Tax evaders face government contracts ban

15 February 2013

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15 February 2013 | Adam Leach

Government departments will be able to ban companies that evade tax from winning contracts if proposals from the Treasury and Cabinet Office are implemented.

Yesterday, the Treasury and the Cabinet Office announced proposals to enable buyers to require bidders to disclose information about their tax arrangements during the tendering stage on contract worth more than £2 million.

Under the plans, which are open to consultation and will be implemented on 1 April 2013, bidders could be forced to disclose whether they had been successfully challenged by HM Revenue & Customs (HMRC) under the General Anti-Abuse Rule (GAAR); they had engaged in a failed avoidance scheme that should have been revealed under the disclosure of tax avoidance schemes - which stipulates measures that result in a tax advantage must be published; and whether the business had a conviction for tax-related offences, civil fraud or evasion. The GAAR is legislation covering a range of taxes that enables action to be taken where arrangement is deemed to have been made to gain a tax advantage.

Companies that meet any of these criteria could be disqualified from the procurement process, and successful suppliers subsequently found to have broken the rules could see their contract terminated.

In a statement, chief secretary to the Treasury Danny Alexander said: “The government is clear that aggressive tax avoidance is totally unacceptable. That’s why we are closing loopholes, bringing in a new General Anti-Abuse Rule, and investing hundreds of millions of pounds in additional funding to help HMRC clamp down. These new rules are another significant tool as they will enable government departments to say no to firms bidding for government contracts where they have been involved in failed tax avoidance.”

The proposals do include a number of ‘mitigating factors’, which enable companies that have broken the law to still participate in tenders, providing they have rectified the issue. These include significant management changes at the company since the occasion of non-compliance, a change to their tax practices to improve compliance and where they confirm they are no longer considered to be ‘high risk’ by HMRC.

The proposed measures will not affect companies that avoid paying tax legally. In January, Margaret Hodge, Labour MP and the chair of the Committee of Public Accounts, said firms which help companies to avoid tax should also be barred from government contracts, but the proposals do not go this far.

Comments from departments on the proposals should be sent to by 22 February.

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