Budget 08: Avoidance swoop to plug economic gap

Alistair Darling made a £1.7bn swoop on tax avoidance schemes in his first Budget as he targeted aggressive planning to shore up the hole left by flagging economic growth.

The chancellor introduced no fewer than 11 anti-avoidance measures that will hit businesses for more than £600m this year and £1.7bn by 2010. This is more than double the £780m the Treasury said it would raise from anti-avoidance measures last year.

With the net changes to business taxation, which will see the corporate tax rate fall to 28% and capital allowances scrapped, raising an extra £1.4bn for the Treasury, British business is facing a tax bill £2bn higher than last year.

Experts said some of the anti-avoidance measures were to be expected, but expressed outrage at legislation clamping down on controlled foreign companies.

The rules announced in the Budget will hit controlled foreign companies with voting shares held in off-shore trusts and prevent corporates from structuring CFCs as partnerships. The moves are expected to net £400m for the government by 2010.

‘The CFC crackdown was particularly surprising. The structures that have been blocked are widely used and the changes are very unhelpful,’ said Bill Dodwell, head of tax policy at Deloitte.

North Sea oil operators were also hit particularly hard by the avoidance crackdown. The industry will be paying £490m in extra tax by 2010 after the chancellor changed rules for the tax treatment of management expenses.

Patrick Stevens, tax partner at Ernst & Young, said anti-avoidance measures showed that HM Revenue & Customs’ disclosure regime was working ‘very effectively’.
‘The hit count and money raised is higher than before. The disclosure regime is doing its job.

‘The money raised is a justification for having the regime in place,’ Stevens said.

Go to our Budget 08 special report