Taxing Times Blog

Welcome to the Milsted Langdon Tax Team blog. Over the forthcoming weeks and months, this blog will give you our take on tax issues affecting businesses and individuals.

7 August 2010

Ding Dong Bailiff Calling

In a further move to outsource (spotting any trends here?), the Revenue announced that they have signed contracts with 4 companies to undertake collection of £140 million in unpaid taxes.

Let us hope that some of the scare stories about bully boy tactics prove to be exaggeration.

If you are in arrears with your taxes, it is far better to seek professional advice rather than wait for the bailiff to call.

 

31 July 2010

Folly Now One Step Nearer

Back in February, we posted about George Osborne’s plan to have the Revenue calculate the PAYE & NIC deductions. Suffice to say we weren’t impressed. So imagine our horror when this plan was incorporated into the Revenue’s discussion paper on PAYE published last week.

The proposals are in two parts:

Stage 1 – the provision of “real time” payroll information

Stage 2 – the centralised collection of tax and NIC

Unsurprisingly, ours is not the only voice of dissent. Many observers, ourselves included, can see some merit in monthly reporting of payroll data. But stage 2 is likely to lead to real problems particularly as its principal reason will be to drive down the cost of collecting these taxes. So will sufficient be spent on its implementation, we wonder?

 

24 July 2010

Simples, innit?

After last week’s post, we were hurriedly checking our calendar to check whether it was 1 April all over again when we heard about the Office of Tax Simplification which was launched last week.

The Office has been set up “ to review a list of all reliefs, allowances and exemptions applying to both businesses and individuals...that should be repealed or simplified...for a simpler tax system”.

Now don’t get us wrong, we believe that our current tax system is unnecessarily complicated but are we the only ones who worry whether this may mean some tax rises via the back door?

2 July 2010

Missing In Action

No we are not talking about the England team's performances at the World Cup.

You will have noticed that there has been a hiatus in the Blog over the past month. Our apologies for that but we can assure you it has been for the very best of reasons.

Since the media started to cover the potential increases in capital gains tax, we have been working feverishly to minimise the impact on those clients of ours who are affected. Our efforts have been highly worthwhile as we reckon we have saved these clients in excess of £1 million in tax with the increase that was announced and came into effect at midnight on 23 June.

But we weren't able to sit back on our laurels once George Osbourne sat down because we have gone headlong into "post budget" mode. This means we have been appearing on the radio and in person at a series of post budget seminars.

Normal service will be resumed next week.

 

17 July 2010

A Graduated Tax?

We look back on our student days with fond memories, well those parts we can still remember from that far back!

Yesterday Vince Cable unveiled proposals that could replace student loans with a new “graduate tax”. The premise for this tax is that, as graduates have a greater earning potential than non graduates, they should pay a greater share of tax. This idea clearly ignores that fact that we already have a tax system whereby those earning more pay more as a percentage than those earning less.

This is a bizarre logic. Taking it to its extreme end, should there be an additional tax on those successfully treated by the NHS as people who are alive clearly have a greater earnings potential than those who are dead?

10 July 2010

The Strong Arm of the Revenue

At a time when public finances are being squeezed there is some welcome news of a significant cash inflow as a result of the Revenue pursuing a gang engaged in carousel fraud. Carousel fraud is a complex matter but, in simplified form, involves people reclaiming VAT that has never actually been paid over to the Revenue.

This particular case was a record £92.3 million and the Revenue have managed to claw this back by restraining a number of properties in the UK and abroad and several supercars.

At a time when the Revenue is coming in for a lot of justifiable criticism, this case is a brilliant success for the Criminal Investigation team.

 

19 May 2010

Don't Panic Captain Mainwaring! Don't Panic!

So we are to have an "emergency" Budget on 22 June.

The main talking point is the much discussed increase to Capital Gains Tax (CGT). What form will it take and when will it come in?

It appears that we are looking at a substantial increase in the rate of CGT on gains on non-business assets. It was a stated Lib-Dem policy that they would realign income tax and CGT rates. From that it sounds like we are looking at 40% or possibly even 50%. We also think it would be wrong to assume that the 10% effective rate of tax on business gains is staying. We would not be surprised to see a rise in that rate to 15% or even 20%.

The timing of the change is harder to call. There are really three options:

Backdate the change to 6 April 2010 - this would be an incredibly unpopular move and would not be conducive to the political goals of a "fairer" tax system which were espoused by the Lib-Dems in their election campaign. We think this is very unlikely.

Make the change from Budget Day - this would certainly meet the political goal of being seen to be tackling the deficit. However, to change a rate of tax midway through a tax year requires some careful legislating and will be far from straightforward.

Make the change on 6 April 2011 - the simplest change to enact and would lead to many seeking to crystallise disposals so they can be taxed at 18%. However, the tax from these transactions would not be received until 31 January 2012, with the tax arising from the increased rate not coming in until a year later. This option doesn't exactly tackle the deficit quickly.

Only George Osbourne and his team know which way they will jump and so our advice is that, if you are concerned that the changes will impact you significantly, you should consider what steps you can take to crystallise gains before 22 June.

 

12 May 2010

What are we supposed to call them?

Is it Comercrats now or Liberatives? Whenever we hear the words "Cameron & Clegg" it makes us think of a folk music duo doing the rounds of the local real ale hostelries.
But in all seriousness, what does a new coalition government mean in terms of tax policies? Well clearly the dust will settle over the next few days and weeks but from the announcements this morning the following is apparent:

• The planned rise in NIC will be removed for those earning up to £35,000.
• The coalition has set as an aspirational goal to increase the personal allowance to £10,000 per annum.
• The Lib-Dem proposal for a mansion tax has been dropped as has the Conservative plans to increase the IHT nil rate band to £1 million.

We also think that an increase in the rates of VAT and CGT are on the way and may well be announced in the emergency Budget which will take place within 50 days.

 

10 May 2010

Clear as mud

We can't help feeling that the election was a huge anticlimax, we were all set to see which set of policies, and in particular in our field, tax policies we were going to have to work with and now we are left in a state of limbo.

At the time of writing a Conservative-Lib Dem agreement looks likely but their tax policies are very different and so which policies will be set aside as part of a compromise?

Michael Portillo has gone on record as saying that the cuts in public services are unlikely to be a tough as the politicians are suggesting and so the tax rises will be greater than is being suggested.

So when will these tax rises be introduced? We think it is unlikely that they will come in immediately in a summer budget but 2011/2012 is probably the earliest opportunity.

What form will these increases take? The only thing we can say with any certainty is that it won't be the 6p rise in income tax that the National Institute of Economic and Social Research has suggested, no new Chancellor would want to begin his tenure by dropping that particular bombshell.

 

4 May 2010

Election 2010 - The differing tax policies

With the polling stations opening in less than 48 hours, it is time to sum up the three main parties policies on tax.

Labour

The incumbent government has made precious few election pledges on tax so we have to consider what has been included within the last few budgets, namely:

Personal allowances and rate bands frozen for 2010/11.

The new 50% top rate of income tax from 6 April 2010.

Tax relief for pension contributions to be restricted for those with income over £150,000 from 6 April 2011.

National Insurance increases of 1% from 6 April 2011.

A stamp duty holiday for first time buyers on properties up to £250,000.

Conservatives

Corporation tax rates reduced to 20% for small companies and 25% for large companies. This will be funded by the removal of the 100% AIA.

The inheritance tax nil rate band will be increased to £1 million per person as soon as it can be afforded.

Remove the proposed national insurance increase for anyone earning under £35,000 per annum

No national insurance payable on the first ten employees employed in the first year of a business started in the first two years of a Conservative government.

Personal allowances of up to £750 will be transferrable between basic rate taxpaying spouses.

Liberal-Democrats

The personal allowance will be increased to £10,000.

Tax relief on pension contributions will be reduced to basic rate for everyone.

Capital gains will be taxed as income.

A "mansion tax" will be introduced on properties worth over £2 millon.

 

26 April 2010

Adding value to Value Added Tax

Many commentators have pinned their colours to the mast and predicted that the standard rate of VAT will rise this summer as there is no other tax measure that has such a quick impact on government finances and, with 2 European countries have rates lower than our own rate; it is a relatively easy sell politically.

So what could the new rate be? The smart money is on 20%. This is because the average rate is the Euro zone is very close to this.

We should also be ready for some goods and services that are zero rated to be moved up to standard rate. Whilst we are unlikely to see changes to children's clothes, books, food or public transport, we may well see VAT placed on magazines (online magazines have been standard rated for a while) and repairs to historic buildings may also be increased.

All of the contenders in the general election have been silent on VAT, so it looks like it is a done deal.

 

19 April 2010

Send in the dementors

When we set up this blog, we secretly wondered how long it would be before we were able to incorporate the world of Harry Potter into our work.

So you should imagine our delight when that dastardly villain, Draco Malfoy has thrown his evil powers (and presumably the power of he who should not be mentioned) behind the Robin Hood tax campaign.

This campaign is pushing for a tax on speculative banking transactions which is set aside specifically to tackle poverty and climate change.

Whatever next we ask ourselves? Professor McGonagal campaigning for tuition fees for Hogwarts!

 

12 April 2010

More speed less haste

We go away on holiday and the powers that be call an election, could it be they feel the need to get their election campaign underway without comment from Taxing Times?

So we are looking at having two Finance Acts this year, one which has already been passed and another at some point after the election which will clearly be dependent upon who is in power.

Now the first Finance Act has been rushed through and, in doing so, has caused chaos amongst the furnished holiday let sector. This sector has been able to enjoy certain tax benefits as a result of their status and it was announced in March 2009 that these benefits would cease as at 6 April 2010. However, nothing was included in the 2009 Finance Act and because of the rush to enact the first Finance Act of 2010, nothing was included then. The government say that, if re-elected they will enact these new rules in the second Finance Act.

But where does that leave taxpayers?

If they are not re-elected the tax legacy of this government will be that over the last 13 years they introduced more uncertainty into the tax system than any of their predecessors.

 

6 April 2010

At last some common sense!

Finally some common sense may prevail where IR35 is concerned.

IR35 is the general name given to the legislation which has been used to try and "look through" personal service companies and attack pseudo employment.

The problems with the legislation have been two-fold. Firstly, at a practical level, the rules can be ridiculously complicated and give the potentially affected owner/managers of companies no certainty on which to base commercial decisions. The other problem has been that many of the people who run these companies do so because their customers demand they do so, which means that they are powerless to do anything about it.

The Conservative Party have written to the Professional Contractors Group to promise that, if elected, they would "undertake a fundamental review of small business taxation matters, including IR35".

Hopefully the other parties will also take note and we can look forward to the long overdue repeal of these awful rules.

 

30 March 2010

The Chancellors' Debate

As a precursor to the three live debates that the three main party leaders will participate in, last night saw the first ever live debate between the three would-be occupants of Number 11.

It comes as no surprise that all three participants stuck steadfastly to their messages, namely Alistair Darling emphasising his judgement, Vince Cable - his integrity and George Osbourne on the need for change.

Generally, the opinions of many commentators was that the best performer on the night was Vince Cable.

 

29 March 2010

Penalty Shootout

At Milsted Langdon, we're not letting ourselves get carried away with the World Cup hype. There are too many painful memories of too many penalty shootouts.

It appears that HMRC finds the concept of penalties pretty painful as well. According to figures published this week, 53% of penalties issued for late filed tax returns are issued incorrectly. What is worse is that this statistic comes from the Revenue themselves who conduct an internal review of cases where the taxpayer appeals. The statistic could be worse than that.

We believe that this statistic illustrates once again the need for tax payers to get the right advice and service from a tax agent. Doing your return yourself could truly be a false economy.

 

24 March 2010

We Hate To Say We Told You So - Budget 2010

It was a bit of a non-event really. What has the Chancellor done that is noteworthy?

Stamp Duty holiday for first time buyers on properties up to £250,000. This is being paid for by a new 5% rate for properties worth more than £1 million.

Doubled the annual investment allowance to £100,000 from 1 April.

Doubled the lifetime limit for gains qualifying for entrepreneur's relief from £1 million to £2 million.

More details are available in a Budget Briefing.

We think the real changes will come in the first post-election budget where we are expecting an increase in the standard rate of VAT and an increase in the rate of capital gains tax.

 

22 March 2010

Budget Predictions

With the last Budget of this parliament only days away, what are we predicting it will contain:

Honest answer? Probably a lot of hot air and little of real substance. We all know that with the national debt at record levels, there is little room for manoeuvre. There are arguments for putting up taxes to reduce the debt but to do so would almost certainly be political suicide.

We predict a little tinkering around the edges, maybe some stealth taxes rises for the wealthy and lots and lots of rhetoric.

 

15 March 2010

Oops!

We are busy assisting those clients of ours who are likely to be affected by upcoming tax changes so this week's entry will be a brief chuckle at the expense of Lord Ashcroft.

It appears that, despite pledging to become resident in the UK when he was awarded his peerage, he didn't extend that to his tax domicile.

Now residence and domicile are separate concepts and certainly not topics to be discussed at length in a blog. But whilst hardworking taxpayers are being squeezed ever tighter to reduce the public sector borrowing, it appears that the political elite still feel they are above the rules.

Perhaps it is best paraphrased by misquoting a 80's classic "Wherever I lay my duck house, that's my home!"

 

8 March 2010

Time To Fix A Date?

As a general rules, accountants we are sometimes accused of being too regimented in our approach to life. Generalisations are always problematic and, whilst some of us may well view as important a well organised sock drawer or a ruler straight parting, these attributes do not apply to us all.

However, there is one aspect of life, that we tax accountants would appear to agree on and that is that the time has come to fix the dates in the calendar for the Budget and Pre Budget Report. It cannot be right that two political events that have such a dramatic impact on business should be allowed to be moved around to suit the whim of whichever party is in power.

If the rumour mill is to be believed, this year's Budget will be on 24 March, this is a full 4 weeks earlier than last year's Budget. Now if we understand the City Code correctly, there are specific deadlines for quoted companies reporting their results, so how can the reporting of the most important figures of all, namely our country's economy, be able to moved around at the whim of politicians?

We rest our case!

 

26 February 2010

Osbourne's PAYE Folly

We must confess to being more than a bit concerned about the Conservative Party's plans for a radical shake up of the PAYE system.

Under proposals released recently, responsibility for deducted and paying over income tax (and presumably national insurance) would be taken away from employers and go to a new bank based automated system. The responsibility for calculating these deductions would go to, you've guessed it, HMRC.

No, seriously!

This is the same organisation that is reducing its budget by 5% in real terms every year, that is closing offices and is struggling already to meet its own targets for answering post, phone calls etc. It has already issued millions of incorrect PAYE codes this year, a feat they appear to manage with alarming regularity each year.

Now you may have to forgive us for lapsing into a bit of Dad's Army but, if this proposal comes to pass, "we're all doomed!"

 

23 February 2010

It Is No Longer What's Right It Is What Is Fair

Yesterday, the Chancellor published the "Tax Framework For Business" which contains six policy principles. Namely:-

• Competitiveness - to ensure the UK remains and attractive place to do business;
• Fairness - so that businesses pay their fair share of tax;
• Minimising distortions - so that commercial decisions are not unduly influenced by their tax impact;
• Simplicity - avoiding unnecessary complications in new legislation;
• Stability and certainty - avoiding unnecessary changes and explaining the underlying policy behind changes being made; and
• Tax administration costs - a commitment to lowering the costs of compliance for businesses

Now it is the second of these principles that has us hot under the collar. What does "their fair share of tax" actually mean? And by whose yardstick is fair measured? Does this mean that if a taxpayer follows the letter of the law but some politician decides that this doesn't suit his current policy plans, that he whips out the "that's not a fair amount of tax" argument and retrospectively changes the law?

And how does fairness apply the other way? When HMRC look to use the rules in their favour?

You cannot use a subjective test like fairness easily with specific rules, measures and tests because everybody has a different view of what is fair.

 

18 February 2010

Extreme Measures

Many of us have at time expressed frustration with the taxation system. A number of years ago, our local tax office's letterbox was used as a toilet, presumably by a disgruntled taxpayer (and we'd like to think not a client of ours!).

But in Austin, Texas, a taxpayer has taken his displeasure to extreme lengths by crashing his plane into an IRS building after posting a 3,000 word "rant" on the internet.

Thankfully, whilst the taxpayer himself was killed, only 13 IRS employees were injured, none of them badly.

Hopefully, such extreme reaction to current HMRC shortcomings can be avoided on this side of the Atlantic.

 

5 February 2010

Planning For The New Tax Year

With just two months left before the end of the tax year, it's time to start thinking of planning for the upcoming changes. Those changes are principally

- The removal of the personal allowance for those with taxable income in excess of £100K.
- A new tax rate of 50% for taxable income in excess of £150,000.
- The removal of the tax preferential status of furnished holiday lettings.

In addition, capital gains tax is widely being tipped to increase in the next budget and this change is also likely to take effect from 6 April 2010.

By getting advice pertinent to your circumstances, the effect of theses changes can be minimized.

 

22 January 2010

Got the January Blues Yet?

Apparently Monday 14 January is officially the most depressing day of the year as credit card statements arrive which reveal the grim reality of the pre Christmas spending.

For tax accountants, the whole of the month of January can be a stressful time as we turn ourselves inside out to get our clients' (and hopefully our own) tax returns submitted online by 31st.

So if you are reading the blog and have now started shaking as you realise you own return is unsubmitted, what can you do to avoid the dreaded penalty?

Firstly and most obviously, engage an accountant. Chances are we can cut through the complexities and get the return submitted in a fraction of the time.

You can submit it yourself, HMRC's website (http://www.hmrc.gov.uk/) contains imbedded software that you can use to submit your return yourself. But don't delay a moment longer, as there is a lengthy process to get yourself set up on the system.

Finally, if you can't do either of the above in time, you could pay the tax you believe is due before the deadline. The penalty that is raised for the non-submission of a tax return has to be reduced to the amount of tax outstanding. So if you've paid all your tax or if you are due a refund, there will not be a penalty if you miss the deadline.

 

14 January 2010

Pruning With A Chainsaw

It has been announced recently the HMRC are to shut 130 tax offices. Whilst no official figures are available, the Public & Commercial Services Union (PCS) suggest that 1,700 people will lose their jobs.

So what can the taxpayer expect from these changes? Well we would wager that we are unlikely to see standards of service improve. Whilst it is true that there are many highly capable and very professional Revenue officers, there are still far too many instances of poor service and even, on occasion, rank incompetence.

In rural areas, one questions how the best interests of the country as a whole will be served by not having local HMRC presence. They will certainly lose the local knowledge of who has recently opened a new business and isn't declaring it or who are the dodgy business people in the local community.

The last word on this goes to the Low Incomes Tax Reform Group which looks after the interest of those sectors of society who can't afford to use agents or advisers. They point out that not all sectors of society are comfortable using either the telephone or internet to deal with their tax affairs and these closures will deprive those people of the ability to speak to someone face to face.

Whilst we all recognise that there must be some public spending cuts in order to deal with the deficit, perhaps the time has come for HMRC to get a bigger share of that spending?

 

6 January 2010

Sport is Taxing

It's possible that Lester Piggott is as famous for his exploits in tax evasion as he is for his exploits in The Derby.

So it comes as no surprise that with all the money swilling around the sport of football, that HMRC are keen to get their share. Reports have been circulating this week that several clubs have received winding up orders from HMRC including premiership club Portsmouth.

The numbers involved are pretty eye-watering, in a press release the new owner of Pompey claims to have made £9.7 million available to HMRC. Apparently it has become common practice in the sport to delay PAYE payments to ease cashflow. Perhaps the next time a club makes a big name signing, we can all enjoy the thought that we, the taxpayer, may have helped fund that purchase.