KPMG comments on UK Budget impact to Channel Islands

The Chancellor announced his Budget today and the key points of potential relevance to the Channel Islands (to varying degrees) are summarised below.

Tax Agreements with Isle of Man, Jersey and Guernsey

The UK has agreed a comprehensive package of measures with the Isle of Man, Guernsey and Jersey governments to clamp down on those who choose to hide their money offshore. This demonstrates the commitment of all parties to tackle tax evasion.

The package consists of:

• agreement to automatically exchange a wide range of financial information on UK taxpayers with accounts in the Isle of Man, Guernsey and Jersey which will significantly enhance HMRC's ability to crack down on those who do not declare their offshore affairs;
• a disclosure facility to allow people to come forward to disclose their previous tax affairs in advance of the information being automatically exchanged.

HMRC has signed Memoranda of Understanding with each of the Crown Dependencies.
 
Memorandum of Understanding between HMRC and the Isle of Man (PDF 641K)
Memorandum of Understanding between HMRC and Guernsey (PDF 61K)
Memorandum of Understanding between HMRC and Jersey (PDF 60K)

HMRC has also published its offshore evasion strategy 'No safe havens'. This strategy sets out a coherent and coordinated framework for HMRC's approach to tackling offshore evasion.

No Safe Havens - HMRC Offshore Evasion Strategy (PDF 2.2MB)

Offshore employment intermediaries

The Government will consult on strengthening obligations to ensure the correct income tax and NICs are paid by offshore employment intermediaries, with a view to legislating in Finance Bill 2014. This is a result of the review announced in Autumn Statement 2012.

Stamp Duty Land Tax (SDLT) avoidance

Legislation will be introduced in Finance Bill 2013 to put beyond doubt that certain SDLT avoidance schemes that abuse the transfer of rights rules do not work.

These changes will have retrospective effect to 21 March 2012.

Stamp duty land tax avoidance: retrospective changes to section 45 of the Finance Act 2003 - Guidance notes (PDF 67K)
Stamp duty land tax avoidance (PDF 47K)

General anti-abuse rule (GAAR)

Legislation will be introduced in Finance Bill 2013 for a GAAR to counteract tax advantages arising from abusive tax avoidance schemes. The GAAR will apply to income tax, corporation tax (and amounts treated as corporation tax), CGT, inheritance tax, SDLT, the annual tax on enveloped dwellings and petroleum revenue tax.

General anti-abuse rule (GAAR) (PDF 47K)

Partnerships

The misuse of the partnership rules has been a feature of many avoidance schemes closed down in recent years. The Government announced in Autumn Statement 2012 that it would consider whether partnerships should be reviewed, as part of the rolling examination of high risk areas of the tax code. The Government has now announced that it will consult on measures to:

• remove the presumption of self-employment for limited liability partnership (LLP) partners, to tackle the disguising of employment relationships through LLPs; and,
• counter the manipulation of profit/loss allocations (by both LLPs and other partnerships) to secure tax advantages.

A consultation document will be published with proposals to address both issues in the spring, with legislation to be introduced in Finance Bill 2014.

High-risk promoters

The Government will consult this summer on a package of information powers, penalties and other measures for tackling the behaviour of high-risk promoters of tax avoidance schemes, with a view to bringing forward legislation in Finance Bill 2014.