Individuals and businesses that have taken part in tax avoidance could be denied government contracts, under new rules unveiled by coalition ministers.

Potential suppliers will be required to notify contracting departments of their recent tax compliance history and state if any return has been found to be incorrect as a result of HMRC successfully challenging it under the general anti-abuse rule to be enacted in Finance Bill 2013, an anti-avoidance rule, or the Halifax abuse principle.

The government will expect transparency about failed avoidance arrangement in which the taxpayer was involved in and which was, or should have been, registered under the disclosure of tax avoidance scheme rule – and would-be suppliers will be forced to disclose information about convictions for tax-related offences or penalties for civil fraud or evasion.

A new contract clause will allow departments to terminate an agreement if the service provider subsequently breaches tax compliance obligations. The supplier will be legally obliged to inform the contracting government of a change in status after the award of a contract.

The rules – described by the chief secretary to the Treasury, Danny Alexander, as a “significant tool” – are outlined in draft guidance published for consultation, and are expected to come into effect on 1 April.

The proposal is that they work retrospectively, with a possible a ten-year time limit relating to the date the non-compliance was recognised, rather than when an arrangement was entered into.

European laws have been taken in to account: the EU procurement directive and Public Contracts Regulations 2006 allow procuring authorities to apply tax and propriety-based criteria at the selection stage. In particular, a potential contractor can be asked whether it has fulfilled all obligations relating to the payment of taxes.

Comments on the proposed measures should be submitted by email no later than 28 February to the Revenue’s David Harris or Robert Sanford.

The plans are “not altogether surprising given public concern about tax revenues”, said Mary Monfries, head of public policy at PricewaterhouseCoopers, who insisted the rules be easy to understand and comply with, so that “discrimination doesn’t result”.

Monfries expressed concerned about the retrospective element , saying “the tax environment has changed considerably over the last ten years and the focus should be on current and future behaviour.

“Although the government says it will look at equivalent foreign tax rules when reviewing overseas suppliers, the rules are not directly comparable. Longstanding UK-based companies who have responded to the public concerns could be put at a disadvantage against overseas new entrants.”