A recent debate in House of Commons shows that there are far bigger problems in terms of tax avoidance than personal service companies. It has always been a bone of contention with IR35 that the legislation targets the smallest businesses, when larger multi-national corporations seem to get away with avoiding tax. This was evident in 2013 when global firms such as Starbucks, Google, and Amazon, were reported in the press as having complex tax arrangements in place in order to pay less tax.
The debate which took place on 24th January, centered around the collapse of Carillion who were the second largest construction company in the UK, and who were a major contractor used by the Government to fulfil public and private sector contracts, from cleaning prisons to a £400m project to rebuild Battersea Power Station.
Prior to the debate, the Government provided a list of the companies who will be taking over from Carillion in order to complete its many unfinished contracts. Jon Trickett MP, Shadow Minister of the Cabinet Office, commented on the list and stated that;
“… Amazingly, one of the firms is currently under investigation by the Serious Fraud Office for suspected offences of bribery and corruption. Another has previously been caught red-handed mispricing contracts, underestimating their eventual cost… Another of the companies operates in the Cayman Islands and has been shown to use that location as a way of avoiding tax. Another of the firms is part of a group that has reportedly abused and exploited migrant workers in Qatar.”
Jon Trickett went on to argue that he had asked the Government about the severity of risk to the taxpayer of suppliers used by the Government and that he wanted to establish how many suppliers posed a risk to taxpayers. The Government apparently refused to answer the question, stating that the information “could prejudice the contractors’ commercial interests”. Jon Trickett commented;
“The Government’s response illuminates their whole approach, which shows little regard for the needs of the taxpayer while paying far too much attention to protecting the commercial interests of their suppliers through every stage of the procurement process.”
The Government were also criticised for ignoring the signs of Carillion’s impending demise, particularly when numerous profit warnings were issued at the latter end of 2017. The BBC reported on the fiasco on 29 January, and stated that Carillion had tried to avoid paying into its pension schemes, whilst still paying shareholders their dividends and bonuses.
The whole debacle with Carillion simply serves to highlight the disparity with the way in which smaller companies are treated, compared to large multi-national organisations whom the Government seems not to want to stand up to, and in fact will turn a blind eye to dubious business activities when it suits them. In November last year, the leaked ‘Paradise Papers’ uncovered some of the UK’s most high-profile individuals using tax avoidance schemes to hide income offshore.
It seems that individuals operating through their limited companies are the least of the Government’s concern with regard to tax avoidance. Any tax yield as a result of IR35 must surely be a drop in the ocean compared to the black hole left by the multi-nationals.