News added on 20.02.2013

from the Cabinet Office LATEST NEWS

Tax avoidance

Tax avoiders to be barred from government contracts

Proposed rules coming into force on April 1 will require government suppliers to declare that they have a clean tax bill of health. Will this affect your company?

Proposed new rules. Under new Treasury proposals, from April 1 2013, during the selection stage for all central government contracts worth £2 million or more, would-be suppliers will be forced to disclose any occasion in the past ten years when they have not complied with tax rules. If the supplier has had such an “occasion of non-compliance” in last decade, then the contracting government department will be able to disqualify them from the procurement process.

What will be considered non-compliance? It will be non-compliance if any tax return (Corporation Tax, VAT, PAYE etc.) has been found to be incorrect as a result of:

  • HMRC successfully challenging it under anti-avoidance or anti-abuse rules; or
  • involvement in a failed tax avoidance scheme.

Suppliers will also be required to disclose if they have been convicted of tax-related offences or have been subject to a penalty for civil fraud or evasion. However, a VAT or tax inspector picking up a few minor infringements during an enquiry which results in a small amendment to a VAT or tax return won't be considered non-compliance in this context.

What about local government contracts? The proposed policy only applies to bidders for central government contracts so it doesn’t currently apply to local government contracts or government-funded organisations such as schools, universities and hospitals.

Mitigating factors. Even if you do need to certify that you have breached the conditions and do have an “occasion of non-compliance”, all may not be lost as the guidance mentions a number of mitigating factors which may allow you to qualify for the procurement contract. These mitigating factors include where:

  • there has been a significant change in the management of your business since the occasion of non-compliance
  • you can demonstrate that you have undertaken steps to improve tax compliance, e.g. changes to accounting practice or auditing procedures.

The proposals only relate to £2 million+ central government contracts and minor infringements picked up during a routine enquiry won’t need to be declared.

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