Budget 05: Treasury targets financial services firms

The Treasury will target the financial services sector as its first step in cracking down on VAT avoidance.

Link: The pre-election Budget – in detail

Companies in the sector must disclose avoidance schemes even if they do not affect figures on VAT returns.

This week’s announcement comes on the back of the new tax avoidance disclosure regime and after the first VAT-based schemes started filtering through to the Treasury in January.

According to accountancy firm Moore Stephens, the chancellor’s moves would hit banks, building societies and insurance companies because their services are exempt from VAT.

The Treasury has also clamped down on companies taking advantage of a loophole in the law, which meant they could produce ‘vouchers’, such as phone cards in countries like Ireland, which have different VAT systems.

‘The changes are a tightening up to ensure there is no misunderstanding or perceived misunderstanding by advisers over what should be disclosed,’ said Alistair Kendrick, indirect tax director at Ernst & Young.

‘This chancellor wants to raise revenue by closing down highlighted tax avoidance schemes,’ he said.

Chris Tailby heads the Treasury’s anti-avoidance group and his expertise in indirect tax has begun to tell with this week’s announcements.