Tag Archive | "taxation"

Government needs to fix the tax code, CBI president says

Enough of the moral debate, says the president of the Confederation of British Industry – the government needs to fix the UK’s loophole-riddled tax system.

Sir Roger Carr has finally had enough of the government’s posturing and finger-pointing when it comes to accusatory comments towards which company might have avoided paying their fair share. Instead, it’s time for the UK government to take action with other governments to ensure that the tax laws are enforced worldwide. This is the best way to put an end to tax avoidance, Sir Roger insisted, and it would also prevent any problems with becoming a less competitive business market in comparison to a foreign tax regime.

The CBI president also issued the warning that governments absolutely must consult with firms when devising new tax laws. Not engaging the business community could lead these very same firms to not buy in to any new legislative movements – and a law that is ignored or flouted is not exactly a very good law if you ask him, or me for that matter!

Transparency is the absolute first and most important step that any government can take when it comes to taxation. All you need is a few worthwhile companies to justify their tax regimes by explaining them in full, acting as a brilliant example as far as what works and what to do for the rest of the business community. If you ask me, this could go a long way in clearing up a lot of the problems with the current tax climate, as transparency will have a direct impact on the reputation of the businesses in question – and consumers will be quick to condemn any firm that acts in a publicly reprehensible manner when it comes to tax avoidance, now won’t they?

Taxes are legal responsibilities, said Sir Roger, and I can’t help but agree with him. The CBI president took issue with interpreting paying taxes as a ‘down payment’ on the part of a business for being socially acceptable, but that a firm absolutely must keep close in mind the social obligations they have to any local communities that they impact -and how the public mood can completely destroy a firm if it turns against it!

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PM: international co-ordination needed to curb tax avoidance

The Prime Minister says that the only way the UK can truly clamp down on individuals and companies engaging in tax avoidance is through international aid.

James Cameron says that international co-ordination is needed to end the threat of people and companies hiding behind tax loopholes in order to avoid paying their fair share of taxes. In fact, the PM had harsh words for large companies such as Starbucks for their widely-known and seemingly miraculous ability to avoid paying millions – if not billions – in taxes.

Mr Cameron made no bones about being a Conservative politician that preferred low taxes on businesses in order to foster economic growth, but in a recent statement given on the island of Davos at an international summit, he was adamant in demanding that companies pay their fair share. The Prime Minister wanted to work towards reducing or downright eliminating tax avoidance with Japan, Canada, Italy, Russia, France, Germany, and the US – the UK’s G8 allies – in order to provide better tax revenue for every country involved and not just the UK.

There are limitations on what a sovereign country can achieve on its own whilst attempting to wrangle international taxation, said Mr Cameron. Speaking from experience in how many companies and individuals in he UK have been thumbing their nose at HMRC in new and aggressive manners to the point of even raising ethical questions, the Prime Minister said it’s high time to look for more responsible governance across international boundary lines.

The UK is hosting the G8 this year, which places Mr Cameron in an excellent place to call for greater transparency for taxation and the collection of tax revenues. Less affluent countries that lack the requisite resources would benefit greatly from such tax overhauls, the Prime Minister added.

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The self-employed have a 12pc advantage over PAYE workers

According to the latest research, permanent PAYE workers lose on average 12 per cent more in taxes than their freelance or contract worker counterparts.

By and large, one of the most advantageous things about working for yourself as a contractor or a freelancer – besides the flexibility that choosing your own hours grants you – is the fact that your tax liabilities are considerably lower. Unlike someone in a PAYE position, a self-employed individual can deduct their work related expenses from their income before having to pay their taxes – and this works out to a collective savings of £66.9 billion when you take things such as work-related equipment, clothing, and travel into account.

On average, this £66.9 billion once spread out across the permanent worker population works out to be 12 per cent of their disposable income. However this is just an average; permanent workers in certain regions pay considerably more, such as Londoners who spend approximately £3,561 on work-related incidental expenses every year, while those in Yorkshire and Humberside spend around £2,535 and those living in the East of England end up shelling out about £2.542 in work expenses that a contractor could instead claim on his or her taxes.

However, these figures do not reflect the fact that train fares are on the rise, which will affect the vast number of Britons that make use of public transport to get to and from work. On the bright side, this could lead to many more permanent workers transitioning to self-employment in order to save on their taxes.

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Your time is running out, taxman warns

January 31 isn’t getting any further away, warns Her Majesty’s Revenue & Customs, issuing the warning to anyone taking their time with their self-assessment.

There’s no time like the present if you have yet to complete your online self-assessment, what with only a few weeks until  you’re officially past your deadline. Despite the fact that the time remaining to those yet to submit their assessments, there could be as many as 10 million contractors, freelancers, or other self-employed Brits that have been lax in completing their returns, according to the Association of Chartered Certified Accountants.

ACCA says that with such a large number of people insisting in being laggardly when it comes to filing their returns, there’s a good chance that HMRC’s online systems could be quite busy – especially in the last few days before the actual deadline. This could lead to some people unfortunately missing the deadline for anyone who waited until the 11th hour – leading to an instant £100 fine even in the event that there is no tax owed by the tardy taxpayer.

This is most likely the last thing you could possibly need to deal with, especially at a time when most households in the UK are already hurting from festive season spending, ACCA said. In fact, an additional £100 , especially when it could be so easily avoided, could be just the thing that breaks the camel’s back for many British families, the Association warned.

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New Year to bring welcome changes for some contractors

Limited company contractors are set to see VAT rules easing in the New Year, thanks to new EU regulations.

There are several new legislative changes going forward from 1 January of next year that have been instituted to make contractors’ lives easier and allow them to save money. In fact more than £14 billion could stand to be saved by by businesses every year by the new measures, which aim to reduce administration costs, says the European Commission.

One of the changes will be to the way invoices are handled, with paper and electronic invoicing to be considered one and the same. This means that firms may choose the solution that is the easiest and saves them the most money when it comes to VAT invoicing.

Additionally, all EU member states – which includes the UK – will be permitted to offer small businesses with turnover of around £1.6 million a year (€2 million) a cash accounting option. This will leave these smaller businesses with the option of not paying the VAT until customer receipt, which should reduce the potential of problems with cash flow.

Taxations, customs, anti-fraud and audit commissioner, Algirdas Semeta, commented on the new changes, remarking that firms operating within the eurozone need such changes in order to have their needs met in a better way. These changes to VAT will make procedures simpler, costs less, and increase support for solutions that help EU member country business – especially small business – to grow, added the commissioner.

Hopes remain high that these reduced and streamlined VAT requirements will enable these smaller businesses to grow and help contribute to the economic recovery in greater numbers. In the UK alone smaller businesses are often referred to as the backbone of the economy, and contract workers especially so due to their flexibility and high value for money.

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US ‘fiscal cliff’ fix could help economy at home

There’s a good chance that a fix for the United States’s looming ‘fiscal cliff’ could lead to benefits here at home where the economy and taxation is concerned.

The US Congress stands to see massive spending cuts and tax rises come into effect if it does nothing by the deadline, leading to deleterious effects on both the American economy and the wider global economic landscape – part of why the eventuality is known as the ‘fiscal cliff.’ Of course, the majority of economic experts are rather secure in the assumption that even the fractious and sometimes mind-numbing egotists currently ‘serving’ the American people would not ruin the entire worldwide economy just because they can’t stop arguing, though that’s not to say the coming year won’t bring its fair share of economic upheaval.

It’s a far cry from the current European financial landscape, where the uncertainty in the eurozone runs rampant with countries such as Greece a hairsbreadth from economic collapse.  The US is rather well-off when you compare it to EU member countries, though the US Federal government is swiftly approaching entitlement spending levels that match such levels across the pond whilst having taxation levels that are traditionally low in comparison to this side of the Atlantic.

The true problem here is that US lawmakers want to have their cake and eat it too, but it’s simply an impossibility. The fight is now between cutting entitlements or raising taxes on the more wealthy American taxpayers, polarizing the US government.

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2011-2012 paper tax return deadline looms

If you haven’t submitted your 2011-2012 paper tax return to Her Majesty’s Revenue & Customs yet, now is the time – you’ve but a few days left until deadline.

You have until 31 October to file your paper tax return without incurring a fixed penalty, so unless you want to end up paying an additional £100, the time to delay is over. The penalty will apply whether or not you owe tax, so the time for delay is quite nearly over.

However, there are alternatives if you do miss this 31 October paper tax return filing deadline. You can take until 31 January if you wish to file online, but this will be a bit more complex than simply sending a return through the post.

There are quite a few advantages to filing online instead of through a paper return, as you will receive money owed to you much more swiftly if you file online and the processing of your return is also done in a much quicker manner. However, the process is more involved, which may not sit well with anyone without at least a modicum of computer literacy skills.

If you wish to take advantage of online filing but you feel reticent about the process, taxation experts recommend finding someone that can help you work through the process. However, if even this is too involved a process for you, a paper tax return may be for you, provided you can submit one before the end of the deadline at the end of the month.

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HMRC announces 39% revenue rise from investigation increase

Revenues for Her Majesty’s Revenue & Customs are up 39 per cent, thanks to an increase in the number of investigations into small businesses.

Small firms, sole traders, freelancers, and contractors have all ‘helped’ to increase HMRC’s revenues to a new sum of £434 million over the course of the last tax year, the taxman said. This was £123 million more than HMRC collected in the 2010-2011 tax year, it added.

However, this isn’t to say that small firms are intentionally pulling the wool over the eyes of the tax authority. In fact, experts say that SMEs and sole traders have a higher likelihood of making completely innocent mistakes when it comes to calculating their taxes, which leads to a higher percentage of smaller firms running afoul of HMRC when compared to larger businesses.

It may be a trial for a small business to employ an accountant full time in order to manage a tax investigation by HMRC as well. The unfortunate side effect, at least for any firm that doesn’t rely upon a contractor accountant, means that these small firms or sole traders often unnecessarily concede to the taxman’s demands for additional tax payments.

HMRC spoke out against the accusations that it is targeting smaller firms that are ill-equipped to deal with such a tax investigation, remarking that there is no conspiracy to plunder the coffers of small business owners because they are ripe for the picking. The taxman also took issue with the characterisation that it sees these sole traders and SMEs as ‘easy targets.

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Tax boost coming for shale gas industry

A new tax boost will be on its way for the shale gas industry in an effort to stimulate job creation – many of which could be freelance positions.

According to Chancellor George Osborne, both job creation and production levels will be increased from the sector’s inclusion in an up and coming targeted tax system in order to build on the recent success of  field allowances, a tactic used successfully to encourage North Sea gas field investment. Targeted tax regimes are effective, according to the Treasury, which said that there would not have nearly been as much stimulation to both production and investment otherwise.

The new move will undoubtedly lead to protest from the environmental protection and preservation sector due to the fact that shale gas extraction entails the use of ‘fracking,’ a highly controversial process that come say could lead to water contamination and earth movements. In addition, fracking creates carbon emissions, a fact that has led Greenpeace to speak out in condemnation of the process.

However, the new move is likely to give many umbrella companies and freelancers a reason to rejoice, as an expansion to the sector will provide badly needed interim employment opportunities to the local economy. In fact, there could be an additional 35,000 new jobs created by shale case extraction, according to the Institute of Directors, in spite of the heavy criticism concerning the economic impact of fracking.

In times of recession such as now, the unfortunate reality may be that there sometimes need to be a choice made between economic recovery and stewardship of the land, with neither choice providing full and complete solutions.

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Should all EU states align their corporate tax rates?

Contractor accountants in the UK and Ireland are bitterly opposed to a legally binding EU-wide tax rate, but the prospect of such an event is moving closer.

France and Germany have now announced that they will align corporate tax rates by next year. The announcement supports the Euro Plus Pact treaty, which outlined the regulations for fiscal and economic co-ordination. The UK, Czech Republic, Hungary and Sweden all refused to sign up for the treaty.

Germany and France intend to unify their tax rates ahead of the Common Consolidated Corporate Tax Base, an aligned rate for all EU member states.

Britain does not support the idea of a CCCTB and believes it to be a precursor to pan-EU tax rates. Countries that have low business tax regimes, such as Sweden and Ireland, are vehemently opposed to the idea of harmonisation.

Richard Asquith, the TMF Group’s head of tax, said Germany and France have been pushed into going it alone due to the reluctance of those countries with low corporation tax. The UK was always going to be opposed to the idea but this could lead to a potential division between the core EU countries and Ireland. Ireland already has a risky debt position and this split will pile on more pressure.

It’s easy to see why the UK is against a uniform EU tax rate. The government is keen to promote the UK as a nation with business-friendly rates of taxation. That would no longer be applicable if all member states were legally bound to levy the same rates.

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Image: day 1 – ducks… in a row! by bschmove

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Do contractor accountants want to know how their tax is spent?

Last week, Ben Gummer, the Conservative MP for Ipswich, called on the government to introduce statements that explained how it intended to spend the tax it collects from contractor accountants.

Under Gummer’s proposal, UK taxpayers would receive an annual statement detailing the amount of tax they would need to pay in both the current financial year and year after. In addition, the statement would show how the money would be split between individual government departments.

The data in these statements would be based around tax returns, P60s and budget statements. He also said that when it came near to an election, the statement could include information after opposition proposals.

Ben Gummer, the son of John Gummer, the former Tory agriculture minister, believes the current tax system contains too much obscurity. Providing taxpayers with information on exactly how their taxes are spent will make it much more transparent and shift public debate, he said.

Whilst this might sound like a feasible idea in principle, is there really a need to send out printed statements? If taxes are allotted to government departments on a percentage basis, maybe the coalition could publish the data on its website; x% of your tax will be spent on defence, y% on education etc.  At least that would cut down expenditure on paper and printing.

We would all like to see a more transparency in taxation, but it has to be possible to achieve that without additional cost to the taxpayer.

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Modern Britain in a nutshell

I’ve been having a funny old week at work. For once I’ve got up to date on my deliverables and am waiting on assorted worthies to review and respond to the results. Meanwhile the technical team next door are working all hours God sent to keep up, while my in tray is almost empty. Well, it makes for a quiet, if rather boring life.

So I find myself taking a look around the world of contracting to fill in the time. And it seems there are some odd things going on out there in Reality.

My old mucker St Vince of Cable is at it again. So busy earning money he failed to notice he was over the VAT threshold. Luckily his accountants did notice – months late, but hey – and he sorted it out, paid the tax and the (very) small fine, job done. Silly mistake by someone with his vast experience of real business (two whole years as an Economics Advisor, wasn’t it?) and no real harm done. But on that subject, could I ignore a hard and fast taxation rule, forget to declare some taxable income for a few months, then discover my mistake and pay it back with a tiny penalty and a smack on the wrist? Don’t think so, somehow.

HMRC are apparently cheering about improving their take from IR35. Say what? It seems they are getting more money back from the pitifully few cases they manage to pursue to completion. What is more, this has been seized on by some who should know better as an example of the deterrent effect of IR35. Their argument is that people are paying taxes via umbrella companies rather than risk an IR35 investigation. So that’s OK then. After all, what could possibly be wrong about scaring people into paying taxes they don’t actually owe by threatening them with a piece of legislation so badly drafted it needs a three year investigation and court case to determine if it actually applies to this single set of circumstances?

AWR is continuing to cause hilarity among those who understand it. Not only are some agencies sending out letters asking contractors to declare themselves outside its scope – something you can’t actually do in any meaningful sense, of course – but they are persuading assorted Human Remains teams that using agencies protects them from the AWR. Say what (again)? Take someone on directly with no intermediate agency and the AWR is dead and buried. Using an agency increases the risk, not reduces it. Doublethink at its best, and a good illustration of why contractors don’t want anything to do with HR if they can possibly avoid them. Or agencies, come to that.

And finally, credit rating agencies. Not the big ones who are randomly downgrading assorted banks and even whole countries, although they’re bad enough, but the ones being used to credit check job applicants in line with FSA regulations and failing them, often on some pretty flimsy histories. Which means no job offer. Fair enough?

Well no, really. For one thing the FSA rule being quoted applies to people in a limited number of roles within financial services; directors and those who advise customers on fiscal matters, for example. It’s not actually meant to apply to the third DBA from the left in the support team. But hey, it’s an income stream for someone, so who cares that it’s both utterly irrelevant and genuinely damaging; I know someone who regularly has to turn down good people because of this nonsense.

Modern Britain in a nutshell. Never mind the outcomes, follow the rules no matter how idiotic and irrelevant those rules are. Truly we are a nation of jobsworths; after all, there’s no money in being a shopkeeper any more.

About the author: Alan Watts

Alan has worked in IT for most of the last 35 years, and first went freelance in 1996. He has been a PCG member from its start and has been spreading the message that freelancing is a professional career choice for many years. Alan also runs Malvolio’s Blog, a personal but highly informative take on the life of the modern freelance.

Alan Watts, Principal Consultant, LPW Computer Services

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited.

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SMEs may be forced to file their VAT returns online

Accountants for contractors may be interested to learn that HMRC has launched a consultation on the proposal to make online filing of VAT returns compulsory for firms with a turnover of under £100,000.

The Revenue wants more businesses, and individuals, to go digital and conduct their transactions online.

If approved, the VAT filing requirement will come into force next April. HMRC would also like to see all businesses use online systems for registering and deregistering for VAT and amending their company details. There are no plans to make the registration requirements mandatory yet.

The Revenue has been moving business taxation online since 2006 and online is fast becoming the default channel for business taxation. Lord Carter said in his original review of online services that legislation was necessary to combat general business inertia and that this should take place in stages.

HMRC says that processing will be both quicker and more accurate once filing is conducted online and that should appeal to companies.

However, the FPB says small businesses are paying the price of inadequate online tax systems and red tape continues to hold back SMEs ability to comply with tax regulations.

Andrew Needham, the tax advisor to the FPB, said the tax system includes complex and cumbersome online procedures. Furthermore, he said that HMRC employees received no training on dealing with VAT returns submitted electronically; a situation he found mystifying.

It now takes up to 50 days to complete VAT registration due to extended verification procedures and small businesses are suffering. Late payment of PAYE attracts penalties but small businesses are battling with the worst cash flow problems in 20 years.

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OTS considers simplifying small business taxation

The OTS is looking into the feasibility of introducing a simpler system of income tax for the UK’s smallest businesses and the issues concerning disincorporation.

The Office of Tax Simplification says the choices for making small business taxation simpler fall into two categories. It could either change some regulations to ease the complexity in certain areas, or use non-profit measures ranging from administrative changes to more fundamental reforms.

If turnover was the determining factor for eligibility for the simpler system, the OTS is considering between £20,000, £30,000 and the VAT registration threshold which presently stands at £73,000.

The OTS will evaluate the non-profit measures in use in other countries and as well as considering cost accounting or a system of charge indicators and flat rate expenses allowances. Small businesses would then prepare their accounts based on cash received and have fixed rates for expenses, or taxable profit would be a fixed percentage of annual turnover.

John Whiting, the tax director at the OTS, said tax administration is a major headache for small businesses. He wants businessmen and their advisers to provide their opinions on the different options available.

As far as disincorporation goes, the OTS is examining whether micro-business owners should be given the chance to revert to partnership or self employment status and they ways to handle the tax implications of such a move.

Alex Henderson from PwC said the scope of the consultation was too narrow; focusing primarily on sole traders. He went on to add that he would welcome a review of all business structures and any changes would also have to deal with HMRC’s concerns.

Consultations on both proposals will be running until October 7th and the official documents can be viewed on the OTS website. Recommendations will be presented to the Treasury before next year’s Budget.

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