This includes:
“On 13 October, HMRC will remove form R27 (‘Reclaiming tax or paying tax when someone dies’):
More on this can be found here.
Let’s start with an issue that is at last beginning to reach the top of the political agenda, tax avoidance.
The UK National Audit Office has released a report suggesting that HMRC is being “overwhelmed” by the scale of tax avoidance, claiming that the UK is losing out by more than £10bn in lost tax revenue. The Comptroller and Auditor General, Amyas Morse, stated: “HMRC must push harder to find an effective way to tackle the promoters and users of the most aggressive tax avoidance schemes”. But according to the NAO, between 2004 and 2011 approximately 2,300 avoidance schemes were disclosed to HMRC. A report on this can be found on the BBC news website which can be found here. The NAO report can be found here.
That shows the scale of the problem.
Then there is the sight of a number of Chief Executives from several of the world’s top companies giving evidence to the House of Commons Public Accounts Committee on the issue of tax avoidance. Representatives from Google UK, Starbucks and Amazon were answering questions on tax arrangements for multinational companies. Their responses show how big business views this issue and interference by politicians. More on this from the BBC news website can be found here.
Also on this issue. The Managing Director of John Lewis, Andy Street has said that the failure to resolve the issue would risk driving UK firms out of business. Street’s comments were aimed at Amazon, which is accused of failing to pay the correct rate of UK corporation tax. He said that UK companies would be “out-invested” and “out-traded” by the US-based internet retail giant. More on this from the Telegraph can be found here.
There is also some evidence that HMRC is losing this “battle”. The European Court of Justice has ruled that the UK Government must refund several UK-headquartered multinationals up to £5bn worth of corporation tax. The companies, led by British American Tobacco, were found to have been treated unfairly by HMRC which retrospectively blocked tax refund claims dating as far back as 1973. HMRC said it was “very disappointed” at the ruling. Glad that it was not “happy”. More on this, again from the Telegraph, can be found here.
Then there is the tax tribunal decision in favour of the former Rangers Football Club. The decision of the first tier tribunal was not unanimous and HMRC is considering an appeal. More on this from the Scotsman can be found here.
An example of what HMRC is trying to do also highlights the scale of its task. HMRC has launched a taskforce to pursue landlords in the south east of England who fail to declare rental income. It is expected to recover £4m out of the estimated £550m of tax evaded annually by landlords across the UK. A press release from HMRC on this matter can be found here.
The statement from UK Business secretary Vince Cable sums up nicely the quandary for politicians. Cable has called for action against corporate tax avoidance but also stressed the need to encourage investment. He pointed to anger amongst small and medium sized businesses that multinational corporations are able to avoid tax without consequence. More on this from the Scotsman can be found here.
I liked this: “High-street shops turn fire on Amazon’s tax avoidance”. More on this can be found here.
Now to the fiscal powers debate.
Edward Troup, the person responsible for the collection of the Scottish rate of income tax at HMRC, has told MSPs that the Scottish Government would have to pay the costs of any changes to the Scottish rate of income tax. More on this from the Scotsman can be found here. This is in fact one of the reasons why I think a tax needs to be devolved in its entirety.
Also on this issue, and some sensible observations by Iain Gray, convener of Holyrood’s Audit Committee. Gray said that the Scottish Parliament must be able to exercise greater oversight of HMRC when the Scottish Parliament will become responsible for raising half the income tax in Scotland from 2016. More on this from the Herald can be found here.
The Devo Plus group, which was set up by Reform Scotland, has published its latest paper on further powers that could be devolved to the Scottish Parliament as long as Scotland votes NO. More on this from the Scotsman can be found here. The paper can be found here. Notable that the Conservative representative acknowledged that he was there in a personal capacity and not representing his party. Ruth Davidson has of course made her opposition to further powers clear. The problem with this approach is an obvious one. Can anyone say with a degree of certainty that major powers will be devolved to Scotland if Scotland votes NO. To see how far apart the opposing sides in the independence debate are have a look at one of my recent blogs. This blog lists the tax powers that Westminster has already said no to. My earlier blog can be found here. Even the Liberal Democrats, the party that historically has went the furthest on this issue, now wishes to devolve only a handful of additional tax powers.
Now to some commentary on the recent Institute for Fiscal Studies report on the economic possibilities of an independent Scotland. The excellent piece by Ian Bell in the Herald can be found here. The argument that Scotland’s oil wealth is a potential problem for Scotland is simply ridiculous.
The Times has reported that sales of homes valued between £2m and £5m in Greater London have fallen by 29% per cent in the third quarter, according to figures from the Land Registry. I was interested to read that “industry experts” have blamed the fall on changes to stamp duty land tax in the last UK Budget. London Central Portfolio, a high-end residential property investment fund, said: “The fall in transactions is almost definitely a result of the uncertainty and negative sentiment caused by the tax changes announced in the 2012 Budget”. It seems that uncertainty can be caused by something other than the debate on Scottish independence. The report in the Times can be found here.
And finally to France. The French Government has announced new measures against tax avoidance and fraud for companies and individuals. Failure to disclose the origin of offshore assets will attract an automatic 60% tax rate. The French tax authorities will also demand an explanation of all individual payments exceeding €200,000. Vive la France.
Where to start.
In a speech to mark her first year as Scottish Conservative leader, Ruth Davidson outlined an aspiration to cut income tax by more than 1p when new powers come to Holyrood. More on this from the Scotsman can be found here. Now compare this with a survey that claims that three quarters of Scots think taxes should be raised for those with the highest incomes and wealth. More on the survey from the Herald can be found here. These stories show how Scotland, both the politicians and the general public, are beginning to wake up to the fact that tax is not necessarily just a UK matter.
The Scottish Government has backed the latest call for control over air passenger duty to be passed to the Scottish Parliament. This is a matter worth remembering when you hear comments from the NO campaign on how they “hope” to give the Scottish Parliament further powers. Let’s not forget how few tax powers are included in the latest Scotland Act. It is “Calman minus” just as the Liberals recent Home Rule Commission is “Steel minus”. More on this can be found here.
First it was Rangers now it is Hearts that is in trouble with HMRC. The surprise is no-one is surprised. Hearts owe HMRC approximately £500,000 in unpaid tax. More on this from the Scotsman can be found here.
The UK Government seems to be doing a fair bit of thinking just now which is always worrying.
The UK’s Chancellor of the Exchequer, George Osborne, has called for a change in international tax standards to reflect changes in business, such as the rise of e-commerce, which makes it easier for companies to shift taxation away from jurisdictions where profit is being generated. More on this from the Guardian can be found here. In addition, Danny Alexander, the Chief Secretary to the UK Treasury, has pledged to crack down on corporate tax avoidance following revelations that the supermarket chain Asda may have used overseas transfers to its parent company Walmart to avoid up to £250m in tax. More on this from the Times can be found here. Lots of words but can we expect real action?
The Chief Executive of HMRC, Lin Homer, has been put under pressure by the UK Treasury Select Committee to explain why multinationals have been allowed to pay less tax than small businesses in the UK. The Comptroller and Auditor-General of the National Audit Office, Amyas Morse, said that large companies often put pressure on HMRC by threatening to pull out of the country altogether. More on this from the Times can be found here. A connected story from the Daily Mail and involving Margaret Hodge, chairman of the UK Public Accounts Committee, can be found here.
Under “road charging” proposals being considered by the UK Government, motorists could face a new two-tier system in which drivers would pay a lower rate of tax if they do not use the UK’s trunk road network. Have any of the UK media outlets considered the fact that this is also a matter for the Scottish Parliament? Of course not. The new system would comprise a basic charge for the use of local roads, and a secondary charge for those motorists wanting to use motorways and A-roads. More on this from the Guardian can be found here.
Is it just me or is it really the case than almost every change in the law is met with the accusation that it breaches some part of EU law? The latest example is the UK Government’s planned changes to child benefits. The UK Treasury has dismissed the claims by the Institute of Chartered Accountants of England and Wales. More on this from the Telegraph can be found here.
David Gauke, Exchequer Minister to the UK Treasury, has argued that HMRC needs to pay more to recruit the best tax experts in order to combat tax avoidance by major multinational companies. Edward Troup, Director-General for Tax and Welfare at HMRC, welcomed the proposal, saying: “I think it’s on the record now to have more staff and higher pay”. More on this from the Times can be found here. This is an issue that we in Scotland will also have to respond to when setting up our own tax system.
It is often claimed that that the UK Government favours London and the south-east of England. This is another such claim. The UK Communities Secretary, Eric Pickles, has faced criticism from property groups and retailers after his announcement that a revaluation of business rates has been pushed back to 2017. The British Property Federation said that it was unfair to expect tenants to continue to pay a levy based on “top-of-the-market” 2008 rents. The UK Government argues however that a revaluation would lead to rate increases for many businesses, especially in the south-east. More on this from Accountancy Age can be found here.
Now to a story that keeps bubbling up to the surface and clearly is not going away. First it involved government officials such as the head of the Student Loans Company, then it was the BBC now it is teachers. HMRC has said that supply teachers hired via recruitment agencies using off-shore firms are causing a shortfall in National Insurance contributions. An HMRC spokesman said: “These kinds of arrangements are not compliant with tax and National Insurance legislation and the end client, or the employment businesses, may be liable for any underpaid tax and National Insurance”. More on this from the BBC news website can be found here.
Anyone who regularly looks at HMRC press releases will see HMRC increasingly publicising stories such as this. An Isle of Wight tax advisor who stole £52,000 by claiming tax repayments using his clients’ names was jailed today at Newport Crown Court. The press release from HMRC can be found here.
Let’s end with matters slightly further afield. Hong Kong has imposed a 15% emergency tax on foreign buyers of residential property in an attempt to hold back the island’s property bubble. Stamp duty for short-term speculators has also gone up from 15 to 20%. Similar measures have been imposed by the Singaporean Government. More on this from the excellent STEP Journal can be found here.
One last point. Patriotism takes many forms and that includes paying your taxes.
Have a good week.
Let’s start with the recent local government election. I was disappointed that none of the main parties, of which Scotland now only appears to have three, put forward any serious proposals for reforming how we pay for our local services. There is though one body actively campaigning on this issue and that is the think tank, Reform Scotland. An article in the Scotsman on this can be found here. Reform Scotland want our local authorities to have the power to decide whether to adopt a property tax such as the Council Tax or a land value tax or instead opt for an income tax, a consumption tax or a number of different local taxes.
Now to fiscal powers and the fact that National Insurance turns 100 in July. 100 not out but for how much longer? The idea of combining income tax and National Insurance was considered by a working party as long ago as 1993. The main reason for this is the erosion of the link between National Insurance contributions and welfare benefits. This issue is again being looked at. Do I think we will see a complete merger? No, unless both income tax and National Insurance are controlled by the Scottish Parliament. This is an example of how a Scottish tax system could create a more simplified system.
Again on fiscal powers. I was not surprised to see a number of Conservative MPs arguing for a “Devo Plus Bill” as part of an “alternative Queen’s Speech”. This was published on the Conservative Home website. Conservative Home support the Reform Scotland proposal which would devolve all taxes to Scotland except VAT and National Insurance. More on this can be found here.
Now to a group of people termed “High Net Worth”. HMRC has announced that its High Net Worth Unit’s tougher approach on wealthy taxpayers has resulted in an extra £200m of tax revenue. David Gauke, Exchequer Secretary to HM Treasury, said: “The Unit’s approach ensures that HMRC is working as effectively as possible with the very wealthy and that they are contributing a fair share”. This was reported in the Financial Times on 6 May. The article also claims that the amount collected by this Unit has doubled since it began operations in 2009-10. The aim is for £560m by 2014-15. This does though beg the question: why was this Unit only set up in 2009?
Now to a claim that the UK Government Minister for Civil Society, Nick Hurd, was never consulted about the cap on charitable tax relief announced by HM Treasury in March. More on this from the STEP journal can be found here. The UK Government has been at sixes and sevens on this policy. I will be surprised if it survives the summer. Unless of course summer is already behind us.
Again from the STEP Journal. 1.6 million people should have received letters by now from HMRC warning them that they have been undercharged tax under the PAYE system and will have to pay extra. Another 3.5 million people will be given a tax refund. The STEP article can be found here. An example of the sheer scale of the UK tax system and the problems it faces.
Good to see that the Scottish Government’s prosecution service has passed 20 cases of large scale tax avoidance to HMRC for investigation. An article on this from the Scotsman can be found here. The referencing of Al Capone must be compulsory when journalists write about this subject.
Sometimes an argument just makes you shake your head. The Scottish Government has announced that the minimum price for alcohol will be 50p. Although this proposal has received a huge amount of support, the leader of the CBI in Scotland has warned that supermarkets are likely to receive millions in extra revenue from drink sales. That of course is true. So why is this organisation against the devolving of control of alcohol duty to the Scottish Parliament and the Scottish Government’s Public Health Levy (also known as the “Tesco tax”)? There is of course no need to answer that question. An article from the Scotsman on this can be found here.
It seems that top rates of personal income tax across the Organisation for Economic Cooperation and Development (OECD) countries have begun to rise again in recent years after three decades of steady reductions. The OECD press release can be found here. Let’s not forget one of the main reasons for the reduction. Politicians decided that “stealth taxes” were a better option. For “better option” read “will help me get elected”. The economic crisis put paid to that “cunning plan”.
“A serial killer is stalking the wealthy suburbs of Athens with an idiosyncratic choice of victims. They are all rich Greeks who have failed to pay their taxes, and their corpses have been left scattered among the ruins of the ancient city, dead of hemlock poisoning, the means of Socrates’ execution.” This is the plot of the latest bestselling novel by Petros Markaris, who has combined the roles of thriller writer and social commentator in Greece to such an extent that he has become one of the most widely quoted voices in the crisis. The article on this from Business insider can be found here.
Now to a story that combines sport, tax and the financial crisis. Diego Maradona is suing the Italian government for £40m, despite owing it £32m in unpaid taxes. Only in Italy! The article from the Metro can be found here.
Lastly, an update on an issue I wrote about recently. Co-founder of Facebook, Eduardo Saverin, is one of the thousands of wealthy Americans to have renounced his citizenship recently in order to avoid the country’s international taxation regime. An issue for those planning a Scottish tax system to ponder. An article on this from the STEP journal can be found here.
Have a good week.
This case concerend an actor working away from home and whether his accommodation, subsistence and travel expenses were “wholly and exclusively” incurred for the purpose of his profession.
Healy who is based in Cheshire was contracted to appear in the West End of London in the musical, Billy Elliot. Healy claimed tax relief on the costs of his accommodation, subsistence and travel to and from the theatre.
The First-tier Tribunal held that the cost of his accoomodation was allowable but that his subsistence expenses and taxi fares were not. The accommodation was allowable primarily because the actor had not moved to London. He was only there during the week for the purposes of performing on stage. That therefore met the “wholly and exclusively” test.
Healy’s subsistence expenses and taxi fares were disallowed on the basis that there was insufficient evidence to show the nature of the expense.
The full decision of the Tribunal can be found here.
Where to start?
The fall out surrounding the UK Chancellor’s Budget statement continues. The House of Commons Treasury Select Committee has said that the Chancellor’s plans to scrap the 50p tax rate don’t add up. In addition it criticized the numerous Budget leaks. An article on this from the Daily Mail online can be found here.
I am surprised that more has not been made of the change to the 40p income tax band. One of the arguments put forward for reducing the top rate of income tax was the effect it was having on entrepreneurship. I cannot see how massively increasing the number of people liable to pay income tax at the 40p rate compliments that argument.
Then there is the charity furore and the apparent contradictions in the arguments put forward by the UK Government in support of this policy. The fact that some UK Government Ministers fought extremely hard to reduce the top rate of income tax is well documented. Now the UK Government is criticising the fact that rich people don’t pay a high enough rate of income tax. In addition, the UK Government has made it clear they wish to increase charitable giving. Only a year ago, in the 2011 Budget, the UK Chancellor announced proposals to support giving, such as a lower rate of inheritance tax for those leaving 10% of their estate to charity. The UK Government started by saying that the policy is needed by alleging that high earners are using donations to dubious charities to reduce their income tax bill to almost zero. Now it is talking about fairness. Will this policy even survive the summer? An article from the STEP online journal on this issue can be found here.
HM Treasury has released figures showing the extent of tax avoidance by the UK’s so called “super rich”. Robert Peston has written an excellent article on this. His comment on the contrasting approach taken by George Osborne and his Labour predecessors is particularly noteworthy. If the report does tell us one thing, it is how complicated a picture this is. One fact does though stand out. 73% of those earning over £250,000 were paying an average tax rate above 40% in 2010/11. Robert Peston’s article from the BBC news website can be found here.
Good to see the Church of Scotland entering the earnings and taxation debate. A Kirk commission has issued a report on the “greed and inequality” of the bonus culture and tax avoidance. An article from this from the Herald can be found here.
Now to what is expected of HMRC in the next year. HMRC’s remit for 2012/13 is:
The context to this is fewer staff and a smaller budget. More on this can be found here.
The Scottish Parliament this week endorsed a legislative consent motion which effectively allows the UK Government to pass the Scotland Bill, also known as “Calman minus”, at Westminster next week. Have I anything else to say on this? No. The term “Calman minus” says it all. An article from the Scotsman on this can be found here.
The Guardian reported recently that Amazon’s tax affairs are being investigated in the US, China, Germany, France, Japan and Luxembourg. HMRC have refused to confirm whether it is also investigating Amazon. Amazon is the largest retailer in the UK. The Guardian also reports that Amazon paid no UK corporation tax last year. This is primarily because the US parent in 2006 transferred ownership of the main Amazon.co.uk business to a Luxembourg company. It is not just the UK Government that is being asked questions about this company. The Scottish Government is also being asked questions relating to a £10m grant. Of course if the relevant tax powers were devolved to the Scottish Parliament, the left hand might have more of a chance of knowing what the right hand is up to. Articles from the Scotsman and the Guardian on this matter can be found here and here.
Another week and another VAT issue. The Church of England fears church renovation projects could be scrapped because of planned changes to VAT set out in the UK Budget. From October this year HM Treasury will charge VAT at 20% on approved alterations to listed buildings. Presently this is exempt from VAT. The Church of England thinks the change will cost it £20m a year. HM Treasury says funding will be available to ensure church renovations are not cancelled. A report from the BBC news website on this can be found here. The BBC report notes that a “source close to Chancellor George Osborne is reported as saying that this proposal was about ensuring a millionaire wanting to build a swimming pool in the garden of their listed mansion had to pay VAT on it.”
HMRC is improving and streamlining its processes for customers who need to deal with them following a bereavement. HMRC is creating dedicated teams who will be responsible for dealing with PAYE and Self Assessment for bereaved customers. The main form which customers use to finalise the tax affairs of the person who has died, R27, has been redesigned following feedback from customers and tax specialists to make it easier to complete. More on this can be found here.
A “fat tax” is back on the agenda. The Academy of Medical Royal Colleges has called for stronger measures to reduce obesity in the UK. The first phase of the Academy’s campaign will try to find out what works. It will review evidence for diets, exercise, taxation, minimum pricing and changing advertising and food labeling. The Academy has also blamed the UK Government’s previous strategies and irresponsible marketing for aiding to obesity issues. An article on this from the BBC news website can be found here.
There are suggestions that the German Government’s recent renegotiation of its withholding tax agreement with Switzerland may tempt the UK Government to try and do the same with its own Swiss agreement. The UK Government has though already changed it once already. An article on this from the Guardian can be found here.
Let’s finish with the “Buffett Rule” as it sounds like it might be about food and I am feeling peckish. Sadly, the Buffett rule is not about food but instead a tax plan that would apply a minimum tax of 30% to individuals making more than a million dollars a year. An editorial in the Wall Street Journal calculates that the Buffett Rule, which is supported by President Obama, would lose $80bn a year from USA federal tax revenues. The US Senate has in fact this week voted to block the Buffett Rule. The article from the Wall Street Journal can be found here and a BBC website news report on the Senate vote can be found here.
Have a good weekend and good luck to all the teams competing at Scottish Rugby’s Cup Final day at Murrayfield on Saturday.
The main story of the week has to be the fact that the UK Chancellor, yes the UK Chancellor, said: “I was shocked to see that some of the very wealthiest people in the country have organised their tax affairs – and to be fair it’s within the tax laws – so that they were regularly paying virtually no income tax. And I don’t think that’s right.”
Words almost fail me. Then again maybe I should be glad that George Osborne has finally realised what was clearly obvious to everyone else. HMRC provided the UK Chancellor with anonymised copies of the confidential tax returns submitted to them by some of the UK’s wealthiest people. These returns showed that the 20 biggest tax avoiders had legally reduced their income tax bills by a total of £145m in a year. According to the report, the very rich have managed to reduce their income tax rate to an average of 10%; less than half the amount paid by the average Briton. A report on this from the BBC news website can be found here. Helpfully the BBC news website has also outlined the most common tax avoidance schemes. This can be found here.
I am not sure that the Prime Minister’s announcement that he will publish details of his taxes is going to help the UK Government out of the hole they are digging for themselves. As the UK Chancellor noted, these people are acting within the law. Take for example the proposed cap on income tax reliefs. The cap will apply only to those reliefs that are currently unlimited, which will therefore exclude pension contributions and EIS investments, among others. The proposals will cap tax relief to 25% of income or £50,000 whichever is greater. It is expected the draft legislation will be published for consultation later this year.
HM Treasury has now published more information on this proposal. The report, which confirms charitable gift relief will be included in the cap, can be found here. The report notes that current unlimited relief policy allows individuals to pay no income tax at all, which is not permitted in, for example, the US tax system.
Is that the end of the matter? Of course not. The Scotsman reports that Sir Tom Hunter has criticised George Osborne’s plans to cap tax relief on charitable donations as “ill-thought-out and punitive”. The Scotsman article can be found here. It is quite clear that charities fear their funding is under threat. This sums up nicely the problem facing George Osborne. He wants to crack down on aggressive tax avoidance but that is easier said than done. Almost any proposal to change the tax system results in a campaign to prevent or amend the proposal.
Now to another controversial issue, retrospective changes to tax law. HM Treasury has published the process it will follow when making unexpected changes to tax law. The statement gives an undertaking that retrospective measures will be “wholly exceptional”. The statement from HM Treasury can be found here. A recent of example of a retrospective change to tax legislation involved Barclays bank. A BBC news website report on the Barclays bank matter can be found here. If the UK Chancellor is serious about tackling aggressive anti-avoidance then I am sure we will see many more examples of retrospective changes to our tax law.
Finance Secretary, John Swinney, has announced incentives and actions to stimulate investment, in four enterprise sectors, for green energy, manufacturing and life science. These incentives include business rate discounts worth up to £275,000 per business or enhanced capital allowances, new streamlined planning protocols across all sites, skills and training support and an international marketing campaign to promote the sites. A press release from the Scottish Government on this can be found here.
Now to VAT and two issues I have blogged about before. A great deal has been written about pasties and VAT since the UK Budget statement. What though of another VAT anomaly. Why is VAT levied on the renovation of old buildings but not on the sale of new houses? Does this encourage energy saving? Does this encourage the building of new homes? Why not at least introduce a lower rate of VAT on residential renovations and repairs, as happens in the Isle of Man. Sadly more questions than answers or signs of any change of policy. A link to my earlier blog on this issue can be found here.
The Scottish Liberal Democrats have urged the Scottish Government to drop their plans for a single police force over concerns that the force will potentially face an annual £22m VAT bill. The eight existing forces are currently exempt from the tax due to their ties to local authorities. A link to an earlier blog that covers this issue can be found here. My earlier blog also includes my expectations as to how HM Treasury will view this matter. Although I can understand the Scottish Liberal Democrats opposition to the single force policy, do they really think that the VAT should be levied? If not, will they lobby their UK counterparts who, after all, are in charge of HM Treasury on this matter? I suspect not. The Liberal Democrats press release can be found here.
To Wales and the news that Welsh supermarkets have seen a massive drop in the use of plastic bags when they charge for them. A 5p bag levy was introduced across Wales last year. A report on this from the Daily Mail online can be found here. Good to see the Daily Mail outlining the situation in the other parts of the UK.
The Spanish Government has announced a general tax amnesty offering taxpayers the chance to disclose irregularities in their past affairs without being prosecuted or penalised. The cost is a one-off payment of 10% of all undeclared assets and rights. This follows similar measures in Greece and Italy. More information on the Spanish amnesty can be found here.
Have a good weekend.
