Anti-avoidance measures

A range of measures were announced aimed at tackling tax avoidance.

IR35 legislation

The Chancellor announced that the intermediaries legislation will be tightened further to prevent employers and employment intermediaries circumventing their employer obligations (as regards both taxation and employment law) through the use of contrived contracts, to take effect from April 2014.

Partnership taxation

In Budget 2013 a two?pronged attack on elements of partnership taxation avoidance was announced. The Chancellor has confirmed that those proposals will go ahead.

The first addresses limited liability partnerships (LLPs) using their tax status to disguise employment relationships – making a top?tier employee a member of the LLP removes the employer NIC cost.

In some larger partnerships, in particular LLPs, members have been supplemented by member?owned corporate members to which profits could be allocated, with the result that tax on undrawn profits would be subject to a much lower rate and the overall tax liability (i.e. current and at the time the profits were later drawn) would also be lower. New anti?avoidance rules will apply from 5 December 2013.

Finally, there have been cases of losses being allocated to an individual partner (i.e. human), instead of a non?individual partner (corporate), to enable the individual to access certain loss reliefs. That will also be tackled by anti?avoidance legislation.

Controlled foreign companies (CFCs): profit shifting

Taking effect from 5 December 2013, a new measure switches off the partial exemption rules for loan relationship credits of a CFC that arise from an arrangement with a main purpose of transferring profits from existing intra group lending out of the UK. It also amends the anti?avoidance rule relating to the transfer of external debt to the UK to ensure that the rule works as intended. The first part of the measure will apply to arrangements entered into on or after 5 December 2013 and the second part will have effect for accounting periods beginning on or after 5 December 2013.

Charities established for tax avoidance purposes

Legislation will be introduced in Finance Bill 2014 to prevent a charity from obtaining charity tax reliefs if one of the main purposes of establishing the charity is tax avoidance. The definition of a charity for tax purposes will be amended to exclude such charities.

High risk tax avoidance schemes

A new information disclosure and penalty regime for promoters of such schemes will be introduced, along with objective criteria for identifying them, and a higher standard of ‘reasonable excuse‘ and ‘reasonable care’ will also be introduced. Clients of these promoters will also have certain obligations including identifying themselves to HMRC.

Dual contracts

Legislation will be introduced in Finance Bill 2014 to prevent non?domiciled individuals from avoiding tax by creating an artificial division of the duties of one employment between contracts in both the UK and overseas.