Tax Abuse and Insolvency and Extension of the existing security deposit legislation to CT and CIS
ICAS has submitted responses to two recent HMRC consultations which aim to tackle those who deliberately fail to pay tax and abuse the insolvency regime.
HM Revenue & Customs are continuously looking at ways to tackle those who deliberately do not pay the tax they owe. Two separate consultations have been undertaken recently looking at extending the securities deposit regime and how to tackle tax avoidance where the insolvency regime has been abused.
The HMRC consultation on Tax Abuse and Insolvency proposed measures to address the small minority of taxpayers who abuse the insolvency regime in trying to avoid or evade tax liabilities (including through phoenixes).
ICAS supports the efforts of the Government to take appropriate steps to deter and deal with abuses of insolvency processes and to minimise the tax gap between what is due to HM Revenue & Customs and what is paid.
However, it is important that any measures do not undermine the UK rescue culture for financially distressed businesses. A useful meeting was held between ICAS and HMRC officials dealing with the consultation to discuss the proposed actions.
The ICAS response broadly supported one of the two possible approaches proposed: the extension of transfer of liability to CT. It did not support the use of joint and several liability due to concerns around identifying appropriate safeguards and the possible finance funding risk to business.
Transfer of liability could be more effectively targeted, and it would be much easier to include appropriate safeguards.
ICAS does not believe that the measures proposed in the Tax Abuse and Insolvency consultation would generally be appropriate to tackle phoenixism because of the risk of undermining the UK’s rescue culture.
The second consultation set out how HMRC intends to implement the government announcement in the Autumn Budget 2017 that it would extend the existing security deposit regime to cover CT and CIS.
Extending the security deposit legislation to CT – proposed in the separate consultation on extending the security deposit legislation to include CT and CIS deductions – could be used more effectively to target abusive phoenixes.
The ICAS response to this consultation therefore broadly supported the proposed extension, whilst stressing the need for a targeted approach and also discussing some practical difficulties which could arise because of the nature of CT as a profits-based tax due by reference to accounting periods.
