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News briefing, 21 March 2014
Avoidance
A crackdown on avoidance by big business reduced the risk to the Exchequer from two forms of aggressive tax planning by almost £2bn last year.
Financial Times
It’s really not so much government action that is having an effect as it is public opinion. Tax advisers are reporting little appetite for anything that could be categorised as tax avoidance.
The latest government plans to clamp down on the use of tax avoidance schemes have sparked protests from wealthy investors, who claim the measures would be “completely contrary to natural justice” by being retrospective.
Financial Times
The news relates to the plan to collect tax up front from those who have entered into DOTAS-notified schemes, among others. The tax collected under the plans for accelerated payment will be repaid with interest if HMRC are unsuccessful in closing a marketed avoidance scheme. With demands arriving any time after royal assent, and the economic basis of the scheme dependent on the tax relief, it is not surprising there are rumours the plan will be challenged under human rights provisions.
Business
The real-time information (RTI) system for reporting PAYE is “badly designed” with “fundamental problems”, according to the Institute of Chartered Accountants in England and Wales (ICAEW).
Mail
There are frequent reports of RTI errors – and the repeated backdating of penalty provisions is tacit acknowledgement by HMRC that all is not well with the system.
Capital gains
HMRC collected £110m from investigations into underpayment of capital gains tax (CGT) in 2012/13.
Financial Times
It is curious that the overall amount of CGT brought in during 2012/13, £3.9bn, is less than the £4.33bn collected in 2011/12.
Income
Pushing taxpayers into the 40p income tax band will make them work harder, according to an impact assessment by HMRC, which found that the higher rate will welcome an additional 400,000 over the next two years.
Telegraph; Times; Telegraph
HMRC claim people who have had some of their income dragged into the 40% band by the constant reduction in the higher rate threshold over recent years take home less money after tax and National Insurance than they did when high in the 20% band, leading them to increase their working hours – or turn down the salary-increasing promotion in the first place. But it is unlikely many career decisions are influenced by tax, particularly as rates change frequently.
A government plan to offer tax breaks on childcare has criticised by Labour MPs as an “au pair subsidy” for rich families.
Guardian
A nanny working full-time in the southeast would expect an annual salary of around £30,000, according to payroll service Nannytax 2013, meaning the proffered tax break would not go far. Childcare support will be available to all working families in which each parent earns up to £150,000: the rich will benefit, and so will the less well paid. But why are high-earners enjoying tax relief when child benefit claimants or their partners must have an annual income of less than £50,000?
The tax allowance that married couples can transfer from one to another is set to rise from £1,000 to £1,050. Labour will scrap the break if the party wins next year’s general election, according to shadow chancellor Ed Balls.
Telegraph; Telegraph
The measure will start from 2015/16, when it will be worth £210 rather than the previous £200 – although a transfer will not be possible if either partner is liable to higher rate or additional rate tax. Balls’s announcement is not surprising but does add more uncertainty to the tax system for those who claim the allowance, only to see it taken away soon after.
Inheritance tax
The number of people paying inheritance tax (IHT) will increase by 50% in five years as a result of rising property prices, the Office for Budget Responsibility has predicted.
Telegraph
This is either a bad thing (more families pulled into IHT) or a good thing (increased prosperity of those in areas of rising property prices).
Investment
HMRC have withdrawn approval for a venture capital trust (VCT) for the first time, leaving backers of the Oxford Technology brand to face a huge tax bill.
Financial Times; Telegraph; Times
People who put money in VCTs need to check the fund is abiding by the rules to be sure of keeping the tax relief. Advisers are complaining that an aggressive attitude from HMRC will put off potential investors.
Investments that benefit from both tax breaks and public subsidies are to lose their tax relief status.
Financial Times
Investments eligible for renewables obligation certificates or renewable heat incentives will no longer attract tax relief, which are designed to encourage riskier investments and seen as being incompatible with government-subsidised investment.
Pensions
People earning more than £150,000 would get only 20% tax relief on pension contributions, instead of the current 45%, to pay for Labour’s welfare reform plans, which would also see a tax on bankers’ bonuses.
Telegraph; Guardian; Telegraph; Financial Times
The last Labour government proposed reducing tax relief on some pensions contributions and was criticised by the tax and pensions industries for an unworkable idea. The biggest problem is defined benefit schemes (including Treasury civil servants’) would trigger a tax charge on the employee.
Policy
The coalition government’s tax changes have hit women almost four times as hard as men, according to analysis by the House of Commons Library.
Independent; Independent
While women have suffered from cuts to tax credits, childcare support and the three-year freeze in child benefit, men have benefitted from the reduction in the top rate of tax from 50p to 45p.
The UK faces “crippling” tax rises if it is to meet the needs of an ageing population, according to the Institute of Economic Affairs think-tank.
Telegraph; Guardian
An increased personal allowance is politicians’ preferred vote-winner at the moment – but governmental costs associated with increasing life expectancy are staring policy-makers in the face.
VAT
The chancellor has made tens of millions of pounds in double taxation on energy bills by charging VAT on top of environmental levies, according to the charity National Energy Action.
Telegraph
The Treasury challenged the National Energy Action’s assertion, pointing out that carbon tax is levied on energy suppliers, whose customers pay the 5% VAT.
HMRC plan to scrap VAT on Bitcoin trading, amid concerns about the virtual currency’s potential to for use in tax evasion and money laundering.
Financial Times; Guardian
The Revenue says other levies, including income tax, capital gains tax and corporation tax, will apply. More guidance will be issued as cryptocurrencies evolve.
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