The CIoT is warning that the new Capital Gains Tax system is going to be more complex than a lot of people think.

George Osborne raised the rate to 28% for higher band taxpayers in the emergency budget on Tuesday. The increase was less than many people feared and it appears that the Chancellor “made the best out of a bad job”.

There had been calls for the Chancellor to introduce measures such as tapering or indexation allowances and the CIoT believes he chose to implement a lower than expected increase in order to avoid the complexities those measures would have caused.

The higher rate of CGT will be charged when an individual’s total income plus capital gain exceeds £43,875. This means that a basic rate taxpayer who makes a significant gain could find themselves falling into the higher CGT bracket.

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Ambition, the international finance and accounting recruiter, believes that contractor accountants and finance staff working in the public sector will be badly hit by cuts in public spending.

There are currently around 140,000 permanent employees, freelancers and contractors in the public sector and Ambition predicts that around 11.5% will lose their jobs and many of those will be unable to find work in the private sector.

In total, it is thought that as many as three quarters of a million jobs will be lost in the coalition’s bid to reduce public spending by £6.2bn this year.

The MD of Ambition in the UK, Tim Gilbert, pointed out that the majority of public sector finance professionals do not have the cut and thrust attitude required by the banks and City financial institutions. Those candidates with commercial acumen will be quickly snapped up but many will fall by the wayside.

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The plight of UK contractors, freelancers and temporary workers has once again come under the spotlight this week following the launch of the REC’s Agency Workers Directive (AWD) Toolkit.

Since the EU-inspired regulations were signed off in January this year there has been much speculation within the industry about the scope of the AWD. As things stand, umbrella company workers are thought to be captured by the regulations whereas those who are genuinely “in business on their own account” are not.

This would appear to suggest that contractors working outside of IR35 and through their own limited company will not be subject to the much critised ’12 week rule’. Many industry insiders however are yet to be fully convinced that this is indeed the case.

The REC is under no illusions about the potential impact of the AWD. According to the organisation, their new toolkit will assist recruiters to overcome the administrative, legal and practical challenges in a post AWR world.

A spokesperson from the REC said that the industry has reached an important milestone and the now was the time to sit up and pay attention to what is one of the most significant events ever to hit the industry. More information about AWR toolkit can be found by visiting the REC’s website.

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Restraint should be the name of the game if we want to avoid another economic recession. That’s the message accountants are sending to George Osborne in advance of the June 22nd budget.

Although VAT and CGT rises are anticipated, members of MGI UK and Ireland hope there will be some assistance made available to counter any damaging consequences of these rises.

An interesting idea put forward by Andy White of Carter Backer Winter is bound to gain widespread support from employers. He wants to see employers’ national insurance contributions abolished completely; a move he says which would encourage companies to take on more staff. The resulting loss of revenue would be compensated for by an increase in income tax collections and the reduction in the amount of state benefits paid to the unemployed.

Other online accountants say they would like to see a cut in corporation tax rates and an overhaul of IR35.

Meanwhile, government departments are going to have their work cut out in the run up to the summer recess. They need to outline spending plans, which will then be checked against tough criteria, if they want to have funding approved. One of the new criteria that must be met is that projects are essential to help meet government priorities.

Small firms and limited company contractors could benefit from this rule as outsourcing the work could prove the most efficient means of getting projects completed.

George Osborne has said that we face a great national challenge. Government must rethink the way they spend money. Gone are the days of debt, irresponsibility, and waste and we must now find ways to get the country living within its means.

We inherited this terrible economic crisis but if we all work together we can put it right, he added.

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As I write, it appears that we are headed for a Hung Parliament as no party has achieved an overall majority in yesterday’s election.

Many business people have tax policy high up on the shopping list when it comes to casting their vote in a general election. So, as there has been, in effect, no result, does that mean that there will be no change in tax policies?

In the very short term, that will be the case. All taxes as reported in the recent Budget will still be the same. However, in the next few weeks and months this will be subject to change.

There will now commence the horse-trading and side-deals between politicians and their parties that comes with the territory where no party has power. Each party will now need to start discussions with any other party that they feel they can ‘do business with’ in order to form the coalition government that will form policy going forward.

On the basis that the Conservatives and Labour will not be working together, it will be down to each of those parties trying to do deals with the Liberal Democrats. Picture the scene …….. in any one of the 20 or so bars in the Houses of Parliament, party officials will be haggling over a bottle of claret. ‘ If we could agree to work with you, you would need to support our tax policy on ………. You scratch my back and I’ll scratch yours.’

This is not really the way to develop coherent tax policies to encourage business growth.

For instance, the Lib Dems have been proposing increasing the capital gains tax rates up to 50%. For most gains currently, they are taxed at either 10% or 18%. Bringing in this sort of policy could be very damaging to contractors who have been considering closing their businesses and taking a capital repayment.

It is the uncertainty of things that is also disturbing. In the UK, coalition governments rarely last long and another election could be called later this year. That could then herald more changes in the direction of tax policies.

Gloomy stuff, I know, but it does look like we are headed into a bit of a tunnel. Let’s hope there is some light at the end of it.

John Mumford is the Accounting Director of Carrington Accountancy
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The Chartered Institute of Taxation has criticised the government’s decision to push ahead with the Finance Bill before the general election. They believe that rushing through the proposals could lead to loopholes and an overly complicated tax system.

There are several clauses in the bill including 3 new taxes. The CIOT is concerned that without proper parliamentary scrutiny the government is leaving itself open to unforeseen circumstances in the future.

One item of the bill that has upset the CIOT is the restrictions on pensions’ tax relief for higher earners. They believe that the new regulations are over-complex and question the decision to rush them through when they won’t actually come into force until April 2011.

John Whiting from the CIOT said that the government doesn’t appear to have listened to the views of respondents, including several leading contractor accountants, most of whom said there were easier ways of curtailing tax relief for the rich. He also called on the government to wait until after the election to push through the majority of the proposals.

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There was quite a lot of minor change in the Budget, and we should praise the intention to focus on helping businesses with a raft of measures, but for us one man consultancy companies there was actually nothing of very much interest in there. With VAT, Corporation Tax and allowances all staying the same, there will be almost zero impact on most of us.

A lot of the business friendly things won’t really impact me, of course. I don’t pay business rates since like most freelances I am something of a nomad. I don’t have a lot of capital expenditure so changes in Investment Allowances are immaterial. I welcome the intention to increase access to HMG contracts by 15%, but that’s not happening until the end of 2010.

So all in all, something of a non-event.

Unless, of course, you are using one of the more imaginative payment schemes. There is a strong anti-avoidance programme tucked away in the detail – that’s all the things that Darling Alistair doesn’t burden his audience with in the House – some of which will impact some freelance workers. For example, payments via loans will be shut off by the simple expedient of making the loan write-off liable to CT and hence uneconomic. There is a clear message that EBTs in all their forms will be closed off. Add to that some additional international taxation treaties (including one with Belize, stamping ground of Tory donor Lord Ashcroft. Funny, that…) and a re-emphasis of the rules of Double Taxation; clearly some people are going to have to rethink how they manage their money.

And of course, tax allowances have been frozen which is, as Osborne pointed out, just another Labour stealth tax. Darling’s justification made me smile as well. The indexation is based on the previous September’s inflation rate, which just happened to be negative. “Reducing them would be daft” said Alistair. Really? I think it would have been entirely fair, since those are the rules. Heigh ho…

Away from the Budget and there was another major piece of news that, perhaps surprisingly, has gone largely unnoticed. As a result of campaigning by the PCG, there has been a bit of a rethink on the rules surrounding ICT visas. These are the route that some companies are using to bring non-EU workers in to displace more expensive (allegedly) UK workers. The parameters have been significantly tightened, some taxation loopholes closed off and the original Tier 2 split into three distinct classes. The net result is that imported ICT-based labour will be less economical to use, easier to limit and more difficult to bring in.

These changes actually go farther than the PCG was asking for, which was a welcome if slightly surprising result. It is however a vindication of the power of effective lobbying and, incidentally, an indication of how much clout the PCG is beginning to assert. Well done to them, says I.

Of course, like the Budget itself, it remains to be seen exactly how effective these measures prove to be in the real world. But at least the ICT changes have a decent chance of surviving the next election and achieving tier aims, which can’t really be said about Darling Alistair…

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Seriously, this has been a week of mixed messages, both at work and in the wider world. It’s getting so you know longer know which version of reality you should believe.

For example, the Head of HMRC’s Anti-Avoidance limit gave an interview to the Chartered Institute of Taxation about her work. Apart from apparently claiming HMG is owed £7bn from tax avoidance, she continued to mix avoidance and evasion as being similar evils. Well they may be to a tax mandarin, but if I’ve legitimately avoided paying tax in line with the law, I don’t owe anybody anything. Am I alone in thinking that if a senior Civil Servant doesn’t understand the laws that govern her own department, she might like to consider why she’s there?

Unemployment reportedly fell by a few percent as well. That’s good. Except employment also fell, by a rather larger amount. Say what? It seems there are a lot of people who are becoming “economically inactive”. Which means they don’t work and have stopped trying. So the reality is that there aren’t roughly 2 million out of work, it’s more like 8 million.

UK’s borrowing looks like it will be a few billion less than projected as well. Also good news, and something we will no doubt hear Darling Alistair crowing about in the budget next week. Of course, the minor detail that our borrowing of around £178bn is over four times what the EU considers acceptable is neither here nor there. And you have to ask how good the forecasters are who can miss an monthly estimate by such margins: apparently the January figure was revised from £4.3 billion to £44 million. Wish I could make savings of that order with my project estimates…

Back in the client’s world, we need some extra funding to do a fairly important but unplanned piece of work. No problem says the management, we’ve got a surplus over here, you can use that. Hang on, says one of my line managers, I’ve been promised that to fund this other piece of work. OK, back to the drawing board.

Then one department has bought a whole new application, all bundled up on it’s own hardware, just needs dropping on to our network, can we do this next week please. Um, no, not until we’ve cleared it with the security team. And the Network team. And the Capacity Management team. And found someone to do the work. Next time perhaps you might like to follow due process?

I know IT can work miracles. But even the Universe has laws. If only real life recognised the fact.

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