State IT suppliers who duck tax to be ejected

Large IT contractors and other potential suppliers eyeing government contracts of at least £2m can be disqualified for applying if their tax compliance is in doubt, confirm new rules put forward last week.

Drawn up by Treasury and Cabinet Office officials, the rules will force all prospective state suppliers to ‘self-certify’ whether they have had an “occasion of non-compliance” within a designated period, such as the last 10 years.

Although some forms of tax non-compliance are acknowledged as ‘low-risk’, all suppliers who fail to provide a ‘pass’ answer on the self-assessment face being excluded from bidding, “as their response would be deemed to be ‘non-compliant.’”

And an ‘occasion of non-compliance’ with tax includes the would-be supplier having taken part in a failed tax avoidance scheme; incurred a penalty for fraud or evasion or from having been found guilty of another tax-related offence.

But at its least, it could apply to a prospective state contractor whose tax return has been found to be incorrect as a result of HMRC successfully challenging it, including under the incoming GAAR.

Underlining the determination to root out tax avoiders in its supply chain, Whitehall said that such criteria would apply throughout the contract’s lifetime, indicating that an inaccurate tax return while on-contract could lead to ejection even if the supplier began the project as tax-compliant.

The Cabinet Office reflected on the rules, scheduled to come into force from April: “At the selection stage…a potential contractor can be asked whether it has fulfilled all its obligations relating to the payment of taxes.

“[But also] the supplier will be legally obliged to tell the contracting department if their status changes after the award of the contract.”

To that end, new clauses will be parachuted into government contracts worth £2m or more, with the effect that departments (or the contracting authority) can terminate the contract if the supplier - subsequent to commencing it - falls foul of the taxman.

According to Danny Alexander, Treasury chief secretary, the result will be that the government and its agencies can in future “say ‘no’ to firms bidding for government contracts where they have been involved in failed tax avoidance.”

Francis Maude, the cabinet office minister, added that putting “value for money” at the heart of the government procurement practice would “continue” from day one of the bidding process, by contracts only accepting those firms who meet their tax obligations.

Asked about the framework by the Financial Times, Mr Maude responded: “If you work for the government, whether you’re an individual employee or a company that has got a contract with the government, you need to be behaving properly with regard to tax rules.”

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