Number of corporation tax planning schemes falls by 42%

There has been a 42% drop in the number of businesses using corporation tax planning over the past twelve months, and an 88% reduction over four years, according to analysis by UHY Hacker Young, which suggests the fall undermines HMRC’s call for wider powers to tackle tax avoidance

The firm’s research shows just 330 businesses informed HMRC they were using corporation tax planning schemes in the tax year 2016/17, down 42% in a year and 88% from a peak of 2,860 in 2012/13.

UHY Hacker Young says that the statistics show that a series of government crackdowns over recent years have all but eradicated aggressive corporation tax planning.

Clive Gawthorpe, partner at UHY Hacker Young, said: ‘The corporation tax planning scheme is now virtually dead – HMRC can legitimately claim to have won the war on aggressive tax planning by businesses.

‘Once-commonplace schemes like employee benefit trusts have now almost completely died out, with only a very small number remaining. Many of those businesses are likely to be in the process of settling or litigating with HMRC over them.’

The firm points to a range of new powers which HMRC has acquired in recent times to tackle tax avoidance. Accelerated payment notices (APNs) allow HMRC to demand payment of tax within 30 days, with no right of appeal, if a business has used a tax planning scheme that falls under its disclosure of tax avoidance schemes (DOTAS) regulations.

There are new criminal penalties for ‘enablers of tax avoidance’, targeting tax advisers and accountants whose clients use tax schemes, while the firm says the general anti-abuse rule (GAAR) is often used to ‘sweep up’ tax planning which is not subject to a specific regulation.

UHY Hacker Young says there are examples of corporation tax schemes that have still been used in recent times, but which have been caught by existing HMRC rules. They include a scheme in which a business owner uses assets of the business to make a spread bet on the movements of the stock market, later taking the winnings tax-free. This was defeated by HMRC at the first tier tax tribunal.

An employer funded retirement benefit scheme (EFRBS), in which an employer pays into a discretionary trust for an employee’s retirement at much lower tax rates, was ruled to offer arrangements that are not reasonable by the GAAR panel.

Gawthorpe said: ‘Even though the war is won, HMRC continues to add to its weaponry. These figures really raise the question of why that is necessary.’

Report by Pat Sweet

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