Taxpayers under attack (again)

The recent announcement by the Government that the Treasury is to target a further 10,000 high net worth individuals for tax investigation represents another stage in the seemingly relentless assault on UK taxpayers.


It is estimated that once these measures are in place an astonishing half of all 50 per cent taxpayers could find themselves under investigation. And despite claims that the crackdown will recover up to £7billion a year in unpaid taxes, the truth is that hundreds of innocent businesses and individual taxpayers will have to endure lengthy investigations that will tie up precious resources that should be used to grow their business and help get the economy moving again.


For years a clear distinction has been made between tax avoidance, which is legal, and tax evasion, which is not. Tax avoidance is simply using legitimate means to arrange one’s finances in such a way as to minimise exposure to tax. Tax evasion is using illegal devices to dodge paying taxes that are legally due.


But now the Government is deliberately blurring the distinction by introducing concepts such as ‘unacceptable avoidance’ and creating an atmosphere in which anyone who seeks to avoid paying more tax than they need to is subject to moral censure.


Dubious moral judgements to one side, we will continue to advise clients on their tax planning in whatever ways the law allows. And if you find yourself the subject of an investigation we will of course stand shoulder to shoulder with you in order to reduce much of the stress and disruption these proceedings can cause.


Incidentally, it transpires that the Government is planning to spend £700 million on this new crackdown. Some might take the view that the money would be better spent helping to put HMRC’s house in order!
 

 
 
 
 
 
 
 
 
 
Tracy Jenkins
Tax Director

Decreasing national debt - how does it affect your business?

Yesterday, Chancellor of the Exchequer George Osborne delivered his first Budget less than three months after the final Budget of the last parliament. The Conservative Party promised action to bring down the UK’s record budget deficit and this was top of his list. It was agreed before the budget that £6bn of cuts would be found in the current financial year and Mr Osborne, together with his coalition partners from the Liberal Democrats, had to send out a strong message to exercise tough love, balancing the need to raise taxes and cut spending with the dangers of provoking a ‘double dip’ recession. Businesses
The Chancellor supported businesses offering a clear map for business tax over the life of this Parliament. Corporation tax rates for both large and small companies will be reduced; the main rate from 28% to 24% over four years and the small companies’ rate to 20%. To compensate for these reductions in headline rates, capital allowances will be reduced slightly and the annual investment allowance cut back from £100,000 to £25,000.

Tax increases

An increase in VAT rate to 20% and an increase in the CGT rate were favourites in this Budget. VAT was increased to 20% but only from 4 January 2010, thereby giving consumers six months to make purchases at the old rate of 17.5%. In addition, anti-forestalling arrangements will seek to stop partly exempt businesses entering into arrangements avoid the effect of the increase in the VAT rate. It was no surprise that CGT was increased, given that the difference between the CGT rate (18%) and the top rate of income tax (50%) would be 32% this year. In the event, a new CGT rate was introduced of 28%. However, the new rate only applies where total taxable gains and income are more that the upper limit of the income tax basic rate band; gains below that limit will be taxed at the 18% rate. This will add complexity to the CGT system. Further complications to the 2010/11 tax calculations will arise because the new rate applies from part-way through the year, to disposals on or after 23 June 2010. However, there was probably a need to act quickly to shore up leakage as taxpayers sought to convert income into capital.

Spending cuts

Announcements were made that will impact on welfare benefits, with tax credits for the higher paid, housing benefit and disability living allowance being in the firing line.

Tax evasion
This coalition Government are still as hot on tracking down tax evaders.A summary of the key proposals:

• Tax-free personal allowance increased by £1,000 to £7,475. Higher-rate threshold frozen until 2013/14.
• VAT to increase to 20 per cent on 4 January 2011. No increases in tobacco, alcohol or fuel duty.
• Capital Gains Tax increased to 28 per cent for higher-rate taxpayers from midnight of Budget day. Rate unchanged for lower-rate taxpayers and 10 per cent rate for entrepreneurs extended to first £5million of gains.
• Corporation Tax reduced to 24 per cent for large firms and 20 per cent for small firms. Annual Investment Allowance reduced from £100,000 to £25,000.
• £5,000 National Insurance cut for new firms creating jobs outside London and the South-East.
• Bank levy from January 2011 to raise £2billion per year.
• Planned Landline Duty dropped.
• Government to work with local authorities to freeze Council Tax.
• State pension to be linked to average earnings and always increased in line with earnings, inflation or 2.5 per cent (whichever is greater).
• Other benefits to be linked to Consumer Prices Index, instead of Retail Prices Index.
• Two-year pay freeze for workers in public sector.

With these changes in place and with everyone "doing their bit" Mr Osborne has announced the economic balance should be even in 2015/2016.

Tracy Jenkins
Tax Director

Taxing time for the coalition

As the electoral rhetoric turned to reality and that reality became a hung parliament, I have been watching and waiting to see exactly what the Lib-Con coalition will bring. The coalition is faced with what David Laws has called a "colossal" task – they must take drastic steps to reduce one of the highest public deficits in the developed world.



Responding to the Conservatives' preelection pledge to hold a Budget within 50 days of coming to power, George Osborne quickly announced a date for an emergency budget – 22 June. He also declared that he will be following the 80-20 rule to address the massive budget deficit – 80% cuts in public spending, 20% tax measures. The deficit reduction plan has been well received by Mervyn King, Governor of the Bank of England who called it "strong and powerful".


But what is it all likely to mean for British business – and specifically for the tax regime?


Capital Gains Tax
The coalition is looking at an increase in Capital Gains Tax (CGT) - and to reach what it describes as “a detailed agreement on taxing non-business capital gains at rates similar or close to those applied to income, with generous exemptions for entrepreneurial business activities".

There is talk that it could be hiked to as much as 50% but official details are unlikely to be 

available until after the Budget so judging extent or impact of the proposals is speculation at the moment. The big questions will be – what exactly is a 'non-business asset' and what is ‘similar or close to’?

No announcement has been made on the introduction date yet – it could be introduced from 6 April 2011, which is most likely, or the date could be effective from Budget day. With that risk looming it makes sense to take preventative action straight away.

One market that will be seriously affected by this change would be the second home owner, especially those who bought buy-to-let properties to fund retirement. Property sales could be accelerated as investors look to avoid the increase which will in effect mean that for every £100,000 of profit, the seller could pay as much as an extra £32,000 in tax.

NI thresholds
The Brown government planned to increase National Insurance Contributions (NICs) for both employers and employees – dubbed by the Conservatives as "Labour’s jobs tax". Both Conservatives and Lib-Dems opposed the proposals and the coalition now plans to raise the starting point for employers' NICs which will reduce the cost to employers, but leave in place the higher levies on employees, protecting jobs and raising revenue.

Corporation tax

Osborne seems keen to reinforce his ambition to make the UK tax system as competitive as possible for business. He is also keen to defuse the growing unrest about increases to CGT and a reduction in Corporation Tax may help in that process.


As a result it is expected he will announce that the coalition is pressing ahead with a
flagship plan to reduce the main and small business rates of Corporation Tax. Both rates could come down by as much as three pence in the pound, funded by cuts in complex reliefs and allowances offered by Labour.


VAT
The coalition continues to insist it has no plans to increase VAT. But a BBC survey of independent economists pointed to a VAT rise, with 24 of the 28 independent experts forecasting VAT would increase during the life of the Parliament with most predicting a rise to 20% before the end of next year.


Inheritance Tax
The Conservative proposed rise in the threshold on inheritance tax to £1million has been abandoned under the coalition.


No doubt more information will come out of Number 10 over the coming weeks and 22 June will put pay to the speculation.

Tracy Jenkins

Tax Director

HMRC Investigations

In 1996 self-assessment was introduced and since then HMRC staff members have been trained to develop investigatory skills. Certain developments over the last year suggest that tax investigations are likely to continue to rise.

With HMRC signing information agreements in Europe they now have access to an increasingly wide pool of information and tax evaders will have difficulty hiding. HMRC have given opportunities for people and businesses to come forward about their tax affairs but, those who choose not to are likely to see investigations into their financial affairs.

Tax investigations are becoming increasingly inevitable but there are some things you can do to limit the problems:

• keep good financial records
• co-operate as penalties can vary depending on your co-operation
• seek advice
• take out insurance

Roger Hann
Practice Manager
023 8046 1200
roger.hann@hwb-accountants.com

Are pension schemes the best way to save for retirement?

I have worked with a number of clients recently on the Enterprise Investment Scheme and looking into client's future plans in more detail makes me wonder if saving in a pension scheme is actually the most beneficial way to save for their future.

The Government provide us with benefits such as income tax relief on contributions into a pension scheme, tax efficient growth within the scheme and of course a lump sum on retirement and although these are still in place, with the withdrawal of higher rate tax relief on some pension contributions, the complicated new anti-forestalling provisions and the introduction of the 50% tax rate from April, clients may not get as much of a benefit from their pension scheme as they planned.

ISAs, EIS and VCT would all make viable alternatives to the basic pension scheme and if managed well, could make planning my client's future much more rosy.

   

Richard Hurst

Director

023 8046 1200

richard.hurst@hwb-accountants.com

Overhead Reduction tops New Year agenda

Business rates are currently a key area of activity with sharp increases in rateable values reported by many business owners already facing cash flow challenges. It's often difficult and time-consuming for a busy business to research ways of reducing overheads and then implement the changes.

The new rates come into effect on 1 April 2010 and speed is of the essence.

I was recently reviewing a clients' overheads where £4000 was being spent on office supplies per annum alone. After speaking with our Expense Control team and putting them in touch with the Purchasing Pool Partners, we were able to cut this by half - it certainly pays to "compare the market". I would suggest any overhead expenditure over £3000 per annum is worth assessing to check if you are getting the best price. Any business that accepts it probably does not have the resource, relationships or product expertise to keep costs to a minimum would benefit from this service.

Alan Williams
Managing Director








For more information follow this link:
Expense Control

Potential tax planning opportunities for you

The Chancellor has already announced that changes will be made from April 2010 to increase the tax rates for certain individuals. As if this is not enough, from April 2011 all National Insurance rates will increase by 0.5%.

There are a number of potential ways to minimise the impact of the changes. The tax team at HWB is here to help and advise on the potential planning opportunities availble to you.

For more information contact Tracy Jenkins, Tax Director on 023 8046 1200 or email tracy.jenkins@hwb-accountants.com.

www.hwb-accountants.com

Tracy Jenkins, Tax Director