In the first place, there must be a reason why several gas and utility companies have submitted new claims for past expenditure dating back decades to secure tax relief on costs already paid for by other businesses.
If there is one thing that companies do, especially large ones, is that they do not waste time or money on frivolous claims for tax benefits.
That the UK government has moved to close this loophole, while asserting that the proposed new legislation merely confirms that these types of claims are not allowed, is curious. Presumably, even without the new law, these requests would be rejected. Nonetheless, as a practical matter, it is a welcomed development because revenue officers can now shift their energies elsewhere; and likewise, corporate tax filers can look to alternative tax saving schemes.
A good example, perhaps, of your proverbial ‘win-win’.
It is however odd, that although the HM Revenue and Customs(HMRC) confirms that the relief sought, which is the subject of the new law would, in any event, be disallowed; they also point to a potentially lost in tax revenue of GBP900m because of the claims. Surely if the claims are not allowed now, and the new law serves to make that make that crystal clear, what tax loss can occur? Perhaps this figure really represents what might be spent by the HMRC, over time, and in the absence of the law, to protect the country’s tax base from this loophole, that is not really a loophole.
In any event, legislative activity that makes explicit what is the letter and spirit of the law, especially in matters of tax and taxation, is always a worthwhile activity. For this reason, the Chancellor’s initiative should be met with applause. Indeed, that legislation is being drafted to confirm what is not allowed, while indicating that any claims already submitted would be met with robust challenge by the HMRC, suggests that under the present dispensation, some claims might have been successful.
The new law, not public debate on the ethics or morality of these claims, should quickly disabuse anyone of any such wishful thinking.
The underlying problem prompting the move, and perhaps others, is one of clarity, or rather the lack thereof. As it stands now, it must be at least arguable that UK companies can claim huge amounts of money, that business customers have already covered the cost for. Would they waste time and effort otherwise?
The new draft legislation to the UK Finance bill which will confirm the illegality of certain claims, suggests that what is needed is a comprehensive legislative exercise to make plain, as far as language will permit, what is, and what is not, allowed under the letter and ‘spirit’ of the tax laws.
This is not an easy, simple or even politically expedient exercise, as it means wading through the layers and layers of legislative and regulatory sediment that has built up over centuries, and commonly referred to as the domestic taxation system. The Chancellor is therefore, to be commended this step because it shows that fairness for all British taxpayers begins with law-making which makes clear what is allowed, and what is not allowed, especially when some taxpayers are obviously in doubt.
The tax fairness debate has become mired in questions and accusations about corporate ethics, in an attempt to determine what should or should not be done to secure tax relief. Though interesting and financially lucrative for some; these tax talk-shops have yielded few dividends. This simple gesture of confirming what is not allowed under the law will hopefully dull the enthusiasm of companies for this avenue of tax relief, and perhaps close the file on this matter, permanently.
The endless rhetoric about who qualifies as a ‘tax cheat’, or a ‘tax saint’ can be silenced, or at least elevated to reasoned debate, if more clarifying legislation was drafted, passed and enforced; but of course then, what would we have left to talk about.