A weekly round-up of tax stories from the national press

CAPITAL GAINS

The British Venture Capital Association has used its budgetary submission to petition the Chancellor for a freeze on capital gains tax for its members.

Telegraph 24.2.10

This is based on speculation that the Government will increase the rate of CGT (which ministers previously cut to 18%) to deter high-earners from translating income into gains to avoid income tax at 50%. It should be noted that treating these gains as liable to CGT, rather than income tax, is in itself controversial when private equity firms are involved: it is based on a memorandum of understanding negotiated by the BVCA, which limits the application of employment-related securities legislation.

GENERAL

The UK must not raise taxes on wealth-creators any further if it wants inward investment to spur recovery, according to leading competitiveness expert Michael Porter of Harvard Business School.

Financial Times 23.2.10

It is widely held, though less widely shown by research, that high taxation discourages entrepreneurship. Most studies showing a correlation relate to rates that were well over 50%. Arguably the level of stability in the tax system is just as important as the rate.

A compulsory levy to pay for social care ‘remains on the table’ in spite of the Conservatives’ refusal to back a so-called death tax, according to health secretary Andy Burnham.

Financial Times 20.2.10

Nothing has been properly proposed yet, so presumably the Government is still considering all avenues.

INCOME TAX

The Conservatives are planning to scrap PAYE and instead deduct tax and National Insurance when taxpayers' gross pay enters their bank accounts.

Telegraph 20.2.10

The PAYE system works well. The problem for employers, particularly the small ones, is the additional requirements with which they have to cope, such as maternity and paternity regulations, and student loan deductions. One result of the change, not so far highlighted, is that employers would not be able to delay handing over the tax to HMRC, either with or without agreement, unless they also delayed payment of salaries to staff.

David Cameron has admitted he cannot promise to reverse planned increases in National Insurance if the Conservatives come to power.

Telegraph 24.2.10

The UK’s deficit is so huge, tax cuts of any kind are unlikely to be possible by any political party coming to power in the foreseeable future.

The number of families who faced legal action as a result of their tax credits being overpaid rose significantly last year.

Mirror & Mail 26.2.10

It would seem HMRC are taking a tougher stance on tax credit claimants who do not repay overpaid credits. However, the number of overpayments is reducing because claimants’ income for the current tax year can be up to £25,000 higher than expected before their tax credits are cut.

PENSIONS

Tax breaks for wealthy pension savers should be slashed in the next Budget to save the Exchequer millions of pounds and simplify complex rules on retirement saving due next year, according to industry lobby group the National Association of Pension Funds.

Guardian 25.2.10

The NAPF describes the Government’s tax plans for reducing higher-rate relief on pension contributions as ‘unworkable’ and says they will not collect anywhere near the amount predicted, while hitting mid-earners. The association says the annual allowance should be reduced to fit better with existing pension policy that would still raise tax revenues. Despite widespread disapprobation, however, the Government has not hinted at any possibility of changing its plans.

VAT

Swansea City Council is leading a legal campaign aimed at clawing back billions of pounds in VAT that town halls and big companies claim was wrongly paid to the Government.

Mail 21.02.10

Most organisations are trying to find ways of increasing their income. Various cases have challenged VAT charged on parking and health club memberships, so councils are also taking action to reclaim overpaid tax.