U.K. Has 14 Large Businesses in ‘Red’ Tax Avoidance Category

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By Ben Stupples

The U.K. government has 14 large businesses in its highest risk category for suspected tax avoidance, indicating that multinational companies are still engaging in abusive tax planning.

“The last time I checked, we had 14 red,” Jon Thompson, the U.K.’s tax authority chief executive, told lawmakers about the risk assessment of large businesses in a Dec. 4 Treasury sub-committee evidence session. Her Majesty’s Revenue and Customs flags companies in the category “where we very specifically think they are deliberately going out of their way to avoid tax,” he added.

Large businesses are an area of focus for HMRC because they owe whopping amounts of tax each year. In the last financial year, the U.K.’s largest businesses paid a total of 25.3 billion pounds ($34 billion) in taxes to the government, according to a Dec. 5 report from accountancy firm PwC.

Thomson’s comments come as countries implement measures from the OECD’s re-write of tax policy for multinational companies to curb abusive tax planning. As part of the re-write, multinationals are sending country-by-country tax and profit reports to governments this year to provide a clear picture of their operations. The measure affects around 300 U.K. multinationals, according to a March 2017 policy paper.

HMRC has a special unit for large businesses that looks after more than 2,000 companies. Every company has a manager within the unit to manage their tax risk and provide customer service.

In the Treasury sub-committee evidence session, Thompson said around half of the companies that HMRC’s large business unit oversees are rated as green, the lowest category for tax risk.

‘Granular’ Assessments

Yet the way the U.K.’s tax authority currently assesses the risk of large business is in line to change.

On Sept. 13, HMRC launched a consultation on a new system to categorize the companies’ tax risks.

Announced at the Spring Budget in March, the consultation seeks input on a “refreshed” approach that may see large companies categorized under a numbered scale for their tax risk in future.

“A more granular risk classification will help HMRC focus resource on the highest risk businesses, and increase the behavioural influence” of the review process for businesses, the consultation said.

In last month’s Autumn Budget, meanwhile, Chancellor of the Exchequer Philip Hammond allocated a further 2 billion pounds to HMRC in order to boost its fight against tax evasion and avoidance.

In the budget, the Treasury also announced several other measures to fight tax avoidance, including a levy on companies’ earnings sent to low-tax jurisdictions that are derived from U.K. customers.

Targeting foreign digital companies, the new measure will raise as much as 800 million pounds in the next five years, according to official data. In his Nov. 22 budget speech, Hammond said that the anti-avoidance measures announced at the fiscal event will raise 4.8 billion pounds by April 2023.

To contact the reporter on this story: Benjamin Stupples in London at bstupples@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bloombergtax.com

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