There is much to note in yesterday's announcement from the Treasury that it was blocking abusive claims by the energy companies for tax relief on spending that they had not, in effect, incurred sine the work undertaken was paid for and spent for the benefit of their customers. As the FT noted:
George Osborne snapped shut a £900m tax loophole on Wednesday, and the chancellor also branded the behaviour of utility companies that had sought to exploit it as “completely unacceptable”.
And he was right. But what was telling was who he was criticising>
The Treasury announced legislation to block gas and electricity distribution companies from claiming “windfall” capital allowances for historic costs dating back decades that were incurred by their business customers.
I wonder if that included Npower? What we do know is who advised those making the claims:
The companies were understood to have been advised by Deloitte, the professional services firm, a development likely to inflame the controversy over the role of big advisory firms in tax avoidance.
That's Dave Hartnett's new home, of course. And that of Bill Dodwell, my erstwhile colleague on the General Anti-Abuse Rule advisory panel:
Bill Dodwell of Deloitte said the companies were not attempting to claim allowances that had previously been the subject of a claim. “In the vast majority of cases we have seen nobody claimed for the capital allowances.”
Ah, that's al right then, isn't it? Because "something hasn't been claimed it must be ours" is the logic. I think most police have heard that at one time or another. And it's just a false logic.
The claims are thought to date back to a rewrite of the tax law in 2001 to make it easier for laypeople to understand, but this has run the risk of introducing ambiguity.
So now we can also see the motive for tax simplification.
What a sordid little tale.
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:
As you say, a sordid tale. This goes way beyond someone avoiding tax by structuring their affair to get the best tax position. It appears that everyone was aware that these allowances had been claimed already.
“I wonder if that included Npower? ” – from what I read, it is the regional distribution companies that were trying to claim it, not the front end consumer companies (no household names the article said!)
Is section 536 of CAA 2001 really a loophole? It looks more like an explicit relieving provision, to me.
Broadly, it says that for certain tax purposes you can ignore the fact that someone contributed to a capital cost (which would deny your ability to claim capital allowances), if and only if that person is not entitled to tax relief on that contribution.
So the recipient of the contribution can claim capital allowances, if and only if no-one else has had any capital allowances or taken a tax deduction.
This means that the £100 which is spent obtains £100 of tax relief – which is usually Parliament’s intention, although the strict letter of the rest of the Act might have meant that no relief was given.
So I’m not clear why s536 as previously written is objectionable.
Also, the new rules seem to counter the “avoidance” by making it a bit easier for the contributing company to claim allowances, which thus denies them to the recipient. So the intention is still that allowances should be due, but just not to the recipient. That’s all fair enough, but surely this is a tax-neutral result rather than clamping down on avoidance? It just allows other people to make the same claims that are apparently objectionable if made by utility companies.
The cynic in me suggests that it will actually raise revenue, as the businesses that have become entitled to claim won’t realise the fact.
To your first question : yes
Can you expand on that a little?
To me, a loophole is something which allows the intention of Parliament to be bypassed. How is it possible for Parliament to specifically introduce a rule which goes against its own intention?
In my view, the existence of s536 means that Parliament intended this sort of thing to happen. It has now apparently changed its mind, but only in limited circumstances: the changes don’t affect the wording of s536 itself, they only affect that section indirectly, by extending what the contributor can claim under s538 and thereby limiting what the recipient can claim under s536.
The HMT statement only affected companies owning electricity and/or gas distribution networks, e.g.”pipes and wires”. Npower is neither a distributor of gas nor electricity so the HMT announcement was not relevant to them.
Noted
I asked
Thanks for answering