From 1 April 2013 potential suppliers to central government under above-threshold contracts will (through an appropriate responsible officer) have to self-certify their recent tax compliance history. Relevant contracts will have an additional termination clause, giving the government party the right to terminate if the supplier has had an "occasion of non-compliance". Suppliers will also be obliged to keep the government party notified of changes relating to tax compliance. The government party's remedies will include damages instead of (or as well as) termination, where the new provisions are breached.
The non-compliance in question will be:
(1) HMRC successfully taking action under
(a) the new General Anti-Abuse Rule;
(b) any Targeted Anti-Avoidance Rule; or
(c) the "Halifax abuse" principle relating to VAT;
(2) a tax return being incorrect in relation to a scheme in which the supplier has been involved which scheme was or should have been disclosed under the Disclosure of Tax Avoidance Scheme rules; or
(3) the supplier's tax affairs having given rise to a conviction for tax related offences or to a penalty for civil fraud or evasion.
Where the supplier is not a UK entity, similar obligations and provisions will be applied in respect of comparable rules in its local tax jurisdiction. This sounds easier said than done, and it may be that the new rules are subject to an EU law challenge as preventing freedom of establishment. Time will tell.
The policy will apply to:
(1) companies, partnerships and individuals bidding, whether individually or as a consortium, for above-threshold contracts
(2) Part A and Part B services above the thresholds; and
(3) subcontractors performing a significant part of the contract.
Accordingly, it will be important for those in a joint or consortium bid that they obtain confirmation in advance from their counterparties that they will not be affected by the new rules. Similarly, additional due diligence will be required when engaging or proposing subcontractors.
It is not yet clear whether the self-certification will apply on a group-wide basis or on a company by company basis.
It is proposed that the look-back period is ten years and that it will apply to all taxes. This is a not insignificant responsibility burden for a responsible officer of a self-certifying company.
Businesses involved in government contracts may wish to review their tax history and revisit their tax policies going forward to ensure that there is no risk of any of the non-compliance factors being triggered. Where there is a risk from past events, great care will be needed as to how to disclose that in connection with the procurement process, having regard in particular to the state of the matter with HMRC and any legal privilege or other confidentiality issues.
Further information can be found in the Cabinet Office's Procurement Policy Information Note (03/13), which can be found here.