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News briefing, 15 February 2013
Our weekly comments on tax stories by the national press
Avoidance
Companies that use elaborate schemes to avoid paying tax are to be barred from signing lucrative contracts with the government, as MPs prepare to scrutinise the tax affairs of IT firms that supply the public sector.
Guardian, Sunday Times; Financial Times; Financial Times
The test is expected to be whether a company has fallen foul of the new general anti-abuse rule, which means that efficient global tax planning such as that undertaken by companies like Amazon, Starbucks, will not be a bar to government contracts. It is also retrospective, which seems very unfair. It is not clear whether companies avoiding VAT on hot takeaway food, such as Subway, would be banned from holding catering contracts – but if not, why not?
Business
Banks and City institutions looking to defer staff bonuses to the new financial year – to escape the 50% tax rate – run the risk of incurring "punitive fines" from the taxman, according to the legal firm GQ Employment Law.
Telegraph
The important point for the operation of PAYE is when the employee is entitled to be paid, rather than when an entitlement to payment arises. Deferring payment into a following year may not be sufficient to defer the liability to income tax. However, if the bonuses are discretionary, it is hard to see why a company or its employees should be criticised for taking them at the most tax-efficient time.
The chancellor, George Osborne, has been urged by the Centre-Forum think-tank to create tax breaks for small and medium enterprises (SMEs) to enable them to raise enquiry equity finance on the capital markets.
Financial Times & Telegraph
Not only do SMEs often have difficulty borrowing money to finance their business activities, they also face the uphill task of raising finance from the issue of shares. Suggested improvements include the abolition of stamp duty on some transactions – applying the measure to AIM shares would costs a modest £54m – and allowing shares to be included in stocks and shares ISAs.
Nearly half of the UK’s biggest companies have ignored a campaign by backbench MPs seeking support for greater corporate tax transparency.
Times
The campaign consisted of one MP writing to FTSE 100 companies to ask whether they supported transparency and the requirement that they report the tax paid in every country in which they operate. Not many businesses will want to disclose the information, which could be commercially sensitive. It is down to governments to make law and ensure compliance.
UK business groups have warned that jobs and growth could be jeopardised by the new EU financial transactions tax (FTT), which was launched this week.
Telegraph; Times
The planned directive for FTT implies that the scope could be wider than originally planned, to try to prevent business from being transferred to a non-participating country. Rather than ignore the process, businesses in member states not taking part in the tax, such as the UK, should read the proposals and submit comments.
Income tax
The prime minister, David Cameron, has raised hopes that the 10p income tax band, which was axed by the Labour government, could be restored – and Labour leader Ed Miliband has pledged to pay for a recall of the rate by introducing a new tax on homes worth more than £2m.
Telegraph; Financial Times; Guardian, Telegraph, Independent, Financial Times; Times
The party leaders’ remarks seem more like the first shots of the 2015 election campaign than detailed consideration of future tax policy. A small 10% band would simply increase complexity; it would be better to use the money to increase the personal allowance still further if the aim is to help the low paid.
Inheritance tax
The level at which inheritance tax (IHT) becomes payable is be frozen at £325,000 until at least 2019, to fund reform of the social care system, in a reversal of the Conservative pledge to revamp the “unfair” tax.
Telegraph & Times
The decision means a very small proportion of estates that will be taxable. The fact that property prices have been in the doldrums for a few years (London apart) may provide some solace, as it is the value of the main residence that proponents of a higher IHT threshold usually cite as dragging people into the IHT net. It is, however, surprising that the decision has attracted so little attention when a few years ago it was the Conservative policy to increase the IHT level to £1 million that, allegedly, stopped Gordon Brown calling an early general election in 2007.
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