Tax pros attack 'suicidal' cost-cutting measure

Tax professionals have reacted angrily to HMRC’s latest measure to reduce spending, calling it ‘short-sighted’ and ‘suicidal’.
As part of a Government-wide cost-cutting drive, the department has announced it is to stop issuing copies to tax agents of a selection of paperwork sent to clients.
The letters include the P2 PAYE coding notice and the P800 tax calculation form. Discontinuation of these two alone will save in excess of £1.25 million, the Revenue has estimated.
The Chartered Institute of Taxation (CIOT) expressed concerned that the reductions in mail will result in far more work for the taxman, taxpayers and their advisers, and will potentially lead to additional costs in excess of the amounts saved.
‘This is a seriously short-sighted move,’ said the CIOT’s deputy president, Anthony Thomas.
‘Everybody recognises there is pressure on all government departments to find savings wherever they can, but by keeping tax agents less well-informed about their clients’ tax obligations, HMRC… have not estimated the cost of dealing with an increased number of enquiries from agents, let alone that of dealing with the higher number of erroneous tax returns that is likely to result.’
‘It is particularly disappointing that this change is being sprung on taxpayers and their agents with more or less immediate effect and without consultation,’ added Mr Thomas.
‘We are calling on HMRC to reverse this short-sighted decision, or at least halt it for proper consultation.’
The Revenue apologised for making cuts that might be unwelcome, and claimed it had looked for savings ‘in those areas where there will be minimal impact on our customers [sic]’.

First ten employees will merit Class 1 deductions

HMRC today launched their National Insurance contributions (NICs) 'holiday' scheme to encourage business start-ups in key UK regions.
As announced in the June Budget, firms that start up in selected areas
– the north-east, Yorkshire, the north-west, the east Midlands, the West Midlands, the south-west, Scotland, Wales and Northern Ireland – will benefit from a break from regional employer NICs.
The NICs 'holiday' scheme will operate by allowing a deduction against the amount of Class 1 National Insurance that an employer is required to pay each month or each quarter.
Firms that were started between 22 June 2010 and 5 September 2010 will benefit to the same extent as businesses that set up on or after 6 September 2010, provided they satisfy the eligibility tests.
For the first ten qualifying employees that a business employs in its first year following launch, it will be entitled to a holiday for each of the workers. The period for each will last for the shorter of the individual's first year of employment or the time left until the scheme ends on 5 September 2013.
The new scheme will apply to all relevant earnings paid to a qualifying employee during the first year of the employee’s employment, but there will be a maximum saving of £5,000 in employer NI in respect of each employee.

BRITS GET A RAW DEAL

Mulbury Hamilton tax Solutions suggests that when moving within the EU, UK nationals resident in this country may be at a disadvantage.
HMRC’s practice of considering family, property, business and social ties in the UK makes it more difficult for nationals to cease to become resident in this country than it does for non-nationals, argues MHTS. We criticise what we believes is discriminatory treatment that goes against the principles of freedom of movement within the EU – and we suggest that when a person moves within the EU, his or her family ties and so on should not be taken into account when considering UK residence. However, this idea goes against current case law.

Gaines-Cooper Wins Right To Appeal

British-born tax exile Robert Gaines-Cooper has won the right to have his case heard in the UK Supreme Court in what will be the final chapter of a long-running legal battle with the UK tax man over his residence status for tax purposes.

Gaines-Cooper migrated to the Seychelles in 1976, and spent less than 91 days each year in the UK in accordance with non-domicile residency rules. He owns a house in England, which is occupied by his second wife and son. He keeps classic cars and a collection of paintings at the property, and sent his son to a British public school. He also had his will drawn up under English law.

However, a Court of Appeal judicial review hearing in February 2010 found in favor of HM Revenue and Customs (HMRC), after it was found that the Gaines-Cooper did not fully meet non-dom status requirements. Gaines-Cooper now faces a GBP30m tax bill dating back to 1993 unless his appeal to the UK's highest court succeeds.

Alexander Dashes UK Tax Cut Hopes

A senior UK Treasury minister has said that present levels of taxation will have to remain in place for the duration of the five-year parliament in order for the government to achieve its deficit reduction plans.
The comments made by Danny Alexander, Chief Secretary to the Treasury, in an interview with the Observer newspaper on Sunday suggest that middle and higher income taxpayers will have a long wait to see their tax bills reduced as the coalition government sets about its plan to eliminate the structural budget deficit within five years.
"I think the tax burden is necessary as a significant contribution to getting the country's finances in order. So it will have to stay at that level for quite some time," Alexander told the paper.
While the chief secretary refused to confirm or rule out the possibility of tax cuts beyond the five-year target, he said that the coalition government's ultimate aim was to "rebalance" the tax system, both to make it "fairer" and 'greener' through more environmental taxation.

Pensions Tax Relief

The Treasury and HMRC have published a discussion document on the restriction of pensions tax relief. The current rules on limiting pensions contributions, introduced by the last government, are complex and universally unpopular. The alternative approach may introduce a significantly reduced annual allowance (down to £30,000 or £45,000 from the current £255,000).

Making a Will

If you’re living with someone, but don’t have a Will, your partner won’t automatically inherit your assets even if you have lived together for many years. Having a well-drafted Will is the only way to ensure that, after your death, the right people inherit your assets. Please get in touch for further information.

New CGT Rate

The new capital gains tax rate of 28% doesn’t just apply to high earners. It also applies to trusts, including will trusts created by parents of young children or vulnerable adults. If you are a trustee you should urgently seek advice on the trust’s liability to capital gains tax at the new higher rate.

Hastings-Bass Principle

The High Court has again applied the Hastings-Bass principle, in the recent Jiggens case. This principle allows trustees to set aside a transaction if they failed to take something relevant into consideration, such as the tax consequences of what they were doing. The judge decided the appointment signed by the trustees was void meaning it never had any effect. The result was to ‘remove’ the tax liability that had been inadvertently created.

Office Tax Simplification

The Office of Tax Simplification was launched on 20 July. Its aim is to provide the Government with independent advice on simplifying the UK tax system, to reduce compliance burdens on both businesses and individuals. The first two reviews will cover Tax Reliefs and Small Business Tax. Reports are expected ahead of Budget 2011.

The adage has it that ‘hard cases make bad law’, meaning cases decided on their individual merits can create bad precedents. Mulbury Hamilton looks at two recent cases in which this might be thought to have happened. In Atkinson, agricultural property relief was granted even though the property had been empty for some years, while Talentcore concerned workers who were not considered to fall within the agency rules. MHTS argues that both areas need the intervention of legislation.

Capital Gains Tax

When the rate of capital gains tax was 18%, it was rarely a good idea to keep property in the family company because it would still attract entrepreneurs’ relief, provided no rent was charged, so tax would be charged at 10%. Even the full CGT rate of 18% was well under the rates of corporation tax. The new 28% rate might change the situation, says Mulbury Hamilton, particularly if the shareholders do not need the money from the company’s sale of the property and can wait to benefit from business property relief. On the whole, however, it is still preferable to keep properties out of companies.

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