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Accountancy  •  Business Services  •  Business Tax  •  governance  •  HMRC  •  Personal tax  •  Taxation

Will new proposals mean SMEs face more tax avoidance red tape?

By RJP LLP on 6 May, 2016

Driving out corruption is one of the government’s key policies to improve revenue generation and we can expect new proposals targeting tax evasion to continue emerging, especially following the Panama Papers data leak.

It is already a criminal offence for professional advisors – accountants, lawyers and consultants to help facilitate tax evasion by their clients – for example by being aware that they have under-declared their income or assets. In addition to this, the government wants to make companies criminally liable if they do not prevent their employees from becoming involved in activities which could be classified as tax evasion. This will require an extension to the existing ‘professional enablers’ provisions within the Serious Crime Act 2015, which currently makes professional advisors personally criminally liable if they facilitate or enable clients to undertake tax evasion.

Note the blurred distinction between what is tax evasion - a criminal activity whereby a taxpayer deliberately under-declares income or other assets to reduce their tax liability; and tax avoidance - whereby a taxpayer structures their affairs in way considered unacceptable by HMRC, in order to reduce the amount of tax they need to pay. So failing to declare taxable assets held overseas for example, will constitute tax evasion, whilst entering into structured tax schemes will be considered to be the type of tax avoidance which HMRC now view as unacceptable. Of course, choosing to put savings into an ISA, or using salary sacrifice schemes to reduce your annual tax bill is also tax avoidance, but where it is within both the letter and the spirit of the tax legislation, this is considered by HMRC to be acceptable tax avoidance.

To achieve its goals of eliminating corruption, the government says it needs to influence what it describes as a culture within companies of ‘turning a blind eye’ when their employees implement procedures that lead to tax evasion. New laws will be introduced this year and the full proposals will be announced at the forthcoming global anti-corruption summit, which takes place in London on 12th May.

What is unclear is how these new measures will be introduced for smaller companies. These proposals are primarily aimed at larger corporates, and SMEs already face disproportionately large amounts of red tape and a heavy compliance burden. If the risk of tax evasion by small companies is minimal, should they face the same compliance obligations as larger firms?

Find out more about these proposals and the anti-corruption summit.

If you wish to discuss improving governance and reporting processes within your own company please contact Simon Paterson by emailing sp@rjp.co.uk.

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