Firms must declare that they have obeyed tax rules in order to bid for government contracts worth more than £5m from next month
Companies will have to self certify that they have not broken anti avoidance rules in tax returns submitted on or after 1 October 2012 under plans published alongside the Budget.
The new measures will come in for contracts advertised on or after 1 April 2013.
From 2019 the government would be able to look back at the firm’s tax affairs for a maximum of six years rather than looking back to October 2012. The government department letting the contract could then decide whether to exclude the company from the procurement process.
In a summary of consultation responses on the plan, published alongside the Budget, HM Revenue & Customs said it would review the policy within a year to ensure it worked as intended.
The plans were first floated in a consultation after last year’s Autumn Statement but have now been modified in the light of the responses received.
Joint ventures and consortia must make the declaration for all their members, but contractors do not have to certify on behalf of subcontractors or suppliers.
Companies that are members of a group of not have to make the declaration for others in the group.
Foreign companies will have to declare their compliance with equivalent tax rules in their country if they exist.
Kirsty Garrison, infrastructure tax partner at Deloitte, said HM Revenue & Customs had made positive amendments to the proposals following the consultation.
She said: “The definition of non-compliance has been clarified, to the benefit of government procurers who have much greater certainty of what to look out for, and which will also help bidders respond to tender questions.
“Other positive changes are the move to only apply the new rules to contracts valued over £5m and confirmation that declarations will only be needed from the bidding entity itself – both changes remove burdensome administration, especially from small and medium enterprises, without watering down the policy objective of encouraging compliant behaviour. Where there is a joint venture, which is common in the construction industry, each of the joint venture parties will need to comply.
“The new rules only directly apply to central government contracts but we expect that other parts of the public sector will follow suit, such as local authorities, and we have already seen signs of this. Companies operating across a broad range of areas sectors such as IT and defence will be affected but this is of particular relevance to the construction industry. ”
The final version of the guidance has yet to be published.