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UK Government closing the tax loophole on company registration
Philip McCarron and Susan Fadil of TMF Group’s UK Corporate Secretarial team analyse the impact of the UK’s hunt for phantom companies on the country’s company registration practices.
The existence of so-called shell or phantom companies has caused a major headache to reclamation of corporation tax by the UK Government. Such companies have used tax loopholes currently within the UK to legally deposit their monetary assets without having to produce any formal identification of the natural person/s liable for corporation tax payment.
At the recent G8 Summit in Co. Fermanagh, Northern Ireland, UK Prime Minister David Cameron advocated heavily his counter opposition to the creation, registration and use of the said companies within the Jurisdiction of the United Kingdom. At the summit, Mr Cameron expressed his strong support for the implementation of public registers with Companies House listing the beneficial owners of companies. This implementation will grant the public access to identify the owners of entities registered within the United Kingdom as well as overseas territories.
The introduction of publicly-available new information will inevitably be a big step forward against the on-going battle against corruption and evasion of tax. It is proposed that every holder of more than 25% of the shares of any company will be named.
Many questions have been asked on how the integrity of such a register can be maintained without the introduction of a costly regulator to govern what records are held. The Prime Minister has to come to a resolution of, to coin a phrase, “crowd surfing” – that is, the more eyes that look at this information, the more accurate it will be.
What are the new changes to be enacted?
All companies currently registered at Companies House and future registrations will be required to disclose their beneficial owners to a publicly-accessible register which will be maintained by Companies House. This will ultimately provide HMRC with the information they require to identify which entity/whom should be liable for corporation tax payments on behalf of these entities.
How does it affect current UK-registered entities?
Entities currently contained within the UK Register will be required to disclose their ultimate parents, which will be maintained within a publicly accessible register of beneficial owners to be held by Companies House.
This information will ultimately provide Her Majesty’s Revenue and Customs (HMRC) with the information they require to identify which company/individual should be liable for corporation tax payments on behalf of these entities.
Will it change the way entities/companies are registered in future?
At the offset this will have no effect on the incorporation of UK entities with Companies House, however, all new proposed companies will be entering into incorporation knowing at some point they will be required to inform Companies House of the ultimate beneficial owner of the UK registered entity.
What next for UK-registered companies?
The proposals were included in a consultation undertaken by the Department for Business Innovation and Skills (BIS), Transparency and Trust: Enhancing the Transparency of UK Company Ownership and Increasing Trust in UK Business. The UK Government will issue their response to that consultation in early 2014, and will consider how reforms might be implemented. Some changes proposed would require primary legislation; other changes might be taken forward through UK implementation of the EU’s anti-money laundering proposals. The UK Government will look to introduce reform before the end of the current Parliamentary term in 2015.
The proposed reforms will enhance the transparency of UK company ownership, which in turn will create an environment where it is more difficult for individuals to abuse the company structure - and easier to identify and sanction those that do.TMF Group