Investments  

Budget 2014: HMRC cracks down on EIS and VCT abuse

Chancellor George Osborne used his Budget speech to say “We are all in this together” before cracking down on the use of EIS and VCTs for tax avoidance.

Talking about past crackdowns on tax avoidance, the chancellor said the government is now collecting twice as much as before through compliance, and the number of registered tax avoidance schemes has fallen by half.

But he said while the vast majority of wealthy people pay their taxes, there is still a small minority who do not.

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Mr Osborne said: “We will now require those who have signed up to disclosed tax avoidance schemes to pay their taxes, like everyone else, up front.

“This will apply in future to schemes covered by our General Anti-Abuse Rule too.

“If people feel they’ve been wronged, they can of course go to court. If they win, they get their money back with interest.”

Mr Osborne said the government has already consulted on this idea but now it will be implemented.

He added that the OBR confirmed that this will bring forward £4bn of tax receipts.

He said: “It will fundamentally reduce the incentive to engage in tax avoidance in the future.

“The public tolerance for those who do not pay their fair share evaporated long ago – but we’ve had to wait for this government before there was proper action.”

HMRC was also told the budget to tackle non-compliance will be increased and block transfers of profits between companies within groups to avoid tax will be banned.

Tax credit debt recovery rates for those with sufficient earnings will also be increased, the chancellor pledged, as HMRC will be given “modern powers” to collect debts from bank accounts of people who can afford to pay but have repeatedly refused to.

Compliance checks will also be increased to catch migrants who claim benefits they aren’t entitled to, saving the taxpayer almost £100m, Mr Osborne added.

He also stated in his Budget speech that HMRC will take action to curb potential misuse of the EIS and VCT schemes and the new tax introduced to stop people avoiding stamp duty by owning homes through a company will be “expanded”.

He said: “We will expand the tax on residential properties worth over £2 million to those worth more than £500,000.

“And from midnight tonight anyone purchasing residential property worth over half a million pounds through a corporate envelope will be required to pay 15 per cent stamp duty.

“None of this applies to homes that are rented out.

“Many of these are empty properties held in corporate envelopes to avoid stamp duty.

“This abuse will end.”

Turning to the manipulation of the Libor rate, Mr Osborne said the regulator is broadening their investigation to the foreign exchange markets.

He said: “Financial services are a hugely important industry to this country which I want to promote around the world.

“But I also want the fines paid by those who have demonstrated the worst of values to support those who demonstrate the best of British values.