According to AccountancyAge, the Institute of Chartered Accountants of Scotland (ICAS) believe that the use of personal service companies causes more tax to escape than the £385m HMRC estimates new corporate legislation will save.
ICAS recently criticised the government for being hypocritical in denouncing Barclays aggressive tax avoidance arrangements yet failing to halt tax that is being haemorrhaged in other areas, such as the use of personal service companies. The organisation told AccountancyAge that, “It is hypocritical to criticise Barclays publicly but not put a serious challenge to HMRC, Treasury and senior officials over the widespread use of personal service companies.”
The accountancy body tempered their theory by admitting that there is no information of substance that demonstrates when personal service companies are commercially justifiable and those that are used to disguise arrangements that amount to employment.
ICAS has called upon the Chancellor to clearly signpost the route for anti-avoidance measures that will help bring some clarity as to what constitutes acceptable tax planning and what is tax avoidance.
A general anti-abuse rule (GAAR) may help in defining the boundaries between bona fide tax planning and unacceptable tax avoidance. In November of last year, Graham Aaronson QC set out his recommendation to the Treasury for the introduction of a narrowly focused GAAR. This followed an eleven month feasibility review and, aided by a committee of tax experts, concluded that a narrowly focused GAAR would:
- deter abusive tax avoidance schemes;
- contribute to providing a more level playing field for business;
- reduce legal uncertainty around tax avoidance schemes;
- help build trust between taxpayers and HMRC; and
- offer opportunities to simplify the tax system.
Graham Aaronson's report recommended that a GAAR should initially be applied to the main direct taxes – income tax, capital gains tax, corporation tax, petroleum revenue tax and NIC. The government's full response will be announced in the forthcoming Budget.
A GAAR that explains the types of avoidance schemes that are “abusive” would certainly be more preferable than the use of retrospective legislation implemented in recent years by BN66 and, more currently, in reaction to Barclays “blatant” improprieties.
The Barclays affair has now caused the Treasury Select Committee to investigate retrospective taxation. Time constraints will however prevent the House of Commons committee from undertaking a dedicated enquiry as their diary is full until June. Committee chairman, Andrew Tyrie, told the Sunday Telegraph, “Can retrospection be reconciled with the certainty a tax system needs in order to deliver an efficient economy? A simpler, more stable and fairer tax system is less likely to excite demands for retrospection.”
It’s is probably worth mentioning that “Tax Planning” is actually the same thing as “Tax Avoidance”; and that “Tax Avoidance” is a perfectly acceptable practice. Indeed there are many millions of people who exercise their right to “plan” their tax affairs in such a manner as to “avoid” paying too much tax (the use of their annual ISA allowances springs immediately to mind).
“Unacceptable tax avoidance” exists only in the minds of an ideologically fixated minority.
Very poor reporting IMHO.
Poor show. Time and time again we have seen, in HMRC’s own figures, that IR35 raises insignificant revenue and this report fails to question the ICAS bandwagon-jumping statement.
Where are the real hard data on which they base their claims? They even admit that “there is no information of substance” and yet are allowed to make unchallenged statements which are reported here as fact. This is nothing more than a diversionary puff piece loosely grasping the coat-tails of the current, uninformed, media hysteria over the use of limited companies – which in the overwhelming majority of cases is a completely usual and proper way of carrying out business.
I’m disappointed that the respectable contractor press did not see the merits of seriously challenging this spinning of reality by an interested party.
Over a number of years now HMRC have blurred the lines between tax avoidance & tax evasion. Of course it is perfectly acceptable & sensible to minimise one’s tax liabilities within the parameters of the law. What is perhaps more morally challenging however is aggressive tax avoidance which is what the government are very keen to eliminate.
This weeks article on Ken Livingstone makes it clear where Contractor Weekly stand on the use of PSC’s & that media hysteria regarding their use needs to be quelled.
ICAS’s opinion re PSC’s is not one that is shared by Contractor Weekly & the article served its purpose in alerting members of the contracting community to further misconceived beliefs.
1) Tax avoidance = tax planning = legal.
2) A large number of freelancers are forced to incorporate because of S134.
3) If there was a true “right to be self-employed”, there would be no more HMRC “deemed” disguised employees, no more IR35, no hysteria surrounding those who choose to work under a contract for services rather than a contract of service and also simplified employment and tax laws in the process.
£0.02
[quote name=”Andy Vessey”]…What is perhaps more morally challenging however is aggressive tax avoidance which is what the government are very keen to eliminate…[/quote]
My emphasis.
Oh dear, I think that you may have revealed a little too much leg with that rather ill-conceived remark.
#LeftWingBias
@Vessey
“morally challenging aggressive tax avoidance”
Is it aggressive to avoid tax by not drinking alcohol?
Is it aggressive to avoid tax by not smoking tobacco?
Is it aggressive to avoid tax by not having a car?
I do all of those as much as I can!
Tax avoidance is legal!
Did anyone listen to (rather than just hear) the File on 4 report on Personal service Companies aired on Tuesday March 13 then repeated the following Sunday evening?
Besides the predictable focus on the behaviour of Government servants using personal service companies, there was a much more disturbing report about the habit of certain payroll agencies who treat straight temporary agency staff as eligible to obtain deductions on all sorts of unidentified expenses (presumably by claiming their home was their base) – which the payroll company then applies to reduce the tax and NI, but rather than crediting the agency temps with the difference, pocket it themselves as fees, often without the agency staff being aware.
So should HMRC investigate and come after the money later on, it is to the agency staff that they first turn.
I think I’ve described that correctly – now that to me is a true scandal.