Budget - Targeted tax crackdown as GAAR goes

Gordon Brown has shelved plans to legislate for a general anti-avoidance rule, but his Budget speech on Tuesday foreshadowed a raft of tough new measures to crack down on specific areas of avoidance.

A speech, short on specifics, was followed by detailed announcements which included extending the scope of employers’ NICs to cover all benefits in kind and a broadening of the CTSA regime which will expose companies to daily penalties if they fail to provide adequate explanations to the Revenue for profit fluctuations.

The Treasury said a corporate tax GAAR ‘remained an option for the future if more targeted legislation proved ineffective’. Targeted measures announced included a crackdown on the use of individual personal service companies.

Tim Porter, PricewaterhouseCoopers’ London tax partner, said that without the move individuals could incorporate and pay only the new starting rate of 10p corporation tax on profits up to #50,000. ‘It is legislation against disguised employment,’ he said.

In a bid to boost employee share ownership, Brown said that, from April next year, staff buying shares would be able to pay from pre-tax income although income tax would be payable after three years on the amount of salary used to buy the shares. However, gains on the shares would be free of tax and NICs.

Mike Warburton, Grant Thornton tax partner, said Brown’s Budget tax changes would make European tax harmonisation harder. ‘I think he is cocking a snook at the Europeans,’ he said.