(International Investment) -- Chancellor Philip Hammond has announced measures to clamp down on tax avoidance as it looks to raise £2bn over the next five years.
Addressing the House of Commons yesterday afternoon, Hammond said the government would introduce new rules in order to make Her Majesty’s Revenue and Customs the preferred creditor in business insolvencies, thus ensuring a larger share of bankruptcy estates for the taxman.
The chancellor of the exchequer announced, “We will end the practice of purchasing services though offshore branches to avoid UK VAT.”
“And we will stop our general research and development tax credit system being abused by re-introducing PAYE restriction for the small and medium-sized enterprises,” he said.
HMRC will crack down on insurance companies that issue investment products through offshore centres such as the Isle of Man or Dublin where these instruments do not attract VAT.
Next year’s budget will also extend its clampdown on off-payroll working to larger businesses via the IR35 rules. The policy will net the Treasury’s coffers £3bn, documents show.
Tax advisers have been warned they may need to review their clients’ pay structures, following this announcement.
Off-payroll working rules were introduced in 2000 and ensure that individuals who are self-employed and work through personal service companies (PSCs), who would be regarded as employees if directly engaged, pay “broadly” the same employment taxes as if they were employed.
Employers could now face serious consequences if they wrongly identify a worker as an employee or self-employed. The new rules will only apply to medium to large sized businesses.