Clampdown on financial instruments yields 67% drop in underpaid tax

by Calum Fuller

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18 Mar 2014

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HMRC building

A CLAMPDOWN on the use of financial instruments in corporate tax avoidance has seen the practice collapse, according to law firm Pinsent Masons.

Underpaid tax by the 770 largest UK companies dropped 67% from £2.1bn in 2012 to £693m last year. The amount of tax suspected to be underpaid through the complex misuse of leasing contracts also fell dramatically - down 75% in two years from £1.86bn to £471m in the last year.

HMRC had accused a number of large corporates of reducing taxable income by using financial instruments such as convertible loans and debt instruments to create a deduction from taxable profits in one part of the group without a matching profit in another part of the same group.

Pinsent Masons tax partner Heather Self said: "HMRC sees the use of financial engineering to reduce taxable profits as one of the more artificial forms of corporate tax avoidance. They have been aggressively pursuing legal action against companies to put a stop to this - and taking home some big scalps."

"Reported tribunal cases include one scheme that prevented the avoidance of tax worth £88m and another for £120m so these are major victories for HMRC."

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