HMRC goes on £1bn retro warpath

The clock has been turned backwards by HM Revenue & Customs with its
latest clampdown on alleged corporation tax avoidance, which is set to rake in
£1bn retrospectively and £1bn a year from 2011.

The taxman has scored a number of key successes this year in its corporate
tax crackdown efforts, but its latest victory has raised the stakes with
retrospective application of a loophole closure linked to companies making
“manufactured payments”.
This particular scheme is related to manufactured payments received by companies
involved in sale and repurchase, or “repo” transactions.

It comes after a recent High Court ruling that retrospective legislation is
not a breach of human rights.

Tax advisers from both the accounting and legal professions warn that it
opens the door for a broader strategy of backdating tax rules when HMRC sees

Such a strategy could destabilise the certainty of a company’s tax position,
which in turn could dent confidence in the UK as a place to set up a business.

KPMG said in a tax briefing: “First, a tax system which is prepared to
rewrite history by such retroactive legislation may be less attractive to
potential investors who seek certainty of their tax position and thus may damage
UK competitiveness.

“Second, it is not clear whether the government has changed its view on when
it will be prepared to use such retroactive legislation.”

In the rare occasions when a tax has been applied retrospectively the taxman
has previously warned it was looking at that course of action. The latest
instance appears to be a hardening of its stance, according to Caspar Fox,
partner at law firm Eversheds.
“Previous warning has not been given here, and so closing this tax loophole
retrospectively seems to be another sign of HMRC’s increasingly aggressive
attitude towards perceived tax avoidance.”

But the taxman is unmoved, as it looks to close opportunities for plcs to
take advantage of special dividend payments, which commentators say is
unsurprising as companies have been pumping money into such ­vehicles in the
run-up to introduction of the 50% income tax rate in April. HMRC will be eager
to know the dividends are not disguising
bonus payments.

The latest move doesn’t signal a policy change, said an HMRC source, but it
will use this strategy where it sees fit – opening up the possibility for
similar tax backdating in the future.

An HMRC spokesman said: “HMRC has always had a responsibility, and will
continue to, counter any scheme that is being used by individuals and businesses
to avoid their
tax obligations.

“Where such schemes come to light, they will be closed down in the most
appropriate and effective way.”


HMRC’s move seems to go against the principle that the taxpayer is taxed on
the wording of the legislation in place at the time of their actions. Therefore
jittery plcs will be even more nervous about remaining in the UK and the measure
is another in a long line of tax rules that have raised the hackles of UK
business – where will it end?

Further reading:

greatly concerned by retrospective tax action

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