A Budget of carrots and sticks

GOOD BEHAVOUR in pets is best encouraged with a mix of carrots and sticks. The government's proposals around ‘tax and procurement' seem to apply that principle to the way business conducts its tax affairs. A ‘good' record puts you in with a chance of government business; a ‘bad' record will probably shut you out.

In many ways that is fair enough. A business that wants to benefit from publicly-funded business should be prepared to follow the rules laid down on the public's behalf by the government, and those rules must include tax. The difficulty is defining ‘good' and ‘bad'.

The brief consultation document that came out in mid-February on this issue had a laughably short window for responses. It says something about the draft proposals that 50 bodies, including the CIoT, responded; ours and many others had some trenchant criticism of the proposals. Thankfully the response document, published with the Budget, shows the government has listened and made many changes.

The headline change is probably that the ‘occasion of non-compliance' operates on or after 1 April 2013, instead of going back ten or more years. Next, an occasion of non-compliance will primarily be something caught by the GAAR, the ‘Halifax' principle, or a failed DOTAS scheme. References to Targeted Anti-Avoidance Rules (TAARs) in this area have gone, which makes the rules much clearer.

All of that is very welcome but the most useful practical change in many ways is how groups have to apply the rules. The initial proposals were in terms of the group - potentially a worldwide multinational - having to certify compliance with TAAR and equivalent in every territory they had operations. Thankfully, the requirement will now be in terms of the ‘economic operator', i.e. the organisation that is really going for the contract. And to make sure there is a level playing field, foreign bidders will have to self-certify their compliance with equivalent local tax rules.

Overall, we seem to have got to a reasonably sensible position and one has to say that the consultation has been effective. Hopefully the government will not take it as a sign that future consultations should be on a nine working day timescale.

This is not an academic subject: it affects whether the UK can get its public contracts carried out by the best people and whether businesses interested in such projects can operate in a sensible environment. The proposals now seem to encourage good future behaviour, which is as it should be, with pets as with taxpayers.

Patrick Stevens is the president of the CIoT