More on banning tax cheats from UK government procurement and contracts

We featured the breaking news last week that the UK’s Treasury (Finance Ministry) announced new rules  to ban firms who avoid tax illegally from winning public sector contracts. (There’s a Cabinet Office Procurement Policy note on the subject here too).

“New rules that will allow government departments to ban companies and individuals which take part in failed tax avoidance schemes from being awarded Government contracts have been unveiled by Chief Secretary to the Treasury, Danny Alexander and Minister for the Cabinet Office, Francis Maude today”.

Let’s look in more detail at what is being proposed. For all contracts over £2 million (which of course is a small percentage of total government contracts, but a much higher percentage of total spend), buyers should ask potential suppliers at pre-qualification stage if:

“any tax return has recently been found to be incorrect as a result of:

  • HMRC successfully challenging it, including under the new General Anti-Abuse Rule (GAAR); or
  • a failed avoidance scheme which the supplier was involved in and which was, or should have been, notified under the Disclosure of Tax Avoidance Scheme (DOTAS) rules

Suppliers will also be required to disclose if they have been convicted for tax related offences or have been subject to a penalty for civil fraud or evasion.”

Suppliers then answer yes or no. If the answer is “no”, then fine, no problems.

If the answer is yes, there are two possibilities. If there is no mitigation, then the supplier will be excluded from the competition. If the answer is “yes but…”, there are some get out of jail cards for the supplier.

For instance, if “there has been a significant change in the management within or of the organisation since the occasion of non-compliance”. Or perhaps “the supplier can demonstrate that they have undertaken steps to improve tax compliance. This may include changes to accounting practice, transparency agreements and changes to auditing procedures”.

They seem pretty broad get-out clauses, so the question here really is just how many firms will be caught in this trap? I applaud the intent, as a small business owner who isn’t smart enough to think of ways of avoiding tax. But, is this about some general encouragement for firms to do the right thing, as well as being something that the voter will like, or is it a serious attempt to exclude the firms who don’t play ball on taxes?

The real question is therefore how many firms at the moment would actually answer “yes” to this question, and not have the suitable mitigation? I suspect it really isn’t many, in which case this is about general encouragement and public perception rather than serious action.

It is clear for example that this would not catch Starbucks, Amazon or Google, the three firms who were attacked at a recent Public Accounts Committee hearing for their tax management activities. But none of them have fallen foul of the rules mentioned in this new policy.

But, whether this new measure has any real effect on not, it is yet another thing for procurement people – and public organisations generally – to worry about. After the recent Social Value Act requirements, the burden on procurement to factor in all sorts of extraneous matters into their competitive processes is getting back to the heights of New Labour when we were expected to look at SMEs, equalities, apprenticeships, local suppliers, sustainability…

There’s an irony somewhere here around the much stated desire for more commercial, slicker, faster public procurement – lean thinking and all that – yet greater burdens and complexity are regularly being added into the process.

But that’s politics I suppose…

Comments

  • Dan:

    So we’re no longer expected to just save money. Now we’re expected to save the whole bloody country. Great. Maybe CIPS should change its logo to the superman symbol?

  • chris farthing:

    Has anyone actually calculated the return on investment for this particular idea? (is it legislation a “rule” or guidance?). To use some internet vernacular – WALOB!

    Ps Peter, your link to the PPN doesnt work…

    • Peter Smith:

      Link should be OK now – thanks. And you make a good point- I don’t think all these additional burdens on procurement and procurement process get costed, which they should be really.

  • Planbee:

    Being a Private sector bod, the bit that worried me is that they public sector procurement teams have to ask the suppliers if they have submitted an incorrect tax return. Now if a supplier is wiling to cheat the taxman, I think they are going to be quite relaxed about lying to a government buyer.

    Surely it would be beyond the wit of the HMRC to produce a database of all companies that have filed incorrect tax returns. Then the question to the supplier can become why did you submit an dodgy tax return? As George O once said, information is power

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