My friend and Fair Tax Mark co-director Paul Monaghan wrote this in the Guardian yesterday:
In a significant step forward for tax justice, the UK government has said all councils in England, Wales and Northern Ireland must interrogate potential suppliers on any history of tax evasion and avoidance dating back to October 2012.
At stake is £50bn of annual local government procurement, money used to pay for everything from electricity to building construction. The ruling applies to any contracts or tenders initiated after October 2016.
Unlike previous regulations, which required local councils to scrutinise whether a company had been involved in illegal tax practices but overlooked the greyer area of tax avoidance, this new ruling requires councils to ask a more detailed set of questions that encompass both outright illegal practices and aggressive tax dodging that is outside the spirit of the law and something tax authorities are at last beginning to clamp down on.
Might I recommend the rest of the article to you? It's important because as Paul concluded:
The Fair Tax Mark is calling on councils to quickly and robustly implement the new national guidance (which is mandatory for all contracts over the qualifying cost threshold) and to periodically report on implementation and the exclusion of tax evaders and avoiders from public procurement. It is wrong that businesses that do not pay the due amount of tax enjoy a competitive advantage over those that do.
This breakthrough in local empowerment and tax justice could have a tremendous impact on business behaviour in the UK, but only if we see the tax dodgers actually losing lucrative contracts and fair recognition for those who, year in year out, pay the right amount of tax in the right place at the right time.
I suspect a lot of people would like that to happen.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
& those that facilitate tax dodging? (i.e. help companies “work the angles”) I’m thinking of the various “con-sultantcies2 such as PwC etc? Will central gov’ look at big players such as Atos (French) & how they handle tax? – probably not. My guess is that the tax microscope will be used on SMEs (= a nice big paper chase) while the big companies cruise along much as before. Apologies for the early morning cynicism.
Well, it won’t be the SMEs awarding board positions and, ahem, ‘consultancies’ to our wonderful politicians after their retirement from politics, will it? We can realistically expect only cosmetic actions against the hands which feed. Clearly we need another form of authority – but what?
In similar vein to Mike Parr, I wonder how this will be applied to all the consultancy contracts currently in operation across local government, many of which are undertaken by the management/IT consultancy arms of the big four or other major players in what we still (rather euphamistically now) refer to as the public sector.
It would be good to see the questions fly
I can’t see the Big 4 falling foul of GAAR and they have stopped offering DOTAS schemes so I doubt this will affect them at all.
Richard
Did you read the revised procurement policy note before writing your blog?
It’s really not much. It excludes organisations that have been successfully challenged Under the GAAR and those who have lost DOTAS cases.
The GAAR is a toothless tiger and DOTAS schemes have all but disappeared. Sadly I can’t see this affecting anyone.
Points wholly accepted
But even requiring that the question be asked is important
The CCS standard PQQ has a long list of items of exclusion, which includes a tax question, that mirrors the wording of the regulations.
The bidder simply ticks the ‘yes’ or ‘no’ box on whether you have had the convictions etc. in the list. If you tick ‘yes’ you are asked to give details about what happened and what you’ve done to change things.
I’ve never known anyone to tick the ‘yes’, and to my knowledge, nobody checks whether the response is accurate – there simply isn’t the time or resources to do so. It is 100% self assessment.
That’s my experience in local government.
Do any of your readers have a different experience?
I’ve recently heard that individuals who contract their services to local authorities and who operate as Ltd Companies are being advised to switch to umbrella companies. Would this be connected?
Probably
Not that I have much faith in some umbrella company arrangements
No, unconnected. This is an HMRC thing, not a local authority thing. The local authorities I know about are unhappy about it.
Phil, as you may know there is a thing called IR35. To oversimplify (and you may already know), HMRC wants to distinguish between true independent contractors (and there are plenty) from people who have all the formalities of a contractor but behave like employees (plenty of them too).
Starting in the next couple of months, the local authority must make the determination over whether you are one or the other. If you are really an employee, they do all the tax things an employer must do (eg PAYE).
The reason local authorities (at least the ones I know) aren’t happy: they are quite dependent on contracting labour. The big ones (Manchester, Sheffield etc.) aren’t so badly affected, but your small rural district or county (where they can’t recruit locally – pay is rubbish, skilled pool of workers is too small) has a big problem.
If contractors have to be subjected to PAYE, the fees will go up, or they will leave the market (go work somewhere else). Then what?
They won’t leave the market
Please don’t be silly
People do not move for tax
If they are to be hit with PAYE, quite a few will consider getting full time employment, and at least get the job security, paid holidays etc. It would be a rational thing to do economically for a lot of people.
And the public sector pay is not competitive with private sector, at least for roles/skills where they compete for labour.
Are you suggesting that HMRC’s measures will be tax neutral? If so, then why are HMRC looking to bother local authorities if the tax collected remains the same?
I am suggesting they are not Rac neutral
I am suggesting tax abuse will reduce
And local authorities will still get the people they want
The local authorities in big cities probably will still find people, though the talent pool will shrink and so will the calibre of candidate.
It is your smaller rural districts (or even some of the smaller, more remote counties such as Herefordshire or Cumbria) that will be hit hardest. They still have to carry out the same county/district functions as Birmingham or Manchester but with a smaller labour pool.
Maybe
I feel a related facet is the debacle in Lewisham over the Millwall / Bermondsey Regeneration CPO. Lewisham is a signatory to the Fair Tax Mark.
In this case you might wonder why a wholly Labour Party Council would entertain granting a CPO to a development company which is ultimately owned offshore in the BVI.
One might or might not be able to keep a straight face at assurances given and repeated that UK taxes will be paid.
One might or might not be astonished about the absence of disquiet that the current ultimate beneficial owners are, as noted in Council Minutes, the family trust of a former Council Officer and a UK charity. What, one might wonder, is a charity doing involved in such arrangements?
What can one possibly do if politicians of all stripes and every level of government think it acceptable to work with offshore entities?
As a layman (who has never practised any kind of financial work professionally) I am puzzled. Many years ago there seemed to be a clear distinction between tax evasion and tax avoidance, one illegal and the other not. Then in an intervening period this distinction became blurred. However although the meaning of evasion and avoidance may now again be clear, the outcome is not satisfactory if one is trying to pass judgement on what is aggressive avoidance.
If I employ an accountant for business purposes, can I not rightly suppose that it is one of his primary duties to minimise my tax liabilities and also suppose that he will seek to assist me in avoiding the payment of tax as long as it is legal?
In this context can “aggressive” be clearly defined and why cannot all so-called aggressive avoidance, when it becomes offensive enough, be made illegal for the sake of clarity? There is nothing more irritating to have a situation where we have Government representatives pleading with multi-national companies to “offer” to pay more tax than they are legally required just because they appear to be paying so little. Is it not absurd to rely on their discretion with the pressure on them in normal circumstances to maximise shareholder value?
There is no clear distinction between evasion and avoidance
Both cheat
The boundary is often blurred
The only safe goal is compliance – being firmly within the law
ISAs, pensions and other reliefs are compliant
They may not be good use of tax funds, but they are compliant
An no – it is not an accountant’s duty to minimise your tax. It is their duty to use their best judgement to advise you