Review of tax treatment of Scottish Limited Partnerships

Part of Finance Bill – in the House of Commons at 9:45 pm on 5th September 2016.

Alert me about debates like this

Photo of Jane Ellison Jane Ellison The Financial Secretary to the Treasury 9:45 pm, 5th September 2016

Indeed. We have seen, in other areas where we have shown leadership, how much can happen in a very short space of time, so we are optimistic that we can make progress with a welcome degree of consensus across the House.

Amendments 163 to 168, 170 to 173 and new clause 12 all concern penalties for offshore tax avoidance and evasion. Clause 161 and schedule 20 create new civil penalties for those who have deliberately assisted taxpayers to evade UK inheritance tax, capital gains tax or income tax via offshore means. They would introduce a penalty of up to 100% of the tax evaded and public naming for the most serious cases. Amendments 163 and 164 would include within the penalty provisions the option of charging a penalty of up to 100% of any fee paid by a taxpayer to the enabler for the enabling service received.

Fees charged by organisations can take a vast array of different structures and formats. Without a clear definition of what constitutes fees, or how the fee relates to the services provided, we believe it would be disproportionately burdensome for HMRC to apply and use such a penalty. A penalty based on tax lost is a much clearer and more easily defined concept, which better meets the objective of sending a strong and clear deterrent.

Amendments 165 and 166 would increase the minimum penalties chargeable for deliberate offshore tax evasion. Again, the Government have significantly increased sanctions that can be applied for offshore tax evasion. However, we have to balance that against the need to maintain the proportionality of our penalties and retain the incentive for taxpayers to comply voluntarily and co-operate with HMRC, an area in which we have seen considerable activity. We therefore believe that the ranges we have set out provide a good balance. However, as with all of our penalties, we keep the rates under review.

Amendments 167 and 168 would make it compulsory for HMRC to publish details of those tax defaulters who meet the relevant criteria. Obviously, public naming incentivises evaders to come forward voluntarily and co-operate, but it allows the naming of those who refuse to co-operate with HMRC. In the vast majority of cases, we would expect HMRC to name those who meet the criteria. However, mandatory publication would be inappropriate in some particular exceptional circumstances, or perhaps when there are wider consequences, such as economic market impacts from the information becoming public.

Clause 164 and schedule 22 introduce a new asset-based penalty for the most serious cases of deliberate onshore tax evasion, where the tax loss exceeds £25,000, and would levy a penalty of up to 10% of the value of the asset connected to the evasion in addition to any other tax-geared penalties and interest due.

Amendment 170 would apply a higher penalty of up to 15% of the underlying asset rather than the 10% set out in the Bill. This level of penalty was carefully considered when it was set, accounting for international comparisons. The Opposition referred to that and to the fact that this is a new approach to penalties for UK tax matters. The Government have also consulted and engaged with stakeholders, balancing the arguments that have been set out. We feel that the legislation as it stands allows for a substantial penalty for deliberate tax evasion and will provide a significant deterrent. It is not clear to us, however, that an arbitrary 5% increase in the maximum would significantly increase the impact of the penalty.

Clause 165 introduces a new criminal offence of persistent offshore tax evasion. Crucially, though, the offence does not require the prosecutors to prove that the taxpayer intended to evade their UK tax responsibilities offshore, increasing our ability to prosecute. A successful conviction on this offence could result in a fine or a prison sentence of up to six months.

New clause 12 introduces a requirement to publish a report on the impact of the new criminal offence within a year of the Act being passed. The new criminal offence is expected to come into effect from the 2017-18 tax year at the earliest, which is beyond the one-year deadline set out in the new clause. We feel that this therefore makes the provision redundant.

Amendments 171 to 173 will introduce a further defence to this criminal offence where a person believed that the information supplied to HMRC was “true and accurate”. These amendments will not work in practice. The part of the clause to which they relate is the offence of failure to notify HMRC of chargeability and failure to make a return. In both those cases, no information would have been supplied to HMRC, so this defence could not be applied. While amendment 173 relates to inaccuracies in documents supplied to HMRC, we feel that the amendment is unnecessary because the offence already has a defence of having taken “reasonable care” to get one’s affairs right, which would imply that the taxpayer believed that they were “true and accurate”.

New clause 7, tabled by Roger Mullin, would legislate for a review of the impact of the tax regime for Scottish limited partnerships on the levels of tax avoidance and evasion. A Scottish limited partnership is treated for tax purposes as a tax transparent vehicle in the same way as a limited partnership established in England and/or Wales. As he set out in moving the new clause, a limited partnership established in Scotland has a separate legal personality, which means that the partnership itself can own assets and enter into contracts. The Government are committed effectively to tackling tax avoidance, evasion and aggressive tax planning, including where partnerships are involved. Indeed, this has secured an additional £130 billion in compliance yield since 2010.

Last month, the Government launched a consultation to look at partnership taxation, including proposals to clarify the tax treatments of varied types of partnership. We will obviously welcome the SNP’s engagement in that exercise, and I would like to offer some reassurance regarding the recent allegations in the media about the use of SLPs by criminal organisations. The Government take extremely seriously the points raised and are working collaboratively across Departments and law enforcement agencies to tackle crime and fraud robustly.