Members of the UK200Group of independent accountancy and lawyer firms have today commented on a report that HMRC has won a significant victory in its battle against corporate tax avoidance after a major management consultancy admitted defeat in a long-running bonus dispute.

PA Consulting has withdrawn its appeal to the Supreme Court after the Government said that private companies that engage in deliberate tax avoidance could be blacklisted from bidding for public sector contracts.

PA's decision not to continue the case means HMRC can now recoup millions in tax from other companies that paid employees bonuses through offshore companies.

Cormac Marum, former inspector of taxes, and head of tax advisory at UK200Group member firm Harwood Hutton

“As with all tax cases, the PA Holdings case was decided on its own particular facts and the precedent which emerges is also dependent on those facts. Where a company decides to pay bonuses to employees, PAYE cannot be avoided by paying those bonuses in the form of shares on which dividends are then voted. This does not mean that an owner manger must pay himself by way of remuneration rather than by way of dividends. Nor does it mean that employees cannot receive share incentives.

“PA Holdings has nothing to say on the use of offshore companies and it will have little impact on current remuneration strategies. 

“Public sector contracts should be awarded on the basis of value for money and who is best for the job. Companies or individuals which abide by the rule of law do absolutely nothing wrong and should not be blacklisted.”

David Whiscombe, tax director at UK200Group member firm Berg Kaprow Lewis

“This case is of largely historical interest: the particular scheme found to have failed in PA’s case has long since been countered by legislation, so even if PA had won, the result would have been of little general significance.

“The trouble with blacklisting companies which engage in “deliberate tax avoidance” is that what is “deliberate tax avoidance” is a completely subjective concept which requires the substitution of some woolly undefined notion of the “right amount of tax” for the amount of tax which is actually payable under the law. And the farcical pillorying of N-Power by MPs who seem utterly ignorant of how tax works shows how dangerous it is to allow subjectivity and prejudice to replace the law in this area. 

“By all means cut out proven tax evaders from government contracts: but those who take care to pay no more and no less than the law demands? Definitely not.”

Jonathan Russell, partner at UK200Group member firm ReesRussell

“Complex remuneration schemes are now seen in the first instance as tax evasion, as opposed to being avoidance and the basic principle that a large number of schemes fail on is commerciality. 

“It has long been a legal precedent that commercial transactions which have no commercial purpose but to reduce tax liabilities can be set aside. Many of such remuneration schemes, benefit trusts and complex share/dividend schemes are under enquiry by HMRC and every case won or lost will potentially have a bearing on others.

“The major problem is that many years ago it was seen that investment income should be taxed at a higher rate than earned income and now earned income is taxed much more heavily than investment income through the application of National Insurance. Many more people have the majority of their income from earned sources and therefore the driver to make such income be taxed as investment income is larger. If the Government had the courage to address the National Insurance issue then this sort of scheme would become less appealing.”

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Established in 1986, UK200Group is the leading mutual professional association in the UK with some 150 offices of quality-assured member accountancy and lawyer firms throughout the UK totalling over 550 partners, 150,000 business clients and global links in over 50 countries. UK200Group provide services and products that are designed to enhance the business performance of its members.  Telephone 01252 401050, email admin@uk200group.co.uk or visit www.uk200group.co.uk 

Disclaimer:

UK200Group is an association of separate and independently owned and managed accountancy firms and lawyer firms. UK200Group does not provide client services and it does not accept responsibility or liability for the acts or omissions of its members.  Likewise, the members of UK200Group are separate and independent legal entities, and as such each has no responsibility or liability for the acts or omissions of other members.

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