Everyone, whether businesses or individuals, must pay their fair share in tax. While I welcome the Government’s continued commitment to supporting business with the lowest rates of corporation tax across the G20, these taxes must be paid.
I am glad that our country’s tax gap – the difference between the amount of tax that should be paid to HMRC and what is actually paid – has fallen to less than 6 per cent, one of the lowest gaps globally. The tax gap has been reduced over the past 15 years from from 7.5 per cent in the tax year 2005 to 2006 to 5.3 per cent in 2019 to 2020. Equally, the most recent assessments of the percentage of tax revenue lost through tax avoidance of Corporation Tax show a fall from 11.3 per cent in 2005 to 2006 to 8.0 per cent in 2019 to 2020. The total tax gap for income tax, national insurance, and capital gains tax, some of the most common routes for tax avoidance by individuals, is also less than 6 per cent.
That is why I am encouraged that in the past decade more than 100 measures to tackle tax avoidance, evasion, and non-compliance have been introduced, while over £250 billion of tax that would have otherwise gone unpaid has been secured and protected. Action to tackle tax avoidance, evasion and non-compliance will raise an additional £2.2 billion between 2021 and 2025-26. The response to the recent consultation ‘Tackling Promoters of Tax Avoidance’ sets out further measures to strengthen existing anti-avoidance regimes and tighten the rules designed to tackle promoters and enablers of tax avoidance schemes.
While this is welcome progress, more remains to be done. I proudly stood on a manifesto pledge that promised to set out a new anti-tax avoidance and evasion law. Such a law shall consolidate existing anti-avoidance measures and powers. I hope it comes as a reassurance that the Government is making strides to crack down on the practice of tax avoidance so that companies and individuals pay their fair share of tax.
I also welcome the Government's intention to introduce new powers to make the possession, manufacture, distribution and promotion of electronic sales suppression software and hardware an offence to prevent businesses hiding or reducing the value of transactions and corresponding tax liabilities.
However, reports of McDonald's using a 'circular scheme' to avoid tax are very concerning. Support for businesses during the pandemic, including the Coronavirus Job Retention Scheme and business rates relief, were intended to help businesses and individuals struggling in what was a difficult time. McDonalds should carefully consider dividend payments in this context. I have spoken with colleagues at HMRC who assure me that they investigate reports of tax avoidance to determine if any illegal practice has been carried out. I am sure they will be looking into these reports, however I would urge you to contact HMRC directly if you have any evidence regarding potential abuses of our tax system.
I am also aware of reports that some of the UK's largest water companies have not paid corporation tax in recent years, and that concerns have been raised. I have spoken with colleagues at the Treasury to raise these concerns, and they have assured me that any evidence of illegality will be investigated thoroughly by HRMC.
The content of the Pandora Papers is concerning, and it is clear we need to do more to tackle tax avoidance. We can see from the papers that this is a global problem, and the international nature of this kind of tax avoidance means that we desperately need greater international co-operation to tackle it. I have conveyed the strength of feeling on this issue to my colleagues at the Treasury, and have been assured that specialists at HMRC are studying the contents of the Pandora Papers closely, and that this type of financial crime will not go unpunished.
It is correct that non-domiciled individuals do not pay UK tax on foreign income or gains if they are less than £2,000 in the tax year and they do not bring them into the UK, for example by transferring them to a UK bank account. However, if that individual earns over £2,000 in a year they may claim tax back depending on specific circumstances, such as the income being exempt from foreign tax but is taxed in the UK, or a given double-taxation agreement applying to the country in which they live. It is worth noting that if claiming the remittance basis they only pay UK tax on the income or gains brought to the UK, but lose tax-free allowances.
Moreover, the publication of the Economic Crime Plan in 2019 laid the groundwork to a broad strategy to combat financial crime, from money laundering to online VAT fraud. Good progress has already been made in creating the necessary institutions to carry out this strategy, including the National Economic Crime Centre, the Government Counter Fraud Profession, the Office for Professional Body Anti-Money Laundering Supervision, and public-private initiatives such as the Joint Money Laundering Intelligence Taskforce and the Joint Fraud Taskforce.
The new Register of Overseas Entities will require anonymous foreign owners of UK property to reveal their real identities to ensure criminals cannot hide behind secretive chains of shell companies, setting a new global standard for transparency. Entities who do not declare their ‘beneficial owner’ will face restrictions over selling their property, and those who break the rules could face up to 5 years in prison or a daily fine of £2,500.
The Digital Services Tax (DST) which came in into force in April 2020, is a welcome but temporary measure which will be removed once an appropriate global solution is in place. The DST introduced a new 2 per cent tax on the revenues certain digital businesses earn. It ensures the amount of tax paid in the UK reflects the value these businesses derive from their interactions with their active users.
I welcome the G7 agreement on global tax reform that will see the largest multinational tech giants will pay a fair share of tax in the countries in which they operate, not just where they have their headquarters. Under Pillar One of the agreement, global firms with at least a 10 per cent profit margin would see 25 per cent of any profit above the 10 per cent margin reallocated and then subjected to tax in the countries they operate. Pillar One will be implemented through a Multilateral Convention, and the aim is for this to come into effect in 2023. Under Pillar Two, the global minimum tax, with a rate of 15 per cent, is expected to generate around USD 150 billion in new tax revenues globally.
A deal has now been struck by the UK, US and other European countries which outlines a DST-credit system which will bridge
I am confident that these measures will help tackle tax avoidance, reducing the tax gap still further, and securing and protecting even more funding for our vital public services.