January, and the vexed question of self-assessment rears its head again. My accountant friends have said good bye to the family until February and closeted themselves with quill pens and envelopes of receipts. Others have burned the midnight oil trying to complete their online returns. Still others – like me for example – pay the bill to the accountant, send off a small corrective payment to HMRC and wonder what all the fuss is about.

In my case that cheque is for precisely eighty pence. Can’t pay that online so a cheque it will have to be. Which will cost the drones in HMRC around £30 to process but basic economics was never really their strong point. And it’s only outstanding in the first place because last year I ignored a similarly trivial underpayment and this year got rightly stung for the interest.

Meanwhile, away from the distractions of the self-assessment merry-go-round, a rather more invidious tax change has crept in, largely unannounced and unremarked. As of now, there is a limit on how much cash you can take out when closing your company under the provisions of Extra-Statutory Concession 16 of just £25,000. Anything over that attracts Capital Gains tax at the relevant rate. Great. More taxes you never knew you owed.

There is a way around it; you simply have to liquidate your company. That means using the services of a liquidator who, incidentally, can’t be your current accountant. And it seems that such a service comes in at around seven grand a pop. Until, that is, Liquidators-R-Us get up and running and the cost comes down, so defeating the whole purpose.

But if you think about it, if the idea is to increase the CGT take from closing companies, why leave the Liquidation loophole in the first place? Joined-up thinking? Not at all, merely another excuse to get taxes imposed by relying on people not knowing the detail.

But what really irritates me about this is the underlying assumption by HMRC that a company’s sole purpose is to grow into an eternal corporate body and any that don’t are not to be taken seriously. There is no acceptance or understanding that if you are working in a world where income is variable and frequently non-existent, using a company to store and distribute your income evenly across the year is the best way to do it. And when you finally stop grinding away at the coal face you want to get your money back as efficiently as you can while paying whatever levies are due to the Treasury, not to some pointless corporate leech.

It’s exactly the same mindset that got us IR35 in the first place. We have companies. We don’t have 300 employees and a pile of plant and machinery so we must be cheating the taxman, else why have the company? Well there’s S44-47 for one thing and the idiot tax liability transfer rules it embodies. But hey, that’s no excuse.

I have to conclude that the increasingly rapacious predations of HMRC are the single biggest inhibitor to the recovery we can think of. It’s all very well the Government saying we need a vibrant and flexible workforce, and we’d love to give them one, but getting constantly cut off at the knees by a body that has absolutely no experience or expertise in the real world is getting more than a little wearing.

And finally it’s the next meeting of the infamous IR35 Forum soon. There is a hope that they will come up with a final answer to the IR35 question. Personally, I’m not hopeful. Can’t imagine why…

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On the 13rd December, the Office of Tax Simplification published its interim review of 13 reliefs, providing some light reading for online accountants.

The interim review included CGT relief on the disposal of private houses, income tax relief on luncheon vouchers, tax relief on research and development and VAT relief on supplies and sales for charities.

Of the 13 reliefs, the OTS decided that five should be axed including the luncheon voucher relief and the tax break for workers who get a taxi home after working late. The OTS says the taxi break, which was introduced in 1987, is unfair. It is used frequently by financial services and legal firms who want employees to stay at work late to complete urgent projects, but it is not available for shift workers travelling at night unless they have to work later than usual.

Another relief that could go is the vaccine research relief which Gordon Brown introduced in 2002. It was designed to encourage research into HIV/AIDS, malaria and tuberculosis but only 10 companies are allowed to claim it. The OTS says the relief is very rarely used and there is no evidence that additional research into vaccines for the named diseases has been undertaken.

The OTS has identified a total of 1,042 separate tax reliefs and is now going to focus on 74 in a final review.

The Institute of Chartered Accountants of Scotland is also urging the OTS to recommend merging income tax and NICs. This would lead to less administrative costs for both HMRC and businesses, according to the Institute.

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The FPB has expressed its approval of the business friendly emergency budget, saying that it contained various key victories for small businesses such as smaller contractor accountants.

The 1% reduction in small companies’ tax was a positive measure, as was the £5 million threshold for relief on capital gains tax (CGT) for entrepreneurs and limited company contractors.

The Forum thinks that the government demonstrated its appreciation of the issues relating to small businesses by extending the Enterprise Finance Guarantee scheme, continuing the tax breaks for holiday let properties and abolishing back-dated business rates.

The full budget document pledged to review recruitment and employment law and this was something the FPB had called on them to do. Forum members often cite employment regulations as a major area of concern so any measures to simply the law will be welcomed.

Phil Orford, the FPB chief executive, believes owners of small businesses would have been pleasantly surprised by the budget.

On the subject of the impending VAT rise, Orford said that although this will have an impact, he thinks the majority of Forum members would rather this outcome than an increase in other taxes or a further reduction in public spending.

The FPB will now be calling on the government to give a guarantee that it will provide genuine private sector input to help boost local economic growth, especially in those areas that will suffer from public sector job cuts.

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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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Contractor accountants might be interested in the opinion that an increase in CGT will have an adverse effect on the buy-to-let market. This was suggested by the chairman of the Residential Landlords Association, Alan Ward.

He said that the proposed rise will put investors off selling properties and deter landlords from improving any properties they have recently bought.

Landlords often spend money on newly acquired properties in order to improve or alter them and raise their standards before letting them.

It is expected that George Osborne will raise the rate of CGT on non-business assets in line with income tax when he presents his emergency budget next week. But Mr Ward warned that this will frustrate the housing market and kill investment.

Thousands of people, including limited company contractors, are in accord with Alan Ward. At least 17,400 individuals have already signed a petition, organised by the Daily Telegraph, calling on the chancellor to scrap the planned increase, and many thousands more have expressed their views on the Daily Telegraph website.

However, Professor Michael Devereux, from Oxford University, backs the coalition’s plan to raise the tax on buy to let properties and second homes. He is in favour of a CGT rise to the same level of income tax and feels that the people should not receive relief when disposing of assets they have held for a long time.

Some people have argued that the CGT rate should be tapered. In other words, it should decrease in line with the length of asset ownership time. But Devereux pointed out that there was no economic benefit to be gained by encouraging people to hold assets over the long-term.

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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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