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Last Updated: Thursday, 2 December, 2004, 19:11 GMT
Brown clamps down on tax dodges
Film camera
The film industry is one of the areas targeted by the Chancellor
A number of measures aimed at tackling tax fraud and avoidance have been unveiled by Chancellor Gordon Brown in his pre-Budget report.

They include legislation to shut down avoidance schemes that involve companies paying workers with shares.

"Artificial" diversion of profits from the UK and schemes exploiting double taxation relief will also be stopped.

The measures are designed to boost state coffers without imposing tax rises in the run-up to an election.

The government will also block offshore VAT tax avoidance schemes involving settling UK insurance claims and will clamp down on attempts to avoid capital gains tax.

Loose words

Arrangements which prevent employees and employers paying the "proper amount of tax and national insurance" will be stopped with immediate effect.

"Initially this looks like a narrow focus on City bonus schemes, but it is worded very loosely and will worry many honest employers," said Anne Redston, tax partner with Ernst & Young.

Companies are likely to be confused as to whether they are following the proper tax rules or not, she said.

Some companies save on tax and National Insurance payments by paying a lower salary to workers and putting money into an employee's pension instead.

Though perfectly acceptable now, future governments might impose measures to stop this practice.

"We will need assurances that this radical new power will be used exceptionally and only for artificial and contrived schemes where nobody can be in any doubt that they are engaged in artificial tax avoidance," Ms Redston said.

Artful dodge

The film industry is targeted too, with measures to prevent so-called double dipping.

This is where tax relief is claimed by film producers more than once on the same production.


Relief is claimed on the cost of the production and the sale and leaseback of the final film print.

The practice is not illegal, but has been criticised by the Inland Revenue for not being "in the spirit" of tax rules.

The cost to the Revenue of this loophole has been estimated at 2bn a year.


Gordon Brown recently introduced a new tax regime under which businesses were forced to disclose their tax planning ideas to the Revenue earlier than before.

The idea was to nip in the bud any potential tax avoidance strategies.

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But accountants say companies will continue to avoid taxes as part of their tax planning.

And because companies are already acting within the law in their tax planning, the Chancellor may not be able to raise as much money as he had hoped.

The pre-Budget report did not indicate how the disclosure strategy was going.

"Quality tax planning is part of a firm's commercial strategy," said Aidan O'Carroll of accountants Ernst & Young.

"They're perhaps over-estimating the financial effect of closing these perceived loopholes, and they will still be relying on increased revenues from general taxes."

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