ICAS HAS labelled the government hypocritical for its decision to criticise Barclays for its use of tax avoidance schemes while not addressing tax leakage in other areas.
In the wake of the furore over Barclays’ use of a loophole to avoid corporation tax on a debt buyback and for claiming tax credits on untaxed income, ICAS has called on chancellor George Osborne to update the roadmap for anti-avoidance measures.
In an unusual move, the Treasury is to introduce retrospective legislation to block one of two “aggressive” tax avoidance schemes used by Barclays, which it said tried to avoid £500m in tax.
However, according to ICAS, there is more tax leakage through the use of personal service companies than the £385m HMRC estimates its new corporate legislation will protect.
Elspeth Orcharton, assistant director of tax at ICAS, said: “Just weeks away from the Budget, this and related debates highlight there is no accepted line in the sand of what is tax avoidance and what is acceptable tax planning and commercial practice that stimulates growth.
“It is hypocritical to criticise Barclays publicly but not put a serious challenge to HMRC, Treasury and senior officials over the widespread use of personal service companies. A better definition of the line in the sand is required, one that can’t be eroded by a change in the tide.”
Personal service companies are generally set up for individuals undertaking consultancy work. Through the scheme employees can adopt a company format to reduce liabilities to income tax or national insurance contributions.
ICAS added there is no real information on which personal service companies are commercially justifiable and those that are artificial fronts for what should be a standard employment arrangement.
“A poisoned chalice of previous governments, there is no longer room to avoid the anti-avoidance issue”, said Orcharton.
“The Chancellor needs to update clearly the roadmap for anti-avoidance measures. He needs to demonstrate in his announcement that the UK will have a clear, effective and workable policy statement and legislative path in this area.”
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