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UK Announces New Revenue Protection Measures

by Robert Lee,, London

26 November 2008

The United Kingdom government is to introduce a package of measures designed to protect the tax system from abuse and ensure that all individuals and businesses "pay the right amount of tax".

The package, announced as part of the pre-budget measures, includes a new anti-tobacco smuggling strategy, improvements to the avoidance scheme disclosure regime and the use of a number of targeted measures to ensure fairness and sustain tax revenues.

"It is particularly important in the current economic circumstances that the government ensures the tax system is applied consistently, robustly tackling those who seek to reduce their tax payments in an unfair way and fraudsters making criminal attacks on the tax system," the Treasury said.

Under further amendments to the disclosure regime, introduced in 2004, HM Revenue and Customs (HMRC) is simplifying and improving the procedure by which users of disclosed schemes report the Scheme Reference Number (SRN) back to HMRC. This is designed to clarify how and when users are to report SRNs and will improve identification of users of these avoidance schemes.

The government is also taking further measures to prevent tax evasion through the use of leasing arrangements. These include transactions: on the leasing of plant or machinery under long funding leases; on the sale of a company that is an intermediate lessor of plant or machinery; and on rents payable on long funding leases of films.

The government has also published consultation documents, including draft legislation, on principles-based legislation to counter avoidance involving disguised interest and transfers of income streams, with the intention, "if appropriate", of introducing legislation in the 2009 finance bill. This follows consultation on proposals introduced in the 2007 pre-budget report. According to the government, the principles-based approach is intended to tackle this kind of avoidance in a simpler and clearer way than through frequent legislative fixes.

The government is also taking action to crack down on the use of real estate investment trusts (REITs) to avoid tax, and will bring forward legislation to combat value-added tax 'forestalling' to prevent the creation of artificial arrangements to avoid the return of the VAT rate to 17.5%.

However, the government intends to delay action on 'income shifting' whereby small family businesses shift income to those subject to a lower tax rate, and legislation to deal with this will not feature in the 2009 finance bill.

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