Blog: Paradise Papers – how might the fall-out affect the UK and its small businesses?

Brian Palmer

Brian Palmer

Brian Palmer, tax policy expert, the Association of Accounting Technicians looks at what the Paradise Papers could mean for your business

 

The so-called Paradise Papers tax scandal has reared its ugly head, and calls will again be growing for Chancellor Philip Hammond to clamp down on the complex offshore tax structures of some wealthy Britons in his forthcoming Budget.

While tax transparency has been on the increase, as evidenced by the UK reporting its lowest ever tax gap of 6 per cent only last month, how might the new revelations affect the UK’s 5.5 million small businesses and their tax planning?

In its purest form there is nothing wrong with tax planning when it is merely arranging one’s affairs in the most tax efficient manner under UK legislation. Over the last decade or so however, there has been a conflation of the words avoidance and evasion, resulting in some perfectly legitimate tax planning being perceived to be inappropriate by the public and the media.

Where individual taxpayers or businesses merely organise their affairs in such a way as to mitigate their exposure to tax according to UK law, for example investing in a pension scheme, there is not and should not be an issue. It’s only when entering into an arrangement that lacks a commercial purpose other than to avoid tax that HMRC and the public may deem it egregious, and it’s likely to be challenged.

While it could be argued that all those who knowingly enter into inappropriate schemes should suffer reputational damage, as things currently stand that only happens when a taxpayer, such as a celebrity or a multi-national company, is “outed” by the press.

The Paradise Papers scandal is not in itself, in my opinion, justification for taxpayers to publish their tax returns nor should it give rise to a need to create legislation to compel them to.

Any benefits that might be derived from a statutory requirement to publish tax returns would be perceived rather than real.  After an initial flurry of curiosity, it is highly likely that UK public would lose interest. The net result would be yet another compliance hurdle for no real benefit to UK plc.

It should not be forgotten that as things stand, SMEs trading as limited companies already have to file statutory accounts with Companies House.

Undoubtedly certain businesses would gain a goodwill advantage through publishing their own tax returns ahead of any move to legislation, for example those with a strong Corporate Social Responsibility ethos might choose to do so in order to further leverage the benefit of this philosophy. However, it could be argued that the same objective could be achieved with greater effect if SMEs published details of how they have adhered to a responsible tax strategy.

Indeed the GOV.UK website states “the publication of tax strategies will ensure greater transparency around a business’s approach to tax…”

Any move to require SMEs to publish their returns is a policy matter for government and is not something that should be entered into lightly.

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