Tag Archive | "coalition"

Will Chancellor bow to latest Lib-Dem income tax demands?

Contractor accountants may already be aware that Nick Clegg, the Deputy Prime Minister, recently urged the government to speed up its plans to increase the income tax threshold to £10,000.

However, PwC has warned that implementing such a plan would cost the country £11 billion. HMRC has estimated that raising the personal allowance by £100 costs the Exchequer a minimum of £0.5 billion. This has led to Alex Henderson, one of PwC’s tax partners, saying that raising the threshold faster than originally planned would be a heavy drain on the UK’s financial resources.

Part of the original pact between the coalition partners was that the income tax threshold would rise to £10,000 by the time of the next election in 2015. This was one of the demands made by the Liberal Democrats in return for joining forces with the Tories to form the current coalition.

Nick Clegg now wants to see the plan accelerated to help relieve some of the financial pressure facing families on low incomes. But Henderson points out that such a move would have to be paid for. Either tax receipts from borrowing or growth would need to improve, or we would see significant tax rises or cuts in existing reliefs if the government was to balance the books. To illustrate the scale of the gap, he explained that raising VAT to 22% from the current 20% would just about compensate for an increase in the income tax threshold to £10,000.

Under current plans, the Chancellor is expected to increase the income tax threshold to £8,105 when he gives his Budget on the 21st of March.

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Should employee share ownership schemes qualify for tax breaks?

Deputy Prime Minister, Nick Clegg, hinted recently that tax breaks may be available to firms that offer employee share ownership schemes.

Mr Clegg said the government intends to reform the tax system in a way that will encourage employee ownership. As well as tax breaks for employers, the government is considering whether employees should have the right to ask for shares in the firm they work for.

The deputy PM went on to urge companies to follow the example of John Lewis. The high street department store is owned by its employees, all of whom get a share of the profits. The UK needs more people to own a stake in the firm they work for, he continued, and it has been proven that companies with employee ownership schemes often perform better.

However, employee share ownership schemes have little benefit for the vast majority of private companies, according to Sharon Bedford from James Cowper. She said staff might face higher tax charges as a result and from the firm’s perspective, employee share ownership is a tax nightmare.

She went on to explain that Gordon Brown made complex changes to the tax rules in 2003 that could leave employees facing an upfront charge as soon as they receive company shares. It’s also unlikely that share ownership would give them a greater say in the way the company is run.

Both David Cameron and Ed Miliband have called for a more responsible capitalist society in the UK. But the question is, does the coalition have courage to make the necessary changes?

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Is the 50% income tax rate here to stay?

Leading lawyers said recently that the 50% income tax rate did not cause the exodus many people had predicted.

David Jervis, head of tax at Eversheds, the international law firm, said he was actually not that surprised. The 50% tax rate is referred to as a temporary measure and the Chancellor and other senior coalition members back this up.

The expectation that the top rate will not remain with us for long, plus the inconvenience incurred by taxpayers such as online accountants in relocating and London’s position as a world leading financial centre, could have helped to close the migration floodgates for the moment.

However, Danny Alexander, the chief secretary to the Treasury, has said that people seeking the abolition of the top tax rate are “living in cloud cuckoo land”.

Boris Johnson, the Mayor of London, and Lord Lamont, a former Chancellor of the Exchequer, recently called on the government to abolish the 50% tax rate.

The Lib Dem minister defended the government’s plan for economic recovery and said we had a long and difficult road to travel down. He went on to blame the global economy for the sluggish economic growth the UK is currently experiencing. Increased commodity prices and the soaring price of oil were major factors to blame for the dire state of the British economy, he said.

Alexander also claimed that when it comes to tax cuts, the coalition would prioritise reducing the burden on low and middle income people who are struggling to make ends meet.

Mr Alexander’s claims came after Norman Lamont said the lame excuses such as the Royal Wedding and the Japanese earthquake were to blame for sluggish growth were politically inspired.

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Income tax and NI merger moves a step closer

The government is proceeding with its plan to merge income tax and national insurance by first inviting businesses to provide evidence of the problems they encounter administering two separate taxes.

Employers and payroll professionals will have until the 19th of September to answer 14 questions primarily focusing on the burden of the PAYE system.

One of the questions on this evidence-seeking consultation asks respondents to rank the amount of time spent carrying out income tax and national insurance processes on a scale of one to five. Others ask about calculation errors, usage of payroll processing software and the introduction of Real Time Information.

David Gauke, the exchequer secretary, said the coalition has committed to making the taxation system in the UK the most competitive in the G20 countries for business, as well as simpler for individual taxpayers to understand.

Integrating income tax and national insurance will be a radical reform, but the government believes it will bring about real improvements, he added.

Anthony Thomas, the president of the CIoT, has welcomed the government’s decision to gather evidence from interested parties. He pointed out that a recent OTS report showed that both employers and HMRC can make significant administrative savings by harmonising the way NI and income tax are run.

The responses to this process will give the government an idea of how it should proceed with the formal consultation which is planned for the autumn.

The Treasury has also made it clear that NICs will not be levied on pensions, people above pension age, dividends or savings.

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Should online accountants encourage micro-firms to still file accounts?

There are growing concerns amongst finance professionals that the government’s plans to exempt small businesses from filing accounts with Companies House might backfire.

Under new proposals, firms with an annual turnover less than £88,000 will no longer need to file statutory accounts, but experts believe this could make it harder for them to get access to trade credit. The Institute of Credit Management’s chief executive, Philip King, said suppliers rely on financial information when deciding whether or not to extend credit terms. If micro-firms do not need to file accounts, suppliers are unlikely to give them credit.

He thinks that businesses should provide more information rather than less and that rather than encouraging growth, the government’s new proposals will restrict it.

Graydon, the credit reference agency, recently conducted research that found that only 8% of businesses would extend credit if they did not have access to a company’s financial information. Martin Williams from Graydon said that most suppliers admitted they would not grant credit or finance to a small business unless its financial information was available.

He went on to explain that this is not the solution to reducing the red tape problem and there is a danger that it will actually increase the administrative burden on SMEs if they have to answer financial questions directly from trade suppliers.

A lot of entrepreneurs were no doubt relieved when the EU agreed to exempt micro-businesses from filing some reports with Companies House. Ed Davey, the business minister, said this was a significant step forward in the battle to reduce red tape. However, businesses would still have to file simplified information at the government’s discretion.

It has not been decided whether the UK coalition will actually adopt the new rules and in the meantime, financial experts hope they can convince the government that they will do more harm than good.

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Red tape is still stopping businesses grow

Small enterprises, including accountants for contractors, in the UK say that one of the most onerous and complex issues they face is still excessive red tape.

According to a recent survey by the FSB, 27% of UK businesses think increased regulation makes it hard to expand and 33% believe regulation provides the biggest obstacle to growth.

The coalition has placed a three year moratorium on new domestic regulations for micro businesses. But the FSB has expressed disappointment that some large regulations are not covered by this moratorium. Of particular concern are regulations which increase the administrative and organisational burdens on small firms, such as extending paternity rights and removing the default retirement age.

The Home Office recently invited businesses to tell the coalition what it should do to reduce bureaucracy and boost business growth. The Red Tape Challenge website has been set up to give everybody the opportunity to contribute their opinions and suggestions on the subject of bureaucracy.

One problem that we face in the UK is that even if we scrap certain domestic regulations; we can do nothing about the legislation drawn up in Brussels. So even though micro firms are exempt from our government’s regulations during the moratorium, they still have to comply with edicts drawn up in the EU. However, the government does admit that it may have enforced some EU regulations beyond the minimum legal requirement.

Reducing bureaucracy is going to be a long process. The Red Tape Challenge is open until April 2013 and will look at more than 21,000 active rules and regulations.

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90% of Britains think the economy is in a bad state

Only 10% of people in Britain think the economy is good, ranking us amongst the gloomiest nations in the world, according to a new survey.

24 of the world’s largest economies were polled and it transpired that Japanese and Hungarian citizens were the only nationalities that were more negative than us. And the Japanese have a good excuse after suffering the massive earthquake and tsunami earlier this year.

In contrast, at least 70% of citizens in Australia, China, India, Saudi Arabia and Sweden think their country’s economy is good.

The majority of us can’t see a light at the end of the tunnel either. Only 10% expect the economy to strengthen over the next six months.

The survey was conducted by Ipsos MORI and its MD, Bobby Duffy, said the level of gloom was understandable. We have absurd house prices and the cost of living is rising a lot faster than earnings. It is not surprising that people feel pessimistic and this will impact growth.

It’s not only the man in the street who feels less than happy about the state of the British economy. The BCC has now downgraded its expectations for growth for this year and next.

The Chamber has knocked 0.1 percentage points off its GDP forecasts and at the same time increased the forecasts for annual CPI inflation.

In slightly better news, the organisation now expects just 2.6 million people to be unemployed 15 months from now, instead of the 2.65 million it predicted 3 months ago.

The director general of the BCC, David Frost, said the economy still faces difficult challenges. However, he believes the coalition is right to continue with its plans to reduce the budget deficit. But, the government must also come up with policies that enable businesses to drive the recovery, he added.

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Flexible working and parental leave reforms could harm SMEs

The UK government has pledged to reduce red tape and yet its latest proposals to change parental leave and flexible working will increase bureaucracy, according to the FSB.

The Federation of Small Businesses has expressed its concern that the coalition’s plans to introduce changes to parental leave and extend flexible working will damage small businesses.

Although the FSB has been calling for reform of the parental leave regulations, the government’s proposed solution of allowing parents to take chunks of leave, instead of one block, would make it far more complicated to administer.

The government has launched a consultation on the proposals and the FSB will be contributing by expressing the opinion of small businesses.

The FSB’s national chairman, John Walker, said that despite promising to ease the burden of red tape, the government plans to introduce additional complexity which will make things even more time confusing and complicated for small businesses.

It will be extremely onerous for small firms and limited company contractors to organise workloads and cover for an employee who decides to take parental leave in chunks rather than a continuous block of time. The majority of small businesses already allow flexible working and the FSB urges the government not to make it mandatory for employers to consider requests for flexible working after a 26 week qualifying period as it would pile yet more red tape on them.

David Cameron wants the private sector to drive the economic recovery but changes to these regulations could further deter small businesses from hiring more staff, Walker concluded.

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It’s one step forward and two back on tax simplification

The Association of Chartered Certified Accountants claims the government is not succeeding in its efforts to simplify the taxation system in the UK. The organisation says the coalition is taking one step forward and two steps back.

Since coming into office last year, the government has made 200 tax code changes, even though they promised to give us an easier, more streamlined tax environment.

ACCA’s head of taxation, Chas-Roy-Chowdhury, said the number of alterations that have been made means the coalition takes one step forward followed by two back in its efforts to simplify the UK’s complex tax system.

UK contractors have been affected by a number of these changes but the one change that is most sought after still remains. IR35 is still with us, although the government has pledged to overhaul it and improve its administration.

David Gauke, the Exchequer secretary, recently reiterated his commitment to improving IR35 after acknowledging that contractors in the UK are significant and important people in the business community.

Gauke explained that HMRC is going to completely overhaul the way it administers IR35. This issue has to be got right if we are to provide a fair tax system that enables professional contractors to provide their services in the best possible way.

Chris Bryce, the chairman of the PCG, said he was pleased the Minister had made this personal commitment and that he recognised the major difficulties that have faced freelancers for the past 11 years.

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Regulatory burdens are still weighing companies down

Ed Davey, the employment relations minister, recently reinforced the government’s commitment to removing the barriers to job creation.

The minister made his comments at a breakfast event at Epsom Downs Racecourse, saying the coalition wants to remove both perceived and real barriers. He acknowledged that employers’ felt it was difficult and tricky to employ staff but stressed that the new Employer’s Charter was not biased in favour of employees.

Employers have rights too, and if they behave reasonably they have nothing to worry about, he continued.

The government will press ahead with reforms that will give employers confidence to recruit. All business organisations have complained about Employment Tribunals and so the coalition intends to reduce the unfair dismissal qualifying period.

He finished off by telling the audience that Whitehall is currently reviewing all employment related legislation and in the future, the government intends to deregulate or re-regulate rather than introducing new legislation.

It isn’t only employment legislation that is weighing employers down. The latest Annual Global Accelus Survey from Thomson Reuters GRC found that 71% of senior compliance and risk managers feel the global economy is being held back by the burden of regulations. And a massive 88% of the respondents said regulators must find better ways to ensure the regulations they are trying to enforce are effective.

In the financial sector last year, there were 12,500 regulatory updates globally and there will be even more this year, said the president of Thomson Reuters GRC, David Craig.

It’s not only the financial services sector that is weighed down by the burden of regulation either. Energy, healthcare, legal, life sciences and shipping are all heavily regulated industries and companies are getting increasingly concerned over how to cope with the daily avalanche of rules and regulations, he added.

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Why are new businesses ignoring the employers NICs holiday?

Contractor accountancy firm, Mitchell Charlesworth, has said that several new businesses are failing to capitalise on the National Insurance Contributions holiday set up by the government last year.

When Chancellor George Osborne delivered the coalition’s first budget last June, he introduced a measure whereby new businesses were exempt from paying employers NICs, up to a value of £5,000, on the first 10 workers they employ during their first year in business. By taking advantage of this, a new company could save up to £50,000.

The NIC holiday initiative is available to new firms that set up between the 22nd of June 2010 and the 5th of September 2013.

Paul Durrance from Mitchell Charlesworth said that government sources claim the take up of the scheme has been disappointingly low.

The coalition has now launched StartUp Britain in a bid to provide more support for entrepreneurs and whilst this looks good for the government, there’s a bewildering minefield of information for resource stretched start up firms to absorb, he continued. Unless they possess specialist knowledge, these firms could easily miss the golden nuggets, such as the NICs holiday.

The government is disappointed that so few firms have taken up the NIC holiday so start ups should grab the opportunity while it is available. There are certain conditions that have to be met so start-ups may want to consult a financial expert to check their eligibility. Newly set up companies in London, east England and the Southeast are not entitled to the break and in certain sectors there is a limit on the amount that can be claimed.

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Tackling tax avoidance is good but what about tax evasion?

Contractor accountants may be interested to learn that the coalition has decided to adopt a more novel approach to tax avoidance.

The Treasury released their “Tackling Tax Avoidance” paper last week and it won quick approval from the CIoT. The Institute has been campaigning for changes to the government’s stance on retrospective tax changes for some time and is delighted that the retrospective approach has finally been dropped.

Vincent Oratore, the president of the CIoT, was delighted that the organisation’s concerns had been listened to and said SMEs and contractors will welcome this new approach as it provides them with greater certainty.

Wealthy individuals who have been able to cut down on the amount of stamp duty paid on expensive residential properties will find that loophole now closed to them. In the past, millionaires have been able to set up a company and make it the legal owner of their mansion thus avoiding a large portion of stamp duty. The Treasury estimates it will rake in an additional £30 million every year by putting a stop to this practice.

The government has now made three property related schemes illegal. Two involved buying a property through a financial institution and the third involved taking a long-term lease, of anything up to 999 years on a property, rather than buying it outright.

George Osborne also intends to raise a further £750 million by clamping down on disguised remuneration schemes.

Whilst it is understandable that the government wants to tackle tax avoidance, experts claim that tax evasion and other criminal activity have a much greater impact than legal avoidance.

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Companies are completely confused by government regulations

The continual changes to employment and tax regulations are leaving companies confused, stifling the country’s competitiveness and hindering job creation.

61% of businesses are unclear as to what is classed as tax avoidance and what constitutes legitimate tax planning and 33% believe they are treat as guilty by HMRC until they can prove their innocence, according to BDO LLP.

A large proportion of UK companies think the current tax framework is to complex and the situation is made worse by HMRC’s aggressive stance. Companies feel they now need to spend more time on their tax affairs instead of focusing on growing their business. Dealing with the Revenue has become more of a burden in the last five years, according to 65% of business leaders and 88% think things would be much easier if the tax rules were simplified.

Employers also have to fight their way through a ridiculous amount of employment legislation. David Frost, the director general of the British Chamber of Commerce, said that there was a growing consensus that employment law is weighted in favour of employees. A lot of employee rights have been implemented as a result of EU legislation but European labour markets are very different to ours.

The UK government should be prioritising job creation as this will lead to future prosperity. Mr. Frost said the coalition must desist from implementing any new employment laws for the next three years and cancel the 1% increase in employer NICs in order to encourage companies to recruit more staff.

Over the next four years, BCC estimates show that new legislation and tax will cost UK employers £25.6 billion.

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Are contractor accountants held back by employment legislation?

Contractor accountants should be aware that the government is planning to overhaul the UK’s employment laws in order to help the economic recovery.

One of the proposals, which has already provoked fury, is to allow firms to fire employees who are underperforming during their first two years of employment, without the threat of facing an unfair dismissal tribunal. Under the current regulations, an employee can seek redress from an employment tribunal if they are sacked after 12 months.

The coalition is also looking into the system of tribunals at present. Business groups, such as the BCC are urging for immediate reform but the TUC suggested that workers could be discouraged from seeking justice if major changes are implemented.

Union leaders are also concerned that increasing the qualifying period to two years could give a green light to unscrupulous employers to break the law.

The coalition is likely to launch a consultation into the future of tribunals after business groups complained that there was a 56% increase in the number of cases in 2010.

One possible solution would be to charge claimants a deposit of up to £500 which would be refunded if the case was successful. But the TUC argues that this will deter low-paid workers from seeking justice.

Meanwhile, Vince Cable, the business secretary, has been asked to look into whether small businesses could be exempted from some employment regulations but any such changes could see the government in hot water from the EU.

David Cameron wants to see new jobs created this year in order to boost the economic recovery and whilst large companies have promised to do exactly that, smaller firms need more encouragement. Reforming the employment tribunal system and reducing the red tape for small businesses could go a long way towards providing it said David Frost from the BCC.

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