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

BUSINESS

The Conservatives have accused the prime minister of making false claims about the number of businesses given Government help with their tax bills.

Independent & Telegraph

The Conservatives have pointed out that while £5 billion in tax has been postponed, this is in respect of 160,000 businesses, many of which have been able to make multiple agreements. Gordon Brown said the number of firms was nearer 300,000, suggesting he had been looking at the number of agreements.

Alistair Darling has warned that Conservative plans to press ahead with a banking tax, to claw back some of the billions of taxpayer funds spent bailing out the financial sector, would pose 'a hell of a risk' to City jobs unless it had international support.
Guardian, Telegraph & Financial Times 22.3.10; Financial Times 24.3.10


This looks like a case of extracting the maximum amount of feathers with the minimum amount of hissing from the goose. Banks are an easy and popular target for a levy of some description. The only question is whether going alone on this, as the Conservatives suggest, would mean the goose flies south to sunnier and less heavily taxed climes. International action as proposed by Labour would presumably make alternative destinations less attractive.

The chairman of Lloyd's of London, Peter Levene, has called for lower taxes to stem the exodus of insurance companies to offshore centres.
Guardian 25.3.10

Every industry will say it is a special case for tax cuts. However, in the current economic climate, neither party has said it is prepared to reduce income tax. The general election may see the Conservatives saying they will cut corporation tax (and pay for the reduction by cutting other allowances), but Labour has made no such promises.

CORPORATION TAX
Multinationals are paying 'much more tax' to resolve cross-border disputes, according to HMRC.
Financial Times 22.3.10

HMRC’s focus on transfer pricing issues is paying off, according to the department, because it carries out stringent checks ensuring companies are dealing with transfer pricing correctly.




GENERAL
Higher-rate taxpayers and older people are being urged to claim their share of hundreds of millions of pounds of overpaid tax and missed reliefs, ahead of a shortening in the time limit for tax refunds.
Financial Times 20.3.10

Hopefully, practitioners will, as a matter of course, have ensured their clients have claimed all the reliefs and repayments to which they are entitled. This might be an opportunity to remind clients of the shortened deadlines, particularly for 2004/05 and 2005/06, just in case any reliefs have been overlooked.   

Labour is likely to backtrack on plans to implement a so-called death tax to pay for long-term care, saying the party will not introduce any definitive final reform in the next parliament.
Guardian 22.3.10

Having already been burnt on this issue, Labour would probably prefer to seek a cross-party approach to the problem of paying for long-term care. This will not happen during the run-up to the general election, when parties will seek to emphasise the differences between them.

Tax inspectors are for the first time to get wide-ranging powers to open people’s post without their permission.
Telegraph 26.3.10

This measure is aimed at smuggled goods, not taxpayers’ general mail.

INCOME TAX

Tax relief on donations to UK charities are being extended to some organisations in the European Union, Norway and Iceland.
Financial Times 25.3.10

This is to be retrospective, in that donations made after 27 January 2009 (the date of the ECJ judgment in Porsche, which is the reason for extending gift relief) may also be considered for relief. It may be worth making protective claims for clients who made relevant donations. 

Personal allowances will be frozen at their current rate despite inflation growing at 3%, in move widely criticised as a stealth tax.
Telegraph & Independent 25.3.10

Although widely reported, this story is nonsense. Personal allowances are announced in the pre-Budget report, and the baseline is uprating in line with September RPI. In September 2009, RPI was 1.4% negative, so leaving personal allowances unchanged was an increase in real terms. For 2008/09, allowances were increased by 7.3%, based on a 5% RPI figure in September 2008 and a further addition as part of the 10% tax rate abolition debacle. By the time of the Budget in 2009, RPI had turned negative, but the same politicians and newspapers did not call for the personal allowance increase to be reversed.

Ten million middle income households are worse off under the changes made to the tax system by Labour since 1997, but the incomes of the poorest have been improved.
Guardian & Telegraph 26.3.10

These are the findings of a report from the Institute for Fiscal Studies. They will not be a surprise, given Labour’s policies, which are designed to improve the lot of the lower-paid.

The Treasury faces a wave of demands from international sports stars that they be exempt from tax when they compete in the UK, to match the tax waiver announced in the Budget for foreign-based footballers playing in next year's Champions League final at Wembley.
Financial Times 26.3.10

International sportsmen and women, other than footballers, may feel discriminated against as only the latter may be exempt from income tax when they play in the UK.

INHERITANCE TAX

Thousands more Britons face paying inheritance tax after the Chancellor announced that he would not increase the level at which the levy is payable for the next four years.
Telegraph & Independent 25.3.10

A relatively small number of estates have to pay inheritance tax; while freezing the annual exemption will increase this number, it is unlikely to cause the Chancellor sleepless nights given Labour’s attitude is that the wealthiest percentage of the nation is not the party’s priority in terms of tax cuts.

INTERNATIONAL (no comment, just news)The French government will abandon its plan to introduce a carbon tax on domestic energy and road fuels unless there is agreement on a European Union-wide levy.
Financial Times, Guardian & Telegraph 24.3.10
Bulgaria plans to introduce a tax on the rich and put a limit on public salaries as it battles a deepening recession and tries to keep down its fiscal deficit.
Guardian [not online] 22.3.10

The German government is to introduce a tax on large lenders that indulge in high-risk investment behaviour, such as proprietary trading.
Times 23.3.10
Credit Suisse has severely restricted travel to Germany by private bankers working for rich German clients with accounts in Switzerland, amid fears that such employees could be detained by tax authorities across the border.
Financial Times 22.3.10
Chile's new conservative government plans to introduce 'moderate' tax rises to help rebuild the country after last month's earthquake and tsunami, according to finance minister Felipe Larraín.
Financial Times 24.3.10

INVESTMENTS
Wealthy investors seeking to beat the rise in the top rate of tax to 50% on 6 April have sparked a last-minute rush for tax-efficient venture capital trusts.
Times 21.3.10
…so the promoters of several leading VCTs say in an article appearing in a weekend money supplement, in which such companies advertise regularly. No doubt the freedom from tax on the returns has proved to be even more attractive with the prospect of a 50% tax rate, but it would be unwise to read too much into such assertions.

The Tories have backed business protests at Government plans to include complex cuts to pension tax relief for high-earners in the pre-election Finance Bill
Financial Times 22.3.10

Tax experts and pensions organisations say the proposed new rules relating to higher-rate tax relief for pension contributions are unworkable and complex. However, there has been no indication the Chancellor is prepared to give way on this because higher-rate taxpayers are not his current priority. 

NATIONAL INSURANCE
David Cameron will make a firm general election pledge to halt next year's planned rise in National Insurance contributions for workers and companies, according to senior Conservative sources.
Independent, & Times 26.3.10

The party cannot guarantee to make such move given the UK needs all the tax revenues it can get.

STAMP DUTYThe UK has missed out on £90 million in tax revenue from corporate takeovers in the past two years as an increasing number of companies have used a 'scheme of arrangement' structure to avoid paying stamp duty on their purchases.
Telegraph 22.3.10
 

Stamp duty avoidance schemes must be reported to HMRC under the disclosure of tax avoidance scheme rules. If the Revenue can close down a scheme, it will do so.


A Conservative government would not reverse the stamp duty increase or most of the other tax rises unveiled in the Budget, senior Tories have said.
Financial Times 25.3.10
Until the UK’s fiscal state improves, the Government both now and after the election will be keen to collect all the tax it can get into its coffers.

     


     
 

Budget 2010

Small business taxation summary

The Budget brought a little cheer for SMEs with a doubling of the Annual Investment Allowance (AIA) next year and a big increase in Entrepreneur's Relief, but it was mainly the lack of bad news that was welcomed:


VAT rates are untouched - as are Income Tax and CGT rates

No change in CT rates - there was a rumour that the main rate might be cut to 25%, but the Chancellor nailed his colours to the mast by announcing that it will continue at 28% for 2011/12. The small profits rate is still due to increase from 21% to 22% from 1 April 2011

No change to the Business Payment Support Service; during his speech, the Chancellor said the time to pay scheme helped businesses spread £5bn worth of tax payments. "The extra time has also helped businesses pay more of the tax owed." said Darling who said the scheme would be extended for the whole of the next Parliament. Keep an eye out for stricter enforcement and stiffer questioning at the outset.

In one of several green tax incentives, zero-emmission goods vehicles will now attract a 100% first year capital allowance (BN42).

The cut in small business rates will also be good news later this year.

Since small business owners are typically lower earners, the cut in SDLT for first time buyers will help many of them, perhaps relieving their businesses of the need to draw extra funds to cover the stamp duty on the first house. However, this cut is widely expected to be offset by a hike in house prices, especially those hovering just under the previous £125K threshold.

Many of us were expecting to hear the date from which all VAT-registered businesses will be expected to file their returns online - currently this only affects those turning over more than £100,000 - but there was silence on this point today. This seems inevitable, but at least it's not a current priority.

There was definitely a sense of "it could have been worse" when Alistair Darling sat down - NICs and small company CT are still going up by 1% next year, but at the moment there's nothing worse on the horizon. That's no doubt going to be in the second 2010 Budget.

Under this government, the theme of anti-avoidance is never far away and BN14 announced a clampdown on loans to members of "close companies" (five particpants or less) that are subsequently written off. The Finance Bill will include clauses denying Corporation Tax deduction for the amount of any write-off, effective from 24 March 2010. BN41 is also promising "significant restructuring" of the legislation covering transactions in securities. A wider range of companies will be covered and a new income tax advantage test and new exemption covering fundamental changes in ownership of close companies will be introduced.

The overriding message for SMEs seems to be "steady as she goes": nothing here to rock the boat - although I think we all foresee some stormy waters ahead, especially if we get a change of Government in May. In the meantime the increase in the AIA limit means that fairly modest capital expenditure will obtain full tax relief for the time being, a measure which in itself will be an economic and morale boost to SMEs who are starting to come out of the recession.

Budget Date Set

Gordon Brown has confirmed that the Budget will be delivered in "two weeks' time", fuelling speculation that there will be a general election on 6 May.

The prime minister took centre stage by divulging the Budget date in a speech at Thomson Reuters in Canary Wharf. The Treasury is expected to confirm in a written statement to parliament later today, that chancellor Alistair Darling will present his annual Budget to the House of Commons on Wednesday 24 March.

This year's Budget comes at a pivotal point both financially and politically. The chancellor has to strike a balance between tackling an annual public deficit hovering around £180m and sustaining 2010's precarious economic recovery. The significance of his Budget decisions will be amplified within a few days, when the prime minister is expected to launch his general election campaign while the debate on the Finance Bill is still taking place.

Depending on the election result, we could end up going through the whole Budget process again in June if the incoming chancellor wants to introduce emergency fiscal measures.

Whatever scenario develops in the next few weeks, WS Accountancy will be reporting with our own Budget coverage.

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

BUSINESS

Ministers should consider a carbon tax on imports to help struggling British manufacturers, according to Adair Turner, one of the Government's key advisers, despite fears such a measure could lead to a global trade war.

Guardian 2.3.10

Given the power of some of the countries likely to be targeted, it would be a brave government that would impose carbon tax on imports from non-EU countries.

The proposal for a new international tax on bank transactions has been given a boost after one of Japan's most senior government ministers, Katsuya Okada, came out in favour of the plan.

Telegraph 3.3.10

The ongoing saga of the Tobin – or Robin Hood – tax on banks is a dead horse – at least until the USA expresses any significant interest in the levy.

CORPORATION TAX

General Electric, the infrastructure, finance and media conglomerate, has criticised Tory plans for a swift, 3% cut in the headline rate of corporate rate, saying it would be a 'real own goal' for manufacturers and big inward investors.

Financial Times 5.3.10

At first sight this criticism of a corporate tax rate cut may seem strange; the proposal is that it will be funded by a reduction in capital allowances. Technological changes mean rapid depreciation of plant and machinery, and the effective cost of replacement may therefore be more expensive.

GENERAL

Tax specialists expect HMRC to step up their attempts to reduce the numbers of people claiming self-employed status after winning the latest round in a case involving 1,700 team leaders at Weight Watchers centres.

Telegraph 2.3.10

Self-employed status is frequently the subject of appeals to the tribunals. The self-employed must take care that they can show their working terms do not bear characteristics of an employer/employee relationship, to ensure they maintain their status.

The forthcoming Budget must focus on public spending cuts rather than tax increases, the British Retail Consortium (BRC) has warned.

Telegraph 1.3.10

The BRC is particularly concerned about the 1% NI increase, which will add to the cost of employing staff. It is generally accepted that cuts will be needed, but there are no indications that any of the proposed tax increases will not go ahead.

GREEN TAXES

The EU is drawing up plans for its first direct tax, with a green levy on petrol, coal and natural gas that could cost British consumers up to £3 billion.

Telegraph 5.3.10

This proposal saw light several years ago, but was shelved. The EU needs more income for institutions since the Lisbon Treaty, but a green tax is likely to hit UK energy consumers and businesses particularly hard because recent rises in fuel duties are more than double the 5.07% average for western Europe.

INCOME TAX

The forthcoming 50% tax rate for the highest earners is dissuading entrepreneurs from expanding their companies, according to Howard Hackney, an independent business adviser.

Financial Times 27.2.10

It seems a large cause of dissatisfaction with the tax system is its complexity and lack of stability. Businesses like to be able to predict their outgoings. Changing rules and rates are likely to be a disincentive to investment.

The Treasury has finally struck a deal to exclude Britain's stockbrokers from the 50% bonus tax, ending three months of uncertainty for the sector.

Telegraph 5.3.10

This concerns the operation of the bank payroll tax proposed in the 2009 pre-Budget report. The Treasury is expected to confirm shortly which organisations will be affected by the new tax.

INHERITANCE TAX

Conservative plans to slash inheritance tax would effectively abolish the tax 'for practical purposes', according to research by accountants Grant Thornton.

Independent 1.3.10

As this story points out, the take from inheritance or estate taxes is now at an all-time low, even without the Tory proposal that would mean fewer than 5,000 estates would pay the tax. If so, the cost of collecting the tax would probably not be worthwhile. Abolition would be one possibility, while another would be increasing the tax take until it returned to something like its traditional share of tax revenues.

INTERNATIONAL
Greece has announced £4.4 billion of extra tax hikes and spending cuts as the country attempts to convince EU partners it is tackling its debt crisis.

Mail 4.3.10

VAT

The Government should broaden the VAT base and scrap planned tax increases on income and employment if it is to reduce the deficit without hindering economic recovery, says thinktank Reform.

Telegraph 5.3.10

Reform suggests the full rate of VAT should be imposed on food, the construction of new homes, children's clothes, electricity and gas. The £15 billion this is predicted to raise would mean the 50% income tax rate and 1% NIC increase would not be needed, encouraging investment in the UK and job creation.

More than 57,000 small businesses have been hit with higher tax bills after the Revenue increased the amount of VAT they have to pay under a flat-rate scheme.

Telegraph 5.3.10

Just as HMRC re-evaluated the flat rate scheme percentages in December 2008 to reflect the temporary reduction in the standard rate of VAT to 15%, the department has re-calculated the rates again to reflect the increased rate of VAT to 17.5%. The Revenue says it has also taken into consideration current various business patterns – as the taxman did in 2008.

Introduction of monetary penalties for data protection breaches

This item is relevant to all data controllers throughout the UK. This includes businesses that process personal information. It takes effect on 6 April 2010.
From 6 April 2010, the Information Commissioner may impose a civil monetary penalty of up to £500,000 for serious contraventions of the data protection principles.

In order for the penalty to apply, the contravention must have been likely to have caused substantial damage or substantial distress.

In addition, the data controller concerned must either:

• Have deliberately carried out the contravention.
• Have known - or ought to have known - that there was a risk of the contravention occurring. In these circumstances, they must also have known – or ought to have known - that the contravention was likely to cause substantial damage or distress, but they had failed to take reasonable steps to prevent it.

Statutory guidance produced by the Information Commissioner provides further details on how he proposes to exercise his functions in relation to imposing a civil monetary penalty and data controllers' procedural rights – see the appropriate link below.

You are reminded that, when you and/or your employees process personal information, you have a duty to comply with the data protection principles. These are to ensure that the personal data you hold is:

• kept secure
• processed fairly and lawfully
• adequate, relevant and not excessive
• processed in line with the rights of individuals
• accurate and, where necessary, kept up to date
• processed for one or more specified and lawful purposes
• kept for no longer than is necessary for the purpose for which it is being used
• not transferred outside the European Economic Area unless adequately protected

Download guidance on monetary penalties for serious data-protection breaches from the Information Commissioner's Office (ICO) website (PDF, 263K) - Opens in a new window

Data protection guidance on the Information Commissioner's website - Opens in a new window