Avoiding corporation tax? Forget that government contract

Gotcha! Companies that run rings around HMRC may now find that they cannot get their hands on lucrative government contracts.

by Michael Northcott
Last Updated: 19 Aug 2013

The new plans will involve actually banning aggressive tax avoiders from even bidding for government contracts. The measures are being considered because of claims that some of Whitehall’s most significant suppliers (unspecified IT companies) are reckoned to have been sidestepping corporation tax with clever accounting methods.

The Treasury chief secretary, Danny Alexander, will announce later today that firms will have to declare that that they have not been exploiting loopholes in tax law to save money at any time in the past decade. And all that before being allowed to bid for government contracts worth more than £2m. 

The proposals come amid a tidal wave of public outcry over the tax arrangements of a slew of consumer brands. Firms such as Starbucks, Amazon, Google, Facebook and eBay have been criticised for structuring themselves in such a way as to pay little or no corporation tax on their UK operations.

But whether or not this wheeze will come to anything is debatable. Is the suggestion really that every company that gets a contract over £2m will have to have its tax arrangements analysed and judged before the deal goes ahead? If so, who’s going to do it, and who’s going to pay for it? What about the potential for blacklisted firms suing the government? It sounds like a bit of PR guff to us…

Nonetheless, Alexander told the FT: ‘It is clear there has been an approach to tax which I don’t consider to be acceptable, and I think most importantly, the British public don’t consider to be acceptable.

‘If you work for the government, whether you’re an individual employee or a company that has got a contract with the government, you need to be behaving properly with regard to tax rules.’

Responding to concerns that such rules would add an extra layer of red tape for firms, Alexander said that every company should be capable of putting its tax affairs ‘in good order’. 

Not everyone agrees with him. Aaron Fairhurst, a tax partner at law firm CMS Cameron McKenna, said: 'This is another example of the Government attempting to increase tax revenue by promoting a culture of fiscal fear.' 

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