alongside those paying the most tax are those who try to avoid paying their fair share of tax.”

Hedge fund managers who route their pay through shell companies to avoid paying the 47 per cent higher rate of tax will be tackled with the policy, due to be laid in parliament next week.

The Treasury yesterday said it expects hedge funds to deliver an additional £680m to the exchequer in 2015-16 and a further £400m every year, totalling £1.9bn by 2018-2019.

This adds an additional £1.4bn to revenue forecast in March, and the exchequer will reap £3.3bn for its coffers over the next five years.

PwC partner Rob Mellor said the move “could be seen by some as a blow for the asset management industry”.

“It seems a very short journey from the March Budget, where the Chancellor set out the government’s support for the asset management industry in the UK,” Mellor said.

Companies that define their employees as self-employed partners to avoid tax will also be hit by new laws.

Other measures laid out yesterday include preventing non-domiciled resident workers using dual contract to route their income overseas and not pay UK tax.

Income tax relief on venture capital trust share buybacks will also end, closing a loophole providing relief on the investments.

Elsewhere, rules used by private equity companies to pay a lower rate of tax on money taken out of portfolio companies will also end.

Intermediaries under the microscope
■ Companies that use employment intermediaries to avoid paying tax will no longer be able to do so, the chancellor announced yesterday. The changes will benefit employees, who will gain employment rights as a result.

Companies that use “contrived contracts” to avoid tax will be clamped down on from April 2014 in a move that will raise £400m each year, the government said.

In industries like construction or oil and gas, large contractors tend to take on self employed workers through recruiters, so that they can avoid paying out National Insurance contributions or other employment rights.

“The announcement of an attack on the ‘onshore intermediaries false employment’ looks like yet another attempt to examine contractors who work through their own company,” said Paul Spindler, tax partner at accountancy firm Kingston Smith.

Alcohol wholesalers required to register in bid to stem illicit trade
■ Alcohol wholesalers will be required to take part in a compulsory registration scheme from 2016 under plans to crack down on the illicit trade of alcohol products. The Treasury believes that the measure will raise more than £200m annually by 2017. Few details of the new measures have been revealed beyond the headline measures, causing some to ask whether they will be effective in curbing the illicit trade. “We don’t have the details of how the scheme will work yet, but the key issue is that the level of penalties under the regime need to be set at the right level to discourage smuggling of this kind,” said PwC senior manager of tax practice Matthew Clark.

The policy also mandates alcohol traders to take steps to ensure that their suppliers and customers are legitimate from early 2014. “If penalties are set too low they will be seen as part of the cost of doing business,” said Clark.

Government aims to cease payments to deceased pensioners
■ Over the next two years, the government will attempt to eliminate fraud and error surrounding pension payments to deceased retirees who live abroad. Currently, 14 per cent of overseas pensioners are issued with life certificates, which aim to prove that they are still alive and claiming their state pension legitimately. The chancellor announced yesterday that the government intends to increase this to 100 per cent during the next two years as part of a broader crackdown on fraud, ensuring that the pensions of deceased Britons are not being used by their relatives.

The Department of Work and Pensions estimates that this will raise £20m for the exchequer in 2014-15, £25m in the year afterwards, and £15m during 2016-17, but concedes that the amount which is currently being overpaid is uncertain.