Tag Archive | "finance bill"

Government closes another tax avoidance scheme

Accountants may be interested to learn that the Government recently closed down another aggressive income tax avoidance scheme.

The scheme was being used by wealthy individuals to reduce the amount of tax they pay at the end of the year. It involved creating false transactions in order to generate tax relief from an artificial agricultural business. The land and property business owning it do exist, but the transactions do not. They are created solely to offset a loss against income, thus reducing the size of the individual’s tax liability.

New legislation was introduced into the Finance Bill on March 13th to close this scheme and this legislation came into immediate effect.

This is the third aggressive tax avoidance scheme that HMRC has unearthed recently and the Government realises that more similar schemes will probably emerge. Therefore it has introduced legislation to stop the artificial use of post cessation property relief.

The Exchequer Secretary to the Treasury, David Gauke, said the UK’s chief priority is to reduce the economic deficit and it is unacceptable for people to attempt to avoid paying their fair share of taxes. The Government has acted swiftly to close down this scheme and won’t hesitate to do the same as soon as it becomes aware of other tax avoidance schemes.

This latest move will not affect agricultural businesses that are trading legitimately and need to offset a loss from agricultural expenses against their general income.

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Chartered Institute of Taxation hits out at HMRC

The Chartered Institute of Taxation has hit out at the government’s new disguised remuneration legislation, saying it is far too complex.

The new regulations were announced in the Finance Bill and run to 59 pages. They target third party arrangements which avoid or defer income tax on employment rewards, such as bonuses, or avoid the restrictions on pensions tax relief.

The CIoT claims that the scope of these new rules is very wide, and says the new exclusions, which were added after the original plans were disclosed, are ‘intricate and heavily qualified.’ The regulations include 14 different tax avoidance tests that govern how and when the new exclusions apply.

The chairman of the Institute’s employment taxes sub-committee, Colin Ben-Nathan, said the new legislation was penal and overrides the longstanding rules for taxing benefits in kind.

He went on to say that some pension schemes, employee share plans, smaller businesses, joint ventures and international businesses looking to relocate employees to the UK could all be impacted by these regulations. A lot of employers will turn to HMRC for clearance of their arrangements but it is not clear whether the Revenue has the resources to cope or how long it will take for them to make a decision.

Ben-Nathan concluded by saying employers could face real difficulties in assessing where they stand with these new regulations. HMRC may not agree with their view and employers will be left uncertain as to their tax liabilities.

It will probably come as no surprise to learn that the relationship between the CIoT and HMRC is at an all time low.

The incoming president of the Institute, Anthony Thomas, says he hopes to turn this situation around and return to the healthy tension that used to exist between the two bodies 10 or 20 years ago.

As well as complaints about the disguised remuneration legislation, the CIoT is dissatisfied with the Revenue’s stance over the registration of tax agents and its desire to indirectly regulate the tax community.

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Are contractor accountants confused by tax avoidance policies?

The Finance Bill (2010) has laid down specific provisions for MPs regarding tax avoidance, although one tax expert says there is no obvious reason why this should occur.

Grant Thornton’s tax director, Mike Warburton, made his comment after it emerged that section 554E (8) of the Finance Bill included a clause saying that the disguised remuneration legislation did not apply to members of the House of Commons.

The new legislation on disguised remuneration schemes such as Employer Funded Retirement Benefit Schemes and Employee Benefit Trusts is intended to stop the complex arrangements some employers have been using to avoid income tax. Warburton said he found it difficult to understand why MPs need this exemption.

A spokesman from HMRC said the Independent Parliamentary Standards Authority makes payments to MPs so that they can carry out their parliamentary responsibilities. These payments have been excluded from the new legislation because they are not tax avoidance. However, arrangements made by other third parties were not excluded from the new regulations.

The tax avoidance rules are thought by many to be too complicated and it is not clear which benefit schemes are covered by them.

The government has also closed the loophole that allowed people to avoid tax through the Qualified Registered Overseas Pensions scheme. QROPS lets people who relocate overseas to liquidate their UK pension. However, it was discovered that there was a clause in an agreement with Hong Kong that allowed people to transfer their pension there but still remain a resident of the UK. This legislation has now been changed in the Finance Bill.

Exchequer secretary, David Gauke, said the coalition has a clear strategy for combating tax avoidance and it will take action against anyone who takes unfair advantage of tax loopholes.

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Government will no longer tolerate PAYE and NICs debt

Employers may be required to lodge security against PAYE and national insurance payments under proposals laid out in the Finance Bill 2011 and failure to comply will be a criminal offence.

HMRC has estimated that the Treasury lost between £600m and £800m in each of the years from 2005 – 06 and 2008 – 09 due to employers going bust and not handing over the employers national insurance contributions already deducted from their employees’ salaries.

The new proposals mirror those already in place for VAT and a partner from PwC said he hoped the power to prosecute would rarely be used and even then only if the circumstances were appropriate.

Over 150 million pounds worth of VAT was protected by securities in the year 2009 – 10. This total included sums that would have been paid late or after recovery action had been taken.

It is thought that PAYE of a similar value could be subjected to a security requirement leading to around £5 million yield which would not otherwise have been paid.

Tax experts claim that these new measures were prompted by a recent surge in recovery actions against football clubs such as Cardiff City, Notts County and Portsmouth. All three clubs have been served with winding up orders this year following their failure to settle outstanding tax debts.

The new policy will target the minority of employers who break the rules and make the system fair for all businesses, commented a Revenue spokesperson.

Alistair Darling first proposed the security measure in his final Budget earlier this year. A consultation on the issue has now been launched and will run until next February.

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What tax changes are in store for contractor accountants?

George Osborne delivered the government’s Autumn statement on Monday and laid out new plans for the multinational tax regime in the UK.

Designed to provide certainty for businesses and contractor accountants, the new controlled foreign companies’ rules will be legislated for in the 2012 Finance Bill.

The coalition plans to introduce an entity-based system and levy a CFC charge on overseas profits artificially diverted from this country. Attention will be focused on high risk entities and the government intends to devise specific rules for financial institutions such as banks and insurance companies as well as property industries.

An exemption will be made to allow groups to manage their overseas operations efficiently, while at the same time protecting the UK tax base. It will work by assessing the debt-to-equity ratio of the finance company and levying the CFC charge on any excess equity.

Businesses have suggested to the Treasury that the CFC rate should be less than 10%. The current government proposal is a debt/equity ratio of 1:2; meaning two thirds of income from overseas finance would be exempt from the tax. With a 26% rate of corporation tax, the levy on overseas finance income would be 9%.

Next year’s Finance Bill will contain an interim step of exempting foreign to foreign group transactions that do not affect the UK tax base.

Other proposals laid out on Monday included annual phased reductions of 1% to the main corporation tax rate, leading to a rate for a limited company of 24% in 2014. The government also intends to introduce a “Patent Box” scheme in April 2013 whereby profits arising from patents will be subject to a 10% tax.

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Key tax measures feature in stage one of the Finance Bill

Last week the Government announced it was to take a two-stage approach to the new finance legislation.

An initial Finance Bill has been published by the Treasury and this enacts the key tax measures that George Osborne laid out in his emergency budget. It is expected that this will be pushed through parliament this summer.

In the autumn, there will be a minor finance bill that will introduce minor measures that had been announced by the Labour government. A draft of this will be published in July to allow plenty of time for pre-legislative scrutiny.

When asked whether these two tiered arrangements are a one-off, the Exchequer Secretary, David Gauke, made no comment. Many people have argued for reform to allow consultations to take place before finance bills are passed to the house for approval. Adopting that approach would remove the pressure to rush through technical changes.

Gauke did however say that the government was taking decisive action to pay for the past whilst at the same time planning for the future. He reminded us that the Lib/Cons had inherited the debts and uncontrolled spending from their predecessors and he reiterated the coalition’s promise to cut the deficit, deliver fairness and promote enterprise.

However, party whips are concerned that a handful of rebel Lib Dem MPs will seek to use the line-by-line debates, which start on 12 July, to table amendments to the Finance Bill.

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Contractor accountant groups criticise Finance Bill

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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Contractor accountants tired of tax uncertainty

The Chartered Institute of Taxation has expressed concern that there is not enough time left before the general election to draw up, and properly scrutinise, a Finance Bill. This came after Stephen Timms, the Treasury secretary, confirmed last week that there would be a Finance Bill before the upcoming election.

The CIOT has written to Alistair Darling asking him not to make substantial changes to taxation until the proposals have undergone close examination from parliament. They say this can only be achieved by waiting until after the election when MPs have more time to devote to debating the issues.

The CIOT president, Andrew Hubbard, believes that so near to a general election, MPs minds will not be focussed on the detailed scrutiny necessary to ensure good tax law.

Meanwhile the ICAS wants to see the government publish draft legislation for complex changes to the tax framework so that interested parties, including the UK’s leading contractor accountants, get the chance to provide input. Their director of tax, Derek Allen, said that it was “crucial” for the government to publish updated notes regarding new provisions at every stage of the parliamentary process.

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