Chancellor claims initiatives including removal of loopholes and agreements with crown dependencies will deliver £4.6bn
A number of measures designed to clamp down on Jimmy Carr-style exotic employment arrangements, such as dressing up taxable earnings as loans, have been announced as part of a £4.6bn government crackdown on tax avoidance and evasion.
The measures are part of what the chancellor claimed was "one of the largest ever packages of tax avoidance and evasion measures presented at a budget", following a string of revelations about how thousands of celebrities and high-earning contractors are paid. The initiatives include "naming and shaming" promoters of tax avoidance schemes and new financial disclosure agreements signed with the crown dependencies of Jersey, Guernsey and the Isle of Man. Over the next five years, Osborne claims his measures will deliver £4.6bn of new revenue.
In the wake of revelations about Carr's financial affairs last summer, the prime minister publicly criticised the comedian's financial affairs, calling them "very dodgy tax avoiding schemes" and "morally wrong". Carr had been singled out in media coverage because of his celebrity, but it is thought that thousands of high-earning contractors have used the same or similar avoidance schemes.
Among the anti-avoidance measures announced on Wednesday was a tightening of the rules for companies that chose to arrange loans — which do not attract tax — for their directors or shareholders in place of taxable salaries or dividends. HM Revenue & Customs has already identified three loopholes being exploited in this area.
Elsewhere, the misuse of partnerships in order to disguise what is really an employment relationship is also in Osborne's sights. He has opened a consultation on proposals to clamp down on such activities. Similarly, Osborne said he wanted to use next year's finance bill to remove loopholes allowing offshore intermediary companies to facilitate the avoidance of UK income tax and national insurance contributions.
Jimmy Carr's tax arrangements saw the standup comedian's earnings channelled to an offshore trust, with amounts then loaned back to him. As a loan, rather than a salary, these sums did not attract tax, the scheme's promoters have claimed — though HMRC have been reviewing its legality. More than 1,000 people have reportedly used the same Jersey-based structure — known as K2 — as Carr. It was said to be sheltering £168m a year from the Treasury.
In his budget speech the chancellor said the agreements signed in recent weeks with Jersey, Guernsey and the Isle of Man had provided HMRC with rights to demand financial disclosures relating to UK residents without first having to present detailed prima facie evidence of evasion.
Osborne told the House of Commons these transparency arrangements would shake out more than £1bn of illegally-sheltered tax payments from the crown dependencies — a figure which politicians in the Channel Islands insisted was exaggerated.
"It is not our figure," Jersey's finance minister Philip Ozouf told the Guardian. "And it isn't one that I would recognise as being the likely result of disclosures relating to Jersey. [We believe] the arrangement will put beyond doubt any suggestion that Jersey is a jurisdiction that tolerates any level of tax evasion."
Separately, the chancellor is already pushing through legislation, likely to become law this summer, which will introduce a so-called General Anti-avoidance Rule, or GAAR. This is designed as a catch-all measure to address the most egregious examples of artificial tax structuring. It will cover avoidance wheezes exploiting loopholes in taxes on income, corporate profits, capital gains, inheritance tax and stamp duty. Tax experts suggest this is the most substantive anti-avoidance measure the chancellor has introduced.
Meanwhile, Osborne was forced to water down one anti-avoidance intitiative involving the introduction of a blackballing process for firms bidding for public sector contracts. It had been hoped the threat of blackballing could apply to companies if they had lost disputes with HMRC over certain aggressive tax structures in the past 10 years.
Instead, the move, which comes into force next month, will no longer apply retrospectively. Chris Morgan, head of tax policy at KPMG, nevertheless insisted the measure would be "very effective at changing behaviour". He suggested applying the rules retrospectively risked making the scheme "unworkable". Tax campaigners had hoped that the threat of being blackballed would have encouraged aspiring government contractors to settle existing tax disputes with HMRC.
Another measure designed to change behaviour was Osborne's plan to "name and shame" promoters of tax avoidance schemes. He told MPs: "My message to those who make a living advising other people how aggressively to avoid their taxes is this: 'This government is not going to let you get away with it.'"
As expected, the chancellor only mentioned in passing the controversial tax arrangements of multinational firms which use differing tax regimes to depress their UK tax bill. Tactics employed by the likes of Starbucks, Google and Amazon present by far the biggest threat to the exchequer and the integrity of the tax regime, according to campaigners.
Osborne reiterated that this was a matter for international co-operation. "We are leading international action on tax avoidance, through our presidency of the G8, with the OECD and at the G20," he said.