So now we know. My previous post (which I did NOT type as it appears, let me assure you!) is a summary of the major changes announced, or mostly unannounced and included in the Budget notes, but what has caught my eye as being of particular interest for the future of the tax system? I have picked out 12 key items in this respect.
1. 2010-11 changes to income tax rates and allowances
Way back in the 1980s I had a client who ran an Italian restaurant. Whenever I notified him of a tax bill his unvarying reply was "Where am I going to get the money from?" I couldn't help imagine Alistair Darling making the same plaintive request of his Treasury advisers in the run up to the Budget. And here is part of the answer.
At the time of the pre-Budget report the new top income tax rate was going to be 45%, and now it is going to be 50%. Also, those with income of over £100,000 would only lose half of their personal allowance, but now they will lose all of it. And it is all going to happen a year earlier, which is highly significant, because whereas there currently appears to be limited chance of Labour still being in power by April 2011 (there has to be an election by June 2010), there appears to be a far greater chance of them still being in power one year hence, if only on the John Major "lets leave the election to the last minute and hope something turns up" principle. And you saw how much good it did him in 1997. So this is now actually pretty likely to happen in practice.
This of course reflects an interesting shift in public perception. Whilst the financial services industry was thriving and making a major contribution to the UK exchequer (when it wasn't avoiding tax with offshore structures and the like) we might have muttered darkly about fat cats and outrageous bonuses, but that was as far as it went. Now, however, that the senior banking fraternity have proved to have feet of clay, and the loudest proclaimers of the virtues of the untramelled free market economy have had to come grovelling to the taxpayer to bale them out (actually, come to think of it, when ARE they actually going to get round to some serious grovelling?), being rich can be seriously bad for your health.
Some people will no doubt mutter about shackling enterprise and brain drains, but I don't see that cutting much ice at the moment. It may not be particularly edifying to see the Chancellor rushing to share the pain with those who can most afford to bear it, but it reflects human nature and is probably one of his more popular measures.
He really does hate trusts though, doesn't he? Except as a method of protecting children or other vulnerable beneficiaries from themselves, they are starting to look like serously bad news. Certainly you would not want to accumulate income in them at current and future tax rates.
2. Personal pension contributions and forestalling legislation
There are pretty similar things to be said about this idea, except that we may well have a new government by April 2011. We have been told for many years to provide for our own pensions, but not if you earn more than £150,000 a year, clearly. And just in case you were thinking of accelerating your contributions, he thought of that too. He is getting very good at anti-avoidance legislation (there is lots of it this year), but quite a bit of it is aimed specifically at banks. Of course we all knew that senior bankers were well supplied with brass necks, but for heavens' sake, does the fact that billions of pounds of UK taxpayers' money has gone into saving their banks and their jobs mean nothing to these people? The mind boggles.
3. Enhanced loss relief
So the recession still runs at different times for companies and others, but at least the enhanced version of this relief does cover the worst of the crisis for most taxpayers. although the restriction to £50,000 per year may make it less than exciting for major losers.
4. Offshore Disclosure 2
As predicted here, we get a second bite at offshore disclosure for those who forgot / lay low / trusted to luck first time around. Good luck to HMRC with this; if tax avoidance is beyond the pale in the current economic climate, tax evasion is right off the scale of iniquity (see below for further proof!)
5. Car capital allowance rules
We are quietly developing rather a green tax system in the UK, although it would be good if the Treasury Budget notes did not come with lots of blank pages (AGAIN!). Witness the revised capital allowances rules for cars. The rate of allowance you receive now depends upon the car's CO2 emissions, which puts the system in line with the income tax and VAT car benefit systems. Not only that, but we also have a car scrappage system to encourage people to trade in their inefficient old vehicles for cleaner new ones (and save the motor industry too). I will even forgive Alistair for excluding my car from the scheme! The flavour of the month in this Budget appears to be the electric car, and the process of tightening the CO2 bands for company cars also continues.
6. Cross border trading rules for VAT
These are to be seriously revamped, which will lead to suppliers of services to other EU countries discovering the delights of EC Sales Lists, long familiar and beloved to exporters of goods. And we are also promised a more efficient system for recovering VAT incurred in other EU countries, which will come as a pleasant surprise to those who visit Italy on business in particular.
7. VAT forestalling
I admit that "A Budget for forestalling" is not a sound bite that appeals, but Alistair has gone in for it in a big way. Not content with forestalling increased pension contributions, he has also forestalled accelerated payment schemes for VAT, aimed at pre-empting the rise in the rate of VAT back to 17.5% on 1 January 2010. I well remember my father-in-law buying up gas for the next 3 years before Kenneth Clarke's imposition of VAT on domestic fuel bit, but people planning to emulate this will need to take care. Of course those of us who supply continuous services are laughing here, as we ask all our clients in December if they would mind awfully if we billed them, as we would dearly love to save them 2.5% VAT. And I don't think there's anything Mr D can do about that. Might even pay for the SBN Christmas party this year!
8. Greater information requirements from taxpayers making tax understatements of at least £5,000
A bit of an accountants' charter this Budget, with taxpayers carelessly or deliberately understating tax being required to give HMRC extra tax information for up to 5 years to give HMRC comfort that they are not doing it all over again.
9. Publication of details of tax defaulters
And this is the piece de resistance. I love this proposal to little pieces. "We know where you live, and we're going to tell everyone else where you live too." Could we possibly extend this proposal to bankers? And what is it going to cost in police protection, as angry mobs target tax evaders' houses? Don't HMRC personnel sign the Official Secrets Act any more? If anything is designed to make people think twice about tax evasion it has to be this proposal. And no, I am not being ironic - this is a fantastic idea.
10. New penalty regime - returns and payments
Despite HMRC protestations to the contrary, the new penalty regimes look set to be significant revenue raisers. Penalties for late monthly PAYE payments - doesn't bear thinking about. And £30 daily penalties for tax returns more than 3 months' late. Non-compliance is about to get much more expensive; again these proposals are very much of their time.
11. New penalty regime - HMRC enquiries
I for one can hardly wait to start arguing about the borderlines between reasonable (no penalty), careless (maximum 30% penalty), deliberate (maximum 70% penalty) and deliberate with concealment (maximum 100% penalty). After all, its so obvious isn't it? One of the interesting things about this is that the definition of concealment is actually very generous to the taxpayer. Contrary to my understanding of the meaning of the word, concealment apparently requires positive action by the taxpayer to mislead HMRC rather than just not saying anything. Again I think this will ramp up the take in penalties for HMRC considerably, which is fine provided they get the borderlines right.
12. HMRC charter
Plus ca change, plus c'est la meme chose. "History repeats itself, first as tragedy, second as farce" said Karl Marx, and as usual he had a shrewd idea what he was talking about. Back in the 1980s HMRC introduced the Taxpayers' Charter, a document born amidst great fanfares and destined to die, unloved and in obscurity, of continuous neglect. So what are we to make of the fact that we are about to get another one, rather ominously named for HMRC rather than us? It will tell us about HMRC's standards of behaviour and its values, apparently, and will no doubt refer to us as customers. Strangely, I had always understood that a customer had the right to take his custom elsewhere, but clearly I was wrong. Could the time of the committee devoted to producing this document not use its time better answering the phone, responding to letters or even tracking down more tax evaders to provide us with personal details for?
Mark Simpson
22 April 2009
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