Fair Tax Council, Westminster City, pushes for new regulations to clean up the high street
Westminster City Council is one of almost 60 UK local authorities to have signed up as a Fair Tax Council, and stands out on account of its additional pledge to tackle dirty money in the locality. The London council’s efforts have now gone so far as to potentially influence national policy, securing a commitment from the Shadow Treasury team to tighten up on economic crime and encourage legitimate businesses on the UK’s high streets.
Dodgy Oxford Street candy stores evade local business taxes
The impetus for tackling anti-corruption locally came as the council saw its iconic London shopping district, Oxford Street, fall prey to a swathe of illicit ‘candy stores’ that are thought to have evaded around £8 million worth of business rate taxes.
Council officer efforts to recover lost taxes have been frustrated by the temporary nature of these retailers and their opaque corporate ownership – meaning they cannot readily trace the true owners of retailers due to their usage of shell companies in secrecy jurisdictions such as the Cayman Islands.
Beyond London’s candy stores, ‘phoenixing’ is rife across the UK
Oxford Street’s candy stores are just one example of the ‘phoenixing’ that is rife across the whole of the UK.
The term ‘phoenixing’ describes a practice whereby directors set up a limited liability company and go into trading knowing they will run the company into insolvency in the not-too-distant future. Directors can thereby evade debts to creditors, other companies, local authorities and the UK’s tax authority, HMRC, and subsequently set up trading again but with debts left in the old company. The most brazen offenders will sometimes set up again in the same name, sometimes even with the same assets, which they have bought out of administration on the cheap. If caught, punishment is rarely more than a ban for a few years on being a company director.
HMRC say phoenixing is responsible for 10-15% of all tax losses which equates to hundreds of millions of pounds of losses to the public purse each year. Policing of this largely falls to the Insolvency Service, who are simply stretched too thin, not least from chasing down fraudulent covid loan use where phoenixing has again been rife.
Clarity on who owns UK companies
At the Fair Tax Foundation we have long championed corporate transparency measures, such as robust beneficial ownership disclosure that would help drive out illicit actors and enable responsible business to thrive.
In the past two years the UK has seen two major pieces of legislation introduced to tackle the country’s substantial economic crime problem, but loopholes remain.
We welcome the Shadow Treasury’s commitment, spurred on by Westminster’s efforts, to build on the new Economic Crime Act and toughen up the identity requirements for someone setting up a new company. Robust, public beneficial ownership information is good for fair competition, allowing companies and the public sector to know who they are doing business with.
