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This page provides current tax news for you to stay up to date with contemporary issues in taxation in the UK.
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Tax News:
UK Tax News (2003/4):
- Date: 14.4.04 - 2004 Finance Bill Summary
Taxzone.co.uk has published a summary guide (with links) to the newly published 2004 Finance Bill currently on its way through Parilament. Follow the link to see this guide.
- Date: 19.3.04 - PWC 2004 Budget Guide
PWC has given us permission to post their client guide to the budget here to download.
- Date: 19.3.04 - Budget Speech Webcast
UKOnline (Government's) website has posted a viewable webcast of the Chancellor's Budget speech. See the UKOnline website here to access the speech in mulitple formats.
- Date: 17.3.04 - UK Budget delivered by Chancellor
See the official UK Budget pages as announced by the Chancellor today here
- Date: 16.2.04 - IFS Green Budget Summary
The Institute for Fiscal Studies released its Green Budget 2004 in January 2004 which contains an assessment of the Chancellor's pre-budget report as well as budget predictions. Contained within the report are several options for raising revenue as follows:
- Increase income tax and national insurance contribution (NIC) rates
This is the simplest way for the government to raise additional revenue, however the government has promised not to increase income tax rates. An increase in NIC rates is possible. From a distributional viewpoint, an increase in NIC rates costs richer families a higher proportion of their income and so adds to the progressivity of the tax system. An increase of the newly introduced 1% rate to 6% would raise approximately £4billion and the burden of this would overwhelmingly fall on the richest 10% of families.
Rather than increase the rate of income tax or NIC, the Chancellor may opt instead to alter the income tax and NIC thresholds to change the number of people falling in the different tax brackets. Even if the thresholds are increased in line with inflation, generally incomes rise more quickly than prices and so people move into higher tax brackets. This "fiscal drag" accelerates if the threshold is increased by less than inflation. It has already been announced that the personal allowance is to increase to £4,745 in 2004-05 which is in line with inflation. If the other thresholds were to be frozen at 2003-04 levels, there would be 20 million more taxpayers, 2.4 million more higher rate taxpayers and income tax revenue would rise by £7.8billion more than if they were increased by price inflation.
One current anomaly in the income tax/NIC system is the difference between the upper earnings limit (UEL) for NIC and the basic rate threshold (BRT) for income tax, which is currently higher. This causes a drop in the effective marginal tax rate for earnings between £595 (UEL) and £675 (BRT) per week. The Chancellor may correct this anomaly. An increase in the UEL to the BRT level would raise £1billion, reducing the BRT to the UEL would raise £3.6billion. Alternatively the Chancellor could abolish the UEL for NICs altogether which would raise £7.6bilion.
- VAT
IN the UK, VAT is levied on a fairly narrow range of goods and services compared to other countries. Widening the base would bring the UK in line with other European countries. Currently, for example, the UK and Ireland are the only EU countries that zero rate food, water, books and children's' clothes. Widening the base is unlikely, however, in light of the government's pledge in its 2001 manifesto, not to extend VAT to food, children's clothes, books, newspapers and public transport fares.
The Chancellor could, however, increase the rate to 18.5% which would raise an additional £4billion (approximately). The distributional impact of this change is such that the poorest 10% of households lose more than most while the richest 10% lose less. If the government were to do this, it would be a break from the redistributive direction of Labour's reform to date.
- Taxation of Housing
In the view of the IFS, housing is not particularly lightly taxed in the UK, either relative to other forms of investment goods or relative to other countries. There are, however, some options for reform including extending VAT to new houses, increasing the rate of stamp duty on residential properties, introducing some form of property wealth tax, perhaps in lieu of council tax, or eliminating the principal residence exemption for capital gains tax purposes. This last measure, if adopted, would raise approximately £11.5billion for 2003-04.
- Corporation Tax
Reform of the corporation tax system has been the subject of continuous consultation for a number of years which is still ongoing. One concern is the proliferation of new companies in the wake of the 0% starting rate introduced in 2002. The government is expected to introduce measures in the budget to prevent tax avoidance through the use of companies by small businesses; however a simpler solution may be to eliminate the 0% starting rate.
For further details on the IFS and its annual Green Budget see the IFS website here.
- Date: 30.1.04 - Chancellor announces 2004 Budget date
Gordon Brown, the current UK Chancellor, has announced this week that the 2004 UK Budget will be delivered on 17th March. For further details, as they are released, see the HM Treasury website
- Date: 5.1.04 - Rising costs of UK tax compliance being reviewed by UK Government
On 14 November 2003 the House of Commons Treasury Sub-Committee announced that it had decided to undertake an inquiry into the Administrative costs of tax compliance. The terms of reference of the inquiry are to examine: - the extent of the administrative cost of tax compliance placed on business;
- how this has changed over time; and
- what steps have been taken to reduce the administrative cost and whether they are working.
The Scottish Institute of Chartered Accountants (ICAS) has today submitted evidence, drawn from a cross section of its membership, to the House of Commons Treasury Sub-Committee's inquiry into the administrative costs of business tax compliance.
ICAS voices concern that businesses have to bear the burden of administering the growing complexities of payroll, while also self assessing their own tax liabilities under a number of particularly complex areas of legislation. The Institute points out that depending upon the circumstances, these can include special rules relating to matters as diverse as settlements, personal service companies, controlled foreign companies, thin capitalisation, transfer pricing, loans to participators, and quarterly instalment payments.
ICAS also noted from its members' feedback that self assessment has reduced some of the paper-chasing that used to be involved in the tax compliance process, and that some very large companies are seeing positive improvements in the quality of service they receive from the Inland Revenue.
Ian Dewar, Convenor of the ICAS Taxation Committee, said: "The net effect is that the administrative tax compliance responsibilities carried by UK businesses have been rising over recent years, and are still increasing, with no signs of abating. Greater use of technology has helped to restrain cost increases. Nevertheless, most businesses have seen substantial escalation of the costs they incur to ensure compliance
with the tax legislation and to avoid potentially expensive penalties."
Source: ICAS website
- Date: 15.12.03 - Summary of the Pre-Budget Report 2003
The UK Chancellor, Gordon Brown, gave his annual pre-Budget speech on the 10th December. Following is a summary of the main points he raised for change or for discussion (as relevant to introductory and intermediate level tax studies):
- Extension of flat-rate VAT scheme - the flat-rate scheme introduced for small business in the 2003 Budget is going to be extended
- Widening of R&D credit - to further support enterpreneurship in the UK there will be a widening of the R&D tax credit to software development and power - ie the draft new definition extends the R&D credit to include the costs of materials consumed, software, water and fuel used directly in R&D.
- Use of IAS for tax purposes - it was announced that firms moving to IAS accounts in 2005 will not have to produce a second set of accounts, complying with old UK GAAP etc, for tax purposes - the IAS accounts will be acceptable.
- Employer provided child-care to get more tax-breaks - a widely tipped idea is to enacted whereby greater tax and NIC breaks will be provided for companies providing their own child-care arrangements for their staff.
- Measures to ensure fair tax on dividends for owner-manged businesses - the Budget in 2002 made it more tax-advantageous than previously to operate a small, owner-managed, business as a company than as a sole-trader. It appears that the Government is a bit concerned this has induced too many people to use this form of business over choicing to remain as a sole-trader and that the tax-breaks of dividends withdrawn v profits are causing too great an impact in this area (remember the aim of tax neutrality in tax policy creation?). The Pre-Budget report said measures will be introduced in the 2004 Budget to correct this and to "ensure that the right amount of tax is paid by owner managers of small incorporated businesses on the profits extracted from their company". It may be that NIC will be imposed on dividens of small companies to correct this - we'll have to wait and see.
- Personal Allowances and NIC changes - the basic personal allowance for people under 65 will be £4,745 for 2004/05, the starting point for National Insurance Contributions will be £91 per week and the upper earnings limit £610 per week (£31,720 per year). These increases are in line with inflation and are normal (although there were no increases in 2003/4 as you will know).
- Transfer pricing rules to apply to UK to UK group company transations - at present, a group of companies only has to justify its transfer pricing policies for UK to foreign group companies (so that the UK Treasury can ensure it is getting a fair percentage of profits made) but it appears this is about to change so all groups will need to justify all their transfer prices for tax purposes (with associated extra compliance costs). Small and medium sized comapnies will be exempt from this however.
See our list of Pre-Budget 2003 links for more details on this Report.
(NB - a full copy of the Chancellor's Speech containing all the details on the above measures, and other information he presented, can be found here)
Source: Taxzone website
- Date: 8.12.03 - Jonny Wilkinson's Tax Bill
If Jonny Wilkinson gets paid a bonus by the RFU following the English Rugby team's win last weekend then the likelihood is that he will be subject to tax, just like us normal mortals. However, if some delighted members of the public, or say a newspaper, offer him a completely gratuitous payment for being the most famous Englishman in history (well for now at least) he could be filling his boots tax-free.
In simple terms, gratuitous payments to sportsmen have never been taxable. This applies to testimonial matches for footballers or even benefit seasons for cricketers. There are two cases that cover the situation well. See the full story on Taxzone for details of the interesting tax situations for sportsmen and women in the UK at present. Do you think this is fair?
Source: Taxzone website
- Date: 8.12.03 - Customs stripped of its prosecution powers
The Treasury has announced that Customs & Excise is to lose its prosecution powers by the end of 2004 to a new separate body, following the collapse of several high profile Customs court cases.
The new body was recommended in a report by Mr Justice Butterfield in July of this year. He had been asked to examine the failure of a series of cases (London City Bond warehouse) in 2002 involving £600m of alleged alcohol duty fraud. More than 50 defendants who were convicted in the course of 13 separate prosecutions had their convictions quashed, while no evidence was offered against a further 40.
The separate body will mirror that of the Crown Prosecution Service (CPS) which took over police prosecutions in 1985. Mr Justice Butterfield said Customs should keep its right to investigate cases, but the prosecutions should be conducted by "lawyers who are wholly independent". A spokeswoman for Customs & Excise denied previous trials had collapsed because prosecutions were handled in-house. She told BBC News Online: "There were a number of very complex reasons for their failure and there was no evidence in the Butterfield Review that they failed as a consequence of a lack of integrity on behalf of individuals. The review made a number of recommendations and this is one of them we are preparing to introduce."
Will the Revenue to follow suit? Pressure may now grow for the Inland Revenue to also have its prosecution powers separated into a new body to mirror that of Customs, particularly with the increasing likelihood of a merger between the two departments. Gordon Brown will highlight the outcome of the Review into the two departments conducted by the Treasury that he announced earlier this year in the forthcoming Pre-Budget Report.
- Date: 8.12.03 - Revenue seizes Nurses' Christmas party fund
In a spirit hardly becoming of the festive season, the Revenue has seized £900 from a group of nurses who saved the money from patients' tips throughout the year, according to a story just posted in Taxzone.
They report on a story in the Guardian suggesting that the money was to be spent on a Christmas party on their ward at Derriford hospital in Devon. However, the nurses have been left owing £44 after being presented with a tax bill for this year's gratuities, as well as the one for last year. The ward's Christmas fund was one of 33 staff accounts to be hit by the Revenue.
Throughout the year each ward in the hospital puts cash donations into charitable trust funds to pay for their festive celebrations and staff treats. But the Revenue says tax and national insurance must be paid on the donations because they are judged as "benefits in kind". And because the demands were backdated two years, many accounts were cleared out and some were left overdrawn. One nurse, who did not want to be named, told The Guardian: "Instead of giving flowers and chocolates, the patients say they want to give us some money so we can have a Christmas drink or party. We are absolutely livid. They have given us money... and it's been stolen by the government."
A spokesman for the Revenue said: "Donations or gifts of this nature would be deemed as income arising from their work as nurses, and so will be liable to tax and national insurance contributions in the same way, for example, that restaurant tips would be."
The Revenue has recently cracked down on restaurant tips operated through troncs. The department had called the operation "project gourmet".
- Date: 18.11.03 - New funding available for PhD tax students in 2004
The Chartered Institute of Taxation (CIOT), the professional body for tax advisers, is delighted to announce that up to five grants to a maximum of £3,000 per grant will be awarded on a competitive basis commencing 2004.
The purpose of the grants is to encourage and help students to complete post-graduate research into tax in the UK and publish their results. The CIOT believes it is in the best interests of the profession to support tax academics. The grants are not intended to meet college fees but to help with, for example, travel costs where the travel is necessary for research or with general living expenses.
There will be two application deadlines each year, 1 April and 1 October. Any student interested should contact Rosalind Baxter, Head of the Institute's Education Department, by e-mail on rbaxter@ciot.org.uk or by telephone on 020 7235 9381 or by post at CIOT, 12 Upper Belgrave Street, London SW1X 8BB. All applicants will have to complete the PhD grant form and provide a short abstract of the research being/to be undertaken.
The Institute's President, Tim Ambrose, commenting on the new scheme said "I believe that it is very important that there is a healthy academic profession studying and questioning our tax system, analysing its strengths and weaknesses, and keeping abreast of international comparisons and plans for the future. In recent years, the pressures on academic life have become much greater, but the Institute, which is an educational charity, must have a role in supporting the relatively small band of tax academics who can provide the intellectual rigour and backbone for the study of taxation."
- Date: 13.11.03 - Pre-Budget date announced
The Chancellor has announced that the Pre-Budget Report will be given on Wednesday 10 December 2003. In keeping with the way things seem to be going with Budget statements recently, this is again later than usual. You can see the official HM-Treasury Press Release on the announcement here. You should also bookmark this page on the Treasury website as it will become the page containing all the Pre-Budget materials once they have been presented.
- Date: 17.10.03 - Ernst & Young launch their 2004 Budget website
The Budget 2004 web site is now live at http://www.ey.com/uk/budgetnews
Here you can find up-to-the-minute Budget news, fact and figures, press releases and Ernst & Young commentary. They will be updating and adding to the content as we receive further information.
- Date:13.10.03 - ICAS outline suggestions for next UK budget
The Institute of Chartered Accountants of Scotland (ICAS) has called for corporation tax instalment payments, required by large companies, to be simplified in next year's Budget. It claims that the process of estimating current year tax liabilities wastes valuable resources that could be put to more productive use
In a letter to the Chancellor of the Exchequer, the Scottish Institute puts forward a number of recommendations for the spring 2004 Budget based on suggestions from its members.
ICAS also seeks the removal of unfair late filing penalties for companies that pay no tax and the removal of anomalies from the capital gains tax reliefs on exchanges of securities, where indirect shareholdings are treated unfavourably.
To encourage business, the Institute calls for an easing of restrictions on the tax relief available on interest paid on loans to close companies, a new pooling of rural business activities to facilitate diversification of farming, more generous reliefs for expenses where a business has ceased, and technical changes to the IR35 regime. It also recommends further deregulation in the tax reliefs available to businesses that support home-based working.
Donald Drysdale , ICAS Assistant Director of Taxation, said: "In our continuing campaign for simplification of tax, ICAS would like to see the Class 2 and 4 self-employed National Insurance contributions merged and collected as a single levy with income tax. We have also suggested a new relief for overseas medical expenses for individuals working abroad. ICAS is concerned about the number of reliefs and allowances that are not revalorised annually with inflation and recommend that these are restored to their original levels. Examples are the £4,250 limit for ‘Rent a Room Relief’, which should now be £5,025, and the £3,000 inheritance tax annual exemption, which should be £8,500."
Source: ICAS website
- Date:13.09.03 - New website launched
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