Avoidance, evasion and unfair outcomes

Profit fragmentation
As announced in last year’s Budget, the Finance Bill will legislate to prevent UK businesses from avoiding UK tax by arranging for their UK-taxable business profits to accrue to entities resident in territories where significantly lower tax is paid than in the UK. The taxable UK profits will be increased to the actual, commercial level.

R&D tax relief for small and medium-sized enterprises
From 1 April 2020, the amount of payable R&D tax credit that a qualifying loss-making company can receive in any tax year will be restricted to three times the company’s total PAYE and NICs liability for that year.

Stamp taxes on shares: consideration rules
The government will consult on aligning the consideration rules of stamp duty and stamp duty reserve tax (SDRT) and introducing a general market value rule for transfers between connected persons. The aim will be to simplify stamp taxes on shares and to stop contrived arrangements being used to avoid tax. To prevent forestalling, from 29 October 2018, a targeted market value rule will be introduced for listed shares transferred to connected companies.

VAT grouping
Certain non-corporate entities will become eligible to join a VAT group from 1 April 2019. In addition, revised VAT grouping guidance will be issued:

  • to amend the definition of ‘bought-in services’ to ensure that such services are subject to UK VAT; and
  • to provide clarity to businesses on HMRC’s protection of revenue powers and treatment of UK fixed establishments.

Unfulfilled supplies
The VAT treatment of prepayments will change from 1 March 2019 to bring all prepayments for goods and services into the scope of VAT, where customers have been charged VAT but have not collected what they have paid for and have not received a refund.

VAT Regulation 38
Stricter rules will be introduced on how and when adjustments to VAT should be made following a price reduction and will ensure customers are issued with credit notes.

Electronic sales suppression
The government will consult later in the year on the misuse of electronic point of sale functions (i.e. till systems) to hide or reduce the value of individual transactions and the corresponding tax liabilities.

HMRC preferential creditor statusĀ 
From 6 April 2020, when a business enters insolvency, HMRC will be treated as a preferential creditor in respect of taxes collected and held by businesses on behalf of other taxpayers (VAT, PAYE income tax, employee NICs, and construction industry scheme deductions). The creditor rules will remain unchanged for taxes owed by businesses themselves, such as corporation tax and employer NICs.

Tax abuse and insolvency
Following Royal Assent of Finance Bill 2019-20, directors and other persons involved in tax avoidance, evasion or phoenixing will be jointly and severally liable for company tax liabilities where there is a risk that the company may deliberately enter insolvency.

Conditionality: hidden economy
Following consultation, the government will consider introducing in the Finance Bill 2019-20 a tax registration check linked to renewal processes for some public sector licences. Applicants would need to provide proof they are correctly registered for tax in order to be granted licences.

International tax enforcement: disclosable arrangements
Legislation is being enacted to allow the introduction of international disclosure rules about offshore structures that could avoid tax or could be misused to evade tax.

Offshore tax compliance strategy
The government will publish an updated offshore tax compliance strategy.