Oakley Services PCC - Tax Update

As indicated in the previous statement published on 5^th June, the Tories via one of the Treasury spokespersons, Mr Gauke, tabled a motion during the debate stage of the Finance Bill 2009 to the effect that the introduction of retrospective legislation would lead to the UK being seen as having an unstable tax system and would therefore discourage businesses from coming here.

In the course of the debate that followed (and which can be accessed in the Hansard archive here; http://www.publications.parliament.uk/pa/cm200809/cmpublic/finance/090616/pm/90616s03.htm

The debate as reported has some interesting commentary and gives an insight into the Treasury thought processes. The following statement from the Treasury Secretary captures the position neatly:

Mr Timms: It is a highly abusive, completely contrived arrangement, with the sole aim of avoiding paying the tax due to the Exchequer. We are providing that that relief be allowed only where there are not arrangements in place designed to avoid tax. Any real employment-related liabilities will still be eligible for relief in the normal way

The point was made in the debate that those businesses in which employees had sustained a loss (as is the case with the Oakley business model) would not be impacted by the new rules, retrospective or not.

It is also interesting to note that the structure which the Revenue found so offensive was described in some detail as below:

Mr Timms: Both schemes depend on the use of deliberate default to trigger artificial liabilities or losses for which relief would be claimed under legislation intended to provide relief for exceptional circumstances of genuine employment liabilities or losses.

Clearly the business model adopted for Oakley is at the opposite end of the scale to the structure described but unfortunately is still potentially impacted by the very blunt instrument that the Government has introduced.

The debate was however intended to address the question of retrospection. Unfortunately as is often the case, the central point was buried under relatively minor issues and ended rather weakly with;

Mr Gauke: I am disappointed that we did not get an answer on the Government's general approach to retrospective legislation

This leaves Oakley Services with having to defend its entirely commercial business model against potential HMRC questions based on a "contrived" structure that has no connection or similarities with us. This debate has already started with material being supplied to the Revenue and an initial meeting in which the position of the company was outlined. There will be more meetings to follow and these will be reported here as and when required.

In the meantime if you would like more information on this point or the progress of discussions, please contact Graham Webber on 0203 008 6768.

Graham Webber