So what should you do?

• If you have paid too much you will automatically receive a repayment.
• If you have paid too little and the underpayment is under £2,000, HMRC will automatically add this to your tax for 2011-12. This spreads the collection of the underpayment throughout the year.
• If this results in hardship, you can ask for the underpayment to be included in your tax code over a longer period.
• If the underpayment is over £2,000 HMRC will write to you and ask for direct payment.  You should contact HMRC if you wish to discuss a repayment schedule.
• If your benefits have been affected then you should contact HMRC to discuss this.

In all cases it is important that you obtain a calculation from HMRC to determine whether they are correct in their assesment.  If you have any doubts then please feel free to contact me on 01923 202020 or james.odds@mablaw.com.

Dave Hartnett, the Permanent Secretary for Tax at HMRC, has admitted that tax inspectors were sometimes too “tough”, and that a change of approach is now required. HMRC is now expected to tell its inspectors to try to settle cases out of court, where possible; it is also planning to launch a pilot scheme involving third-party mediators, to see whether they can be used to help resolve some disputes.

So why is HMRC changing its stance now? This is a pertinent question to ask when you consider that it was only three years ago, in July 2007, that HMRC adopted its ‘Litigation and Settlement Strategy’, which stated that HMRC would pursue all tax disputes through the courts whenever it considered it had a better than 50 per cent of success – a clear statement at the time that HMRC would not enter into negotiated settlements when it felt it had a good chance of winning the dispute through litigation. It is true that HMRC faced some criticism for this uncompromising attitude, but this is certainly not the only (nor the main) reason for its change in stance. Rather, and more importantly at a time of big government spending cuts, HMRC also hopes that the move will make the department more financially efficient and free up billions of pounds that have been tied up in the aforementioned tax avoidance court battles.

However, nobody should misunderstand HMRC’s change in approach as any sort of weakening in its resolve to clamp down on tax avoidance. Mr Hartnett made it perfectly (and graphically) clear in an interview with the Financial Times newspaper this week that “If it is a strong case, we will fight to the death.”

Finally, it cannot go unmentioned that the timing of HMRC’s conciliatory approach is particularly ironic. In the week that Mr Hartnett held out a metaphorical olive branch, the deputy Prime Minister, Nick Clegg, also announced that the Government is looking at the case for a general anti-avoidance rule “to ensure that wealthy individuals pay their fair share of tax.” A case of give with one hand and take with the other?

In February 2010, the Court of Appeal dismissed Mr Gaines-Cooper’s application for judicial review of HM Revenue & Customs’ (HMRC) refusal to treat him as non-resident in the UK for tax purposes. Mr Gaines-Cooper, who has lived in the Seychelles since 1976, claimed that HMRC failed to interpret its IR20 guidance correctly.

IR20 sets out HMRC’s understanding of the law on residence, ordinary residence and domicile; it states that if an individual leaves the UK permanently or for at least three years, he/she will be treated as non-resident providing that he/she does not visit the UK for more than 183 days in any tax year or for an average of more than 90 days. Although Mr Gaines-Cooper satisfied these requirements, HMRC argued that an individual could not expect to rely on IR20 as it was merely guidance, and that an individual’s status depended on his/her particular circumstances. The Court of Appeal agreed with HMRC that IR20 implied that Mr Gaines-Cooper had to demonstrate a ‘distinct break’ from his former social and family ties within the UK in order to claim that he had permanently or indefinitely left the UK. It ruled that he had failed to do this when he left the UK.

This decision highlights the need for an all-encompassing statutory definition of ‘residence’ and ‘non-residence’, but for now, individuals who choose to rely on IR20 (and its successor, HMRC6) must ensure that they fall within its terms. However, the forthcoming judicial review (for which no date has been given yet) means that the Court of Appeal ruling may now not be the end of the story…

NB: I should point out that a judicial review claim allows an individual to challenge the way in which a public authority, such as a government department (in this case, HMRC), has reached a decision. It is a separate process from appealing against the decision itself.

HMRC has indicated that the debt collectors will primarily (but not exclusively) focus on individuals who have smaller debts of up to £2,000; this would mirror the pilot scheme, where debt collectors reportedly focused on individuals who owed, on average, £1,000.

Before debt collectors are instructed, HMRC will write to the errant taxpayer to ask him or her to either pay the outstanding tax or reach an agreement on settling the debt. If the taxpayer does nothing, HMRC will then ask the debt collector to pursue the individual. However, debt collectors will not be allowed to recover debts by seizing an individual’s property, as only HMRC can do this through the courts. HMRC will pay the debt collection companies a percentage of the tax they recover.

The move has angered tax advisers, as HMRC has recently been criticised in the media for wrongly deducting nearly £250m of tax from employees and pensioners. It is therefore quite conceivable (and ludicrous) that a taxpayer who is owed money by HMRC could be pursued by a debt collection agency for unpaid tax.

Two sisters had each made a will in 1991.  They had made mutual promises to each other and as part of that had agreed that the will of the survivor would not be altered so as to change those gifts.  The surviving sister did, in fact, alter her will in 2003 and the persons who would have been the beneficiaries under the surviving sister’s original will went to court (after her death) to ask the court to give effect to the 1991 will.

Neither of the wills contained any record that they had been made pursuant to an agreement between the sisters but it was apparent from the provisions of the wills that the terms had been carefully discussed and agreed.  The court was asked to apply the doctrine of mutual wills.

The court ruled that for the doctrine of mutual wills to apply there had to be what amounted to a contract between the sisters that both wills would be irrevocable and remain unaltered.  A common intention, expectation or desire was not enough.  The mere execution of mirror or reciprocal wills did not imply any agreement either as to revocation or non-revocation.  The agreement had to be established by clear and satisfactory evidence on the balance of probabilities.

In the light of the evidence, there had been an agreement between the sisters at the time they had made their 1991 wills.  They had made mutual promises to each other and it was part of those promises that the will of the survivor would not be altered so as to change those gifts.

This case, once again, highlights the importance of proper and qualified legal advice when drafting wills.  None of this would have been necessary if the sisters advisers had ascertained their intentions as to revocation, advised as to the effect of making mutual wills and ensured that any agreement they wished to make was clearly and accurately recorded.

If you want to speak to someone about making a will please contact Suki Sandhu or Emma Alford on 01923 202020 or email info@mablaw.com.

If you have a concern about your entitlement under someone else’s will please contact Amanda Melton on 01923 202020 or amanda.melton@mablaw.com.

Within the qualifying period, these employers will not have to pay the first £5,000 of Class 1 employer NICs due in the first twelve months of employment. This will apply for each of the first 10 employees hired in the first year of business and operate in selected countries and regions.

Subject to meeting the necessary legal requirements, the scheme is intended to start no later than September 2010. Any new business set up from 22 June which meets the criteria set out in the forthcoming announcement will benefit from the scheme.

The countries and regions which will benefit will be Scotland, Wales, Northern Ireland, the North East, Yorkshire and the Humber, the North West, the East Midlands, the West Midlands and the South West.

For more information HMRC have published questions and answers which can be found here.

The big news is that companies that fail to register their energy use by next month will be hit with fines that could reach £45,000 under the little-known rules. 

Those that do participate in the Carbon Reduction Commitment (CRC) initiative by declaring their energy use will face charges for every ton of greenhouse gas they produce.  These payments are expected to average £38,000 a year for medium-sized firms, and could reach £100,000 for larger organisations.

Many businesses are (understandably) aggrieved at this prospect fines which will put pressure at a time when bottom lines are shrinking.

Any company or public sector organisation that consumes more than 6,000 megawatt hours (MWh) of energy a year – meaning a power bill of about £500,000 – must register its energy use by the end of next month.  From April 2011, they will need to buy permits for each tonne of carbon dioxide emitted. For those using 6,000MWh, that could mean £38,000.

Of about 4,000 organisations estimated to qualify for the scheme, only 1,229 have registered to date.   Missing the Sept 30 deadline leads to an immediate £5,000 fine, and £500 for each day after that, up to a maximum of £45,000.

Another 15,000 smaller organisations are also required to register and could be expected to buy permits in the future. If they miss the September deadline, they face fines of £500.

For more information click here for the Environment Agency (who administer the scheme).

Training is a professional requirement but for many doctors the cost of courses comes out of their own pockets.  They rightly want to know whether it is possible to obtain tax relief for these costs.

The case of CRC v Dr Piu Bannerjee (heard in the Court of Appeal) goes some way to answering some of those questions.  The taxpayer worked for the NHS as a specialist registrar in dermatology.  For those who aren’t familiar with the exact terminology, a registrar is still in training.  Under the terms of her contract she was required to attend external training courses.  She claimed back the expenses incurred in this training but HMRC argued against this.

The issue was whether the expenses incurred in attending the training courses and defrayed by the taxpayer were wholly, exclusively and necessarily in the performance of the duties of her employment.  HMRC argued that attendance at the course was simply a means to better performing her duties, improving her professional skills and as part of her training.  This meant that there was a duality of purpose behind the training and therefore it would not meet the test of exclusivity.

The Court of Appeal held that the taxpayer had been ‘employed exclusively for training purposes’, not just to attend to patients on the ward, but also to attend the compulsory training that was part of her obligations to her employer – and therefore there was no ‘dual purpose’ in incurring the related expenses.  The result was that HMRC’s appeal was dismissed.

Conclusion

This case could have ramifications not just for other doctors but for other professions too with rigorous professional training requirements (such as architects, surveyors, solicitors, accountants and actuaries).  Each case needs to be considered going forward, and it might be possible in some cases to amend prior returns in light of this decision. 

It also highlights the benefit of proper advice in preparing tax returns.

If you would like advice on claiming expenses or in relation to your tax return, please contact James Odds on james.odds@mablaw.com or 01923 202020.

A will is one of the most important documents you will ever write, so it is important to ensure that it is done properly.

Tonight’s Panorama on BBC 1 at 8:30 has a look at some of the issues involved with getting a will drafted and some of the pitfalls.  According to the report on this morning’s Today programme on Radio 4, will writers and banks get rather pummelled whilst the legal profession comes out on top.

The reasons for this are clear.  It boils down to professional standards. 

Customers of will writers and banks are enticed by slightly lower fees but often find themselves encouraged (and in some cases pressured) into appointing the will writers or the bank as executors without being fully informed of what this means in terms of fees (which can amount to about 4% of the estate).  Customers are often then charged to have their wills stored.  To add insult to injury the advice in preparing the will is not always correct with no legal redress against the will writers.

How can this happen?  Simply put, the will writing industry is unregulated and anyone with a PC and a desk can make themselves a will writer. 

Solicitors, conversely, are regulated by the Law Society and the Solicitors Regulation Authority.  We have a code of conduct which places the client first.   Whilst not all solicitors are experts in trusts and inheritance tax, one must have a certain level of expertise and training to be admitted as a solicitor.

I’m not saying that the legal profession is perfect.  There is a diverse range of solicitors from sole practitioners on the high street to the multi-nationals in the city.  But what using a solicitor offers is the security of a skilled professional, putting your interests first, backed up by the guarantee of insurance should something go wrong.  Because of this costs are sometimes higher, but at the end of the day you know what you are getting.

Matthew Arnold & Baldwin LLP does have a dedicated team of Wealth Management specialists with expertise in wills, tax, trusts and probate.

If you would like to speak to someone about making a will, please contact Suki Sandhu or Emma Alford on 01923 202020, or email info@mablaw.co.uk.

The case involved a deed of variation, which changed the terms of a will.  By way of background, it is possible for the effect of a will to be varied within two years of death, provided that various conditions are met, including the agreement of the affected beneficiaries.  In many cases wills are varied for tax reasons.

In the present case £10,000 plus some farmland of the £1.7m estate was to pass to the deceased’s husband and the rest was to pass to the deceased’s children.  The husband’s accountant suggested that the effect of the will should be varied to make it more tax efficient and a deed of variation was executed.  This was defective and led to an additional £33,000 of inheritance tax.  The parties attempted to rectify the deed of variation to the effect that the husband would not be liable to pay inheritance tax.  HMRC refused to accept the efficacy of the deed of rectification for tax purposes.  The claimant applied to the court seeking approval of the deed of rectification.

The court found in favour of the husband and allowed the deed of rectification.  The judge distinguished between a mistake as to the fiscal effect of the deed of variation and the document not giving effect to the true agreement or arrangement between the parties.  The court would not order rectification of a document if the parties’ rights would be unaffected, and if the only effect of the order would be to secure a fiscal benefit for one or more of them.  On the other hand, where the  mistake was as to the meaning or effect of a document, this might be amenable to rectification.

In many ways this case highlights just how flexible our legal system is.  The parties were not only able to amend the will, but when they got this wrong, they were then able to correct this mistake to give effect to their true intentions.

The case also highlights two other things.  First is the need for proper will planning – for if the deceased had received the correct advice while alive none of this would have needed to happen.  The other is the power of deeds of variation to create a much more favourable outcome for the beneficiaries.

If you would like to discuss any of the points raised here, please contact our Wealth Management team on 01923 202020.

Whilst this might seem surprising, this decision is actually based on case decided 127 years ago (Parker v Felgate). The court also confirmed that a testator can know and approve the contents of his will without having what is known as testamentary capacity.

The test for capacity for making a will can be summarised as:

• He understands the nature of making a will and its effects.
• He understands the extent of the property of which he is disposing.
• He is able to comprehend and appreciate the claims to which he ought to give  effect.
• For this last purpose, no disorder of the mind poisons his affections, perverts his sense of right or prevents the exercise of his natural faculties – no insane delusion influences his will in disposing of his property.

It is likely that the Mental Capacity Act 2005 may influence the Courts’ interpretation of the above test in the future.

Does capacity matter any more?

In short, yes.  For one thing, the testator needs to understand their instructions as to how their will is drafted.

Which is why, for many, this will seem a surprising decision.  However, it follows the tradition of testamentary freedom in English law.  In essence, the court prefers to give effect to decisions that the testator made when he did have testamentary capacity, provided that the testator himself intended to do this.

In practice if one uses a responsible solicitor to draft their will, they will ensure that they are satisfied of the testator’s capacity and ability to understand the consequences of what they are doing.  If there is doubt, their solicitor should obtain medical evidence of testamentary capacity, often from the testator’s GP.  This usually avoids cases such as this making it to court with the associated financial and emotional costs of doing so.

In cases where there is genuine doubt as to whether a testator has lost capacity before they sign a will, it will now be very important for their legal advisers to take full consideration of the facts of this case before suggesting a proper course of action.

Getting technical, there are nine consultation / discussion documents which invite views from the public and professions on:

• PAYE reform
• Furnished holiday lettings
• Pensions tax relief
• Associated company rules
• Disclosure of inheritance tax avoidance
• Foreign branch taxation
• Controlled foreign company interim improvements
• Modernisation of investment trust company rules
• National minimum wage regulations

This is supposed to be the start of a new era of openness and transparency.  It is hard, though, to escape the cynicism engendered by 13 years of Mr Brown at the tiller.  Under the last regime, consultations meant less and less as time went by.  It became increasingly clear that they were more of a statement of intent than a genuine request for views. Time will tell how the new Government will act.

Only the papers PAYE and national minimum wage have the potential to be of interest to the public at large (and even then, there is a limited audience).  The other consultations are of more interest to the professions and to business.

Many people will look carefully at the proposed changes to pensions tax, and associated companies which could have a genuine impact on owner managed businesses.  For tax planners, the outcome of the discussions on disclosure of inheritance tax avoidance and foreign branch taxation will be of particular interest.

If you would like to discuss the impact of any of these proposals please contact me on james.odds@mablaw.com or comment below.

Those who don’t are threatened that the tax man won’t be so gentle with them in the future and with the promise that the examination will probe…every aspect of their affairs.

 So many doctor jokes and so little time.

Apparently of the 28,500 disclosures HMRC expected….they got 1,500.  So they’ve extended it.  Good luck with that!

Shimon Shaw will be appearing in the Edinburgh festival with a selection of bad jokes and other tax related humour.

http://www.accountancyage.com/accountancyage/news/2266997/health-tax-amensty-extended

The Chancellor has appointed a Board of tax experts who will be responsible for leading the work of the OTS over the next year. The Board Members are Michael Jack (Chairman) and John Whiting (Tax Director).

Their responsibilities will be to identify areas where complexities in the tax system for both businesses and individual taxpayers can be reduced and to publish their findings for the Chancellor to consider ahead of his Budget.

The OTS will undertake two initial reviews over the coming year. They will focus on tax reliefs and small business tax simplification (including IR35). The OTS will publish the initial findings from their work on reliefs in late autumn and on small business tax by the 2011 Budget.

The OTS will also draw on external expertise from the tax and legal profession over the coming months. These experts will focus on specific areas of complexity in the tax system and provide additional advice to the OTS.

The Government is committed to making the UK the most competitive country in the G20 and to reducing the complexity in the tax system. Over the past decade, the tax code doubled to more than 11,000 pages and the UK slipped from 7th to 13th in the World Economic Forum’s Global Competitiveness Index between 1997 and 2009-10. This trend needs to be reversed, and the OTS is an important part of making the tax system work better for the taxpayer.

Comment

This is to be welcomed (cautiously). However, this must not turn into an excuse to change the current system without proper debate.   The fact that the well respected John Whiting has such a prominent role will be of reassurance since he will be considered a steady hand at the tiller.

A lot of people will be watching eagerly to see what they have to say about IR35.

Update: a rather cynical view of this is expressed in this article in the Telegraph.  Note the stats about the increase in sheer volume in tax legislation that we’ve seen over the last few years.

Basics

Inheritance tax (IHT) generally arises on death. It is normally only a concern if the estate on death is over the nil-rate band threshold, currently set at £325,000 for a few years. Over this amount, IHT is charged at 40%. IHT is also charged on gifts made in the seven years prior to death.  IHT can be charged on gifts made during someone’s lifetime, including gifts made to trusts.  

Married couples and registered civil partners are able to benefit from the transferrable nil rate band.  This can effectively increase in the nil-rate band threshold when the second partner dies – to as much as £650,000 currently.

Saving IHT with business property relief

Business property relief (BPR) is one of the most useful IHT reliefs. BPR can reduce the value of the relevant assets in the estate by up to 100% of its value. It is available in respect of a range of shares, securities or other property classed as an interest in a business.  The relief is also available for unquoted shares, which includes shares in AIM listed companies. The business property needs to have been held for two years before relief is available.

Top Tips:

• Some providers offer investments in a selected portfolio of shares all of which qualify for business property relief after 2 years. Clearly there are risks involved in investing in shares, and proper advice should be taken.
• BPR is only available for businesses which are substantially trading businesses.  If the business comprises a mix of investments and trading stock, or even large amounts of cash, careful planning will be required to ensure that relief is not restricted.  Compare, for example a business which develops properties and then rents them.  The development trade would qualify but the property rental would not, potentially contaminating the overall BPR position.
• For business owners, will planning is essential.  Not only does this give the opportunity to plan for the continued success of the business but through careful use of the nil rate band and other reliefs, it may be possible to minimize the overall IHT burden on the estate.
• If you are owed money by your business then this is an asset in your estate (and therefore subject to IHT).  It may be possible to convert this into a security which can benefit from BPR.

For more information about these planning ideas (or others) or to discuss inheritance tax generally please contact me on james.odds@mablaw.com

Well, the Chancellor did just that.

On the back of intense criticism of the planned changes, and lobbying from business groups and the pensions industry, the Chancellor announced that the Government will look at overhauling the previous Labour administration’s plans for restricting pensions tax relief for high earners.

The Chancellor said that the Government will launch a consultation to look at alternative ways to save money on pension contributions for high earners. One possibility is to limit the annual amount that people can save into a pension fund (the ‘annual allowance’), which is set at £255,000 for 2010/11. An HM Treasury document, published at the same time as the Budget, has suggested that a reduction in the current annual allowance from £255,000 to between £30,000-£45,000 would probably produce the same sort of saving as reducing pensions tax relief for people earning more than £150,000.

There is still, however, a lot of uncertainty. The upcoming Finance Bill will include powers to repeal the measures in the Finance Act 2010 which restrict pensions tax relief (otherwise known as the ‘high income excess relief charge’) – though this will only be done once the Government has decided what to replace it with. Consequently, there is no certainty that the repeal will definitely happen; it will depend on the outcome of the consultation and whether a suitable alternative to these measures can be identified.

So, it’s back to the drawing board for the Government.

On a slightly different, but related, note, one pension change that will definitely be happening on 6 April 2011 is the abolition of the rules that force members of a registered pension scheme to buy an annuity by the age of 75. This commitment was part of the Government’s Coalition Agreement, published in May.

Pat yourself on the back if you spotted that the increase in the rate of VAT to 20% will mean a corresponding increase in stamp duty land tax on commercial property transactions where VAT is charged.  

On a £1m purchase not only will there will be  £25,000 more VAT but there will also be £1,000 more stamp duty to pay.

If you would like to know more about VAT on commercial property, please feel free to contact me.

Everyone will have their own views on this.  In particular public sector workers, who will feel most hard done by.

The main points for businesses and business owners are:

1.  VAT is up to 20% from January next year.

2.  Capital gains tax for higher earners will be up to 28% from midnight tonight (so stilll time to act!).  When dealing with trustees and personal representatives care needs to be taken when considering in whose hands any gains are realised.

3.  Entreprenuers’ Relief for business assets (most significantly 5% or more shareholdings in trading companies) reducing CGT to 10% will remain and in fact will apply to the first £5m of gains realised over the seller’s lifetime.

4.  Capital allowances – the annual investment allowance will be cut to £25k.

5.  The announced increases to tax on cider will be scrapped.

6.  Corporation tax will be reduced over time.  The main rate will be reduced over time to 24%.

7.  A bank tax.  Details are to be announced but the expected take from this is a couple of billion GBP.  The Chancellor mentioned that Germany and France will announce similar measures.

There will be quite a few sales going through tonight to take advantage of the few remaining hours of 18% CGT.

We can also expect to see a rush to get purchases through (in particular of commerical property and of VATable assets by banks and financial institutions) before January’s VAT increase.

As I sit down to review the pages of press releases and budget notes, it occurs to me that nothing in this is totally unexpected and that (so far as CGT is concerned, at least) it could have been worse.

In the 2009 Budget, the former Chancellor of the Exchequer Alistair Darling announced that the Government would restrict the availability of pensions tax relief for high earners from 6 April 2011. The aim was to ensure that tax relief is available only at the basic rate for individuals with annual gross incomes or more than £180,000. The value of employer pension contributions made on behalf of an individual would also be caught by the restrictions. This measure was passed by Parliament, without scrutiny, just before the House of commons was dissolved for the general election.

Key points:

1. Tax relief available for pension saving by individuals with annual gross incomes of £150,000 or more will be restricted (“gross income” includes the value of employer contributions to money purchase schemes, or the annual increase in value of defined benefit accruals);

2. A floor of £130,000 in annual pre-tax “relevant income” will apply, not including employer contributions or defined benefit accruals;

3. Tax relief will be reduced from 50 to 20 per cent for individuals with annual gross incomes of between £150,000 and £180,000, at a stepped rate of 1 per cent of relief for every £1,000 of gross income. For individuals with gross incomes exceeding £180,000, relief will only be available at the current basic rate of 20 per cent;

4. Further accruals in defined benefit schemes will be valued using a prescribed scale of two-way age-related factors (reflecting age and normal pension date);

5. The restriction of relief will not apply to contributions or accruals made in the tax year an individual dies or commutes his or her entire pension on grounds of serious ill-health;

6. Employers will be required to identify all employees earning £130,000 or more in a tax year and request benefit statements for them from pension scheme trustees; and

7. Under a “scheme pays” option, individuals facing recovery charges of £15,000 or more in a tax year will be able to require their scheme to pay the charge and deduct a corresponding amount from their benefits. The “scheme pays” mechanism will be implemented in the Finance Bill 2011.

The changes to pension tax relief (and the subsequent impact they will have) have largely ‘fallen below the radar’ of many high-earners, as the recent controversy surrounding expected capital gains tax rises has taken prominence. However, the CBI and the Institute of Directors, along with accountancy firms, have now called on the Government to reassess these measures before they take effect. It will be a case of ‘wait and see’, but, in the meantime, high earners need to ensure that they are aware of this tax change and that they take it into account in their pension planning.

UPDATE: In tomorrow’s emergency budget (22 June), the Government may announce its intention to amend, or even scrap, the previous administration’s plans for pension tax relief. We do not have long to wait to find out…

Under legislation brought in by the Labour government in April 2008, a non-domiciled or “ordinarily resident” individual, who has been resident in the UK for seven out of the preceding nine tax years (whether continuous or broken), and who claims the remittance basis, must pay £30,000 per year in order to continue to be taxed on the remittance basis (unless their unremitted foreign income and gains are less than £2,000 in the relevant tax year.) If an individual decides not to use the remittance basis (or not to pay the remittance charge), he or she will be taxed in the UK on his worldwide income and gains on an arising basis.

The Government’s failure to raise millions of pounds in extra revenue from non-doms is due to the fact that only 4,300 people chose to pay the £30,000 levy in 2008-9 – just one in twenty of the 86,000 people who completed a self-assessment tax return in 2006-7 on the basis that they were non-domiciled in the UK (this being the latest year for which such data is available.) Since the tax legislation was introduced in 2008, thousands of non-doms have left the UK and fewer people who would be eligible for non-dom status are moving here. In recent years, the number of non-doms in the UK was rising by about 4 per cent annually, but this is now slowing, with 2 per cent of non-doms having already left the UK and many others reducing the time they spend here. According to a recent report by The Financial Times, there has been a 25 per cent drop in applications from non-doms seeking residency in the UK, though this may be as much to do with the recession as the tax legislation.

So, what does the future hold? Well, the new coalition government has already stated in its recently-published Coalition Agreement that it will review the taxation of non-doms over the next five years. However, no detail of its plans were given. It is therefore worth bearing in mind what the Conservatives and Liberal Democrats were proposing before the general election. The Conservative Manifesto proposed introducing “a simple flat-rate levy” on non-doms, and the Liberal Democrat Manifesto proposed that the remittance basis regime should not be available to non-doms who have been resident in the UK for more than seven years.

It remains to be seen whether either of the Conservative or Liberal Democrat manifesto pledges will be implemented. Although the government review may not recommend any substantive changes to the non-dom rules, there is likely to be political pressure for non-doms to make a greater tax contribution, particularly if capital gains tax and VAT do rise in the emergency budget on 22 June. However, whilst we should expect changes in the future, the Government should not discourage wealthy entrepreneurs from entering (and remaining) in the UK. Non-doms have a lot to offer: they invest in UK businesses, bring entrepreneurial skills, and create employment (which in turn contributes tax revenues.)

The future for non-doms is currently uncertain, but hopefully the emergency budget will reveal some of the Government’s future plans.

This is of critical importance during the World Cup when, I am informed by colleagues, beer is often consumed in quantity.  Difficult decisions may have been required in order to make the necessary purchases in the afternoon were the speech not to end until 4.30.

I am very happy to be the bearer of good tidings to one and all!   According to the HM Treasury website Mr O will now be standing up at 12.30 to deliver his speech.  That should give you all plenty of time to dash over to your local shop in your lunch breaks and pick up a case of whatever is going to be increasing in price the next day.  And you’ll still be back at your desks by 2 o’clock.

Phew.

Watch this space for Budget news and views next week…..

This is particularly difficult for the coalition since the anticipated rise in CGT is supposed to pay for the planned reduction in income tax for those earning less than £10k.

What seems to have escaped many is that there are plenty of tax payers who will make their disposals now, or simply sit on their assets until the rate goes down in the future (they hope).

Many people have undertaken CGT planning in the run up to the emergency budget to ensure that gains are taxed at 18% (or 10% for some business assets).  It may still be possible to do this, although time is running out.

There is some good news in the report though, as it is predicted that the UK won’t suffer from a double dip recession.

For the Times’s view – see here

For the Telegraph’s view – see here

There may, however, be tax traps for unwary home workers.  Here’s an article that I wrote for Accounting Web on the subject which sets out some of the issues you should consider, in particular if home working is something you do regularly.

The CBI argues that decreasing the deficit should be done by controlling spending rather than increasing taxes.   Specific points made by them include:

• The CBI wants to see a broad definition of business assets (which would benefit from tax relief) to prevent disincentives to investment or start-ups, and the tax should be structured to minimise the impact on long-term investment.
• The CBI is encouraged by the Dyson commission’s support for the R&D tax credit and urges the Government to retain it in its current form.
• Changes to tax treatment of pensions, planned to come into force from April next year, are unnecessarily complex and expensive to administer, and in their current form would make it harder for UK businesses to attract and retain global talent.

Undoubtedly, their concerns are echoed across the country.  I have spoken with many clients concerned about their own position if capital gains tax increases on 22 June.  Whilst there are steps which can be taken prior to then, the time for doing so is getting increasingly tight.

If you want to speak to an advisor about CGT increases please call 01923 202020.

The thinking behind this is that the rate is (relatively speaking) low at 5% compared to 17.5% VAT, which is what is already charged on certain types of insurance, such as travel insurance.  We also charge less IPT than some other EU countries.

The other thing which can’t have escaped notice is that premiums are already rapidly increasing and once people have forgotten about the budget they’ll probably blame their insurers.

The only people who are likely to benefit from this are meerkats.

I’ve just seen a great article in the Times here. Alice Thompson makes a strong case why Mr Osborne’s proposed rise in the rate of CGT is poorly judged and counter productive. It seems to me that it will be even more damaging if the increases take effect on 22 June as opposed to on 6 April next year, since this will not give people the chance to take steps to reduce their exposure and will be seen as incredibly unfair.

If you are concerned about the effects of the emergency budget on you, please contact one of our tax team who will be happy to discuss the options open to you.

Let’s be clear – there is nothing wrong per se with using offshore centres to hold your assets be they trusts or companies.  However, what is frowned upon is transferring assets offshore to evade tax or conceal your true wealth from creditors or governments.

Some countries have added very nicely to their GDP in past years by providing the “nudge, nudge, wink, wink” facility to hold assets through nominees and complex holding structures. Times are changing though, and it is becoming harder and harder to evade tax though taking such steps.

Legitimate tax avoidance and asset protection is always an option, with proper advice, and for those with an offshore presence or origin in particular there are quite valid and tax efficient ways to reduce your UK tax profile.

For more info – speak to our Wealth Management team.

This is the first Budget of the new Government and will be the first Budget where the Office of Budget Responsibility, also announced today, will provide the forecasts for the economy and public finances.

The most concerning tax measures we may hear about are:

• Changes to CGT – possibly increasing the rate to up to 50% for high earners.
• Increase of the rate of VAT – up to an expected 20%.

In terms of CGT, if you hold an asset which currently stands at a gain, and which you would consider disposing of in the short to medium term,  you need to consider whether you should take action before 22 June to secure tax at 18%.

It may be possible to crystalise a gain even if you don’t have a buyer lined up, although this needs careful consideration, please let me know if you would like to discuss this.

Look out for Budget # 2, but these are some of the points I’ve culled from the papers today:

• The Lib-Dem’s headline reform of increasing the lower tax threshold to £10k will be introduced.
• The rate of capital gains tax (CGT) on the disposal of non-business assets will increase.  We will therefore have two rates.   It remains to be seen how this will operate in practice but we are likely to see the rates of tax for income and capital being matched – with the top rate of CGT at 40 or 50 per cent.  People thinking of making taxable disposals (in particular making gifts and settling trusts) should seriously consider accelerating these.  
• There will be a lower rate of CGT, or an exemption (a la business assets taper or entreprenuers’ relief) for entrepreneurial assets.  This is unlikely to cover shares other than in your own business (which could mean 5% ownership – but this remains to be seen).
• A reversal of the increase in the threshold for national insurance contributions made by employees.
• The tax break for married couples will go ahead, but it is not likely to be big enough to cover the cost of the engagement ring (or even the mangagement ring).  The Lib-Dems have not agreed to support this but they’ve agreed not to block it.
• Plans to increase the inheritance tax threshold to £1m are deferred indefinately.

They treated their supplies as exempt from VAT on the basis that they were insurance intermediaries and did not register or account for VAT. HMRC issued a ruling that the companies were not within the definition of an ‘insurance agent’ partly on the basis that there was no negotiation with customers – rather the websites provided click through services.

HMRC therefore ruled that they were required to register for VAT and account for output tax on their supplies.

The companies appealed, contending that they were acting as ‘insurance intermediaries’ and that their supplies qualified for exemption. The Chancery Division accepted this contention and allowed the appeal, and the Court of Appeal upheld this decision. On the evidence, the companies were providing services which were characteristic of an insurance broker or agent, and which were vital to the process of introducing those seeking insurance with insurers. Accordingly, the supplies qualified for exemption.

The advice is to get in touch as soon as you find yourself in difficulty – don’t wait until your payment is overdue.

Further information about this service can be found on the HMRC website at Business Payment Support Service.

Whenever a tenant pays rent to a landlord that is non-resident, or to a letting agent who then pays the rent to a non-resident landlord, the non-resident landlords scheme comes into play.

Essentially, the tenant or letting agent needs to deduct tax before paying rent to the landlord and account to HMRC for this. The landlord will still need to complete a tax return which might result in more tax or a refund. It is possible for landlords to register to receive rent gross of tax. This applies to all landlords, including individuals, companies, partnerships or trusts.

On 10 March, HMRC have published the first of their “Information Bulletins” for non-resident landlords, designed to provide information about changes in HMRC practice and some FAQs: http://www.hmrc.gov.uk/cnr/nrl-bulletin1.pdf

If you need help in registering for the non-resident landlords scheme or in understanding how this applies to you, please feel free to contact me.

This is likely to be a highly political budget and predictions are flying as to what we can expect. These range from no major changes, to increases in the rates of VAT and capital gains tax.

We will post our views on the major announcements on Budget Day on this site on the day.

The Advocate General, who provides opinions to the European Court of Justice has delivered an opinion in the joined Dutch cases of X Holding BV and Oracle Nederland BV (C-538/08 and C-33/09), concerning the inability of businesses to claim input tax on business entertaining expenditure that applies in the Netherlands and if this contravenes EU regulations. In the Advocate General’s opinion it does.

UK VAT rules also block recovery on input tax spent on goods and services used for the purposes of business entertaining (excluding staff). If the Dutch case goes in favour of the taxpayer, as is expected, the HMRC will need to consider UK policy.

If there is a taxpayer victory, then the UK position is likely to take several years to resolve, if HMRC test the first claims in court. UK businesses with entertaining expenditure should therefore consider submitting protective claims to HMRC going back to April 2006, the current time limit for retrospective VAT adjustments, following publication of the European Court’s judgement.

In order to qualify for the hall of shame, individuals and companies will need to deliberately evade more than £25,000. Because the measure will be applied only for evasions on or after April 1 2010, it is not expected that any names will appear there until 2011.

This is similar to a measure taken in Ireland where a quarterly list of revenue defaulters is published. That list actually includes home addresses and occupations and covers even relatively small amounts.

The HMRC list will only cover deliberate evasion of more than £25,000, and tax evaders can avoid being published by paying up quickly.

The impact of the measure will, to some extent, depend on who the individual or company is – some people with be more bothered than others. Undoubtedly those in the public eye or those in certain professions are going to be much more concerned than others. On a similar vein, I would expect that most visitors to the site (after the initial excitement) are going to be journalists, so for those not in public roles this may be less of a deterrent.

If one spouse or partner has a higher income than the other, this presents an opportunity for tax planning by diverting more of that rental income to the spouse with a lower rate of tax. This balancing exercise can give rise to significant savings opportunities with careful tax planning. This will be of particular importance come 6 April with the introduction of the 50% rate of tax, but is also relevant for those whose income is taxed at 40%.

If you would like some advice on how best to achieve this, please contact Shimon Shaw or James Odds.

The policy principles

Competitiveness - The Government will ensure that the UK remains an attractive location in which and from which to do business.

Fairness - The Government will seek to ensure fairness within and across the tax system, so that businesses pay their fair share of tax.

Minimising distortions – The Government will seek to maintain a tax system that minimises distortions to commercial decisions, while recognising that the tax system can have a role in supporting the UK’s competitive strengths and addressing market failures.

Simplicity – When developing and reviewing business tax policy, the Government will consider simplicity alongside other policy objectives, and will seek to avoid unnecessary complexity when designing and developing new business tax legislation.

Stability and certainty – The Government will avoid unnecessary changes to tax legislation. Where the Government proposes to amend legislation, it will set out the policy reasons for doing so and explain how the amended legislation will deliver these policy objectives.

Tax administration / Compliance costs – The Government will maintain its commitment to lowering compliance costs for business, while balancing this with the need to operate a cost-effective tax administration. It will continue to improve tax administration by developing the approach set out in HMRC’s Review of Links with Large Business and, for small and medium sized enterprises, in Delivering a New Relationship with Business.

Comment

There is a clear case for creating certainty for businesses. Indeed, in my experience, businesses are more interested in a jurisdiction with stability and a good infrastructure, than on the actual rates of tax (not to say that these aren’t important too). Nobody wants to invest time, effort and money in creating a structure for their business, only to find that 2 years later it doesn’t work because rules have changed.

It does, however, seem incongruous that a policy which is intended to represent stability contains an explicit reference to anti-avoidance rules. “Minimising distortions” is an un-veiled reference to the standard justification for bringing in changes to prevent tax avoidance. Anti-avoidance rules invariably create complexity, confusion and unintended consequences.

So, this policy does have the potential to be really useful and to attract business to the UK. The UK remains a great place to operate from and is still a global leader in the world of finance. Anything that the Government can do to improve our reputation is welcome.

I will be celebrating the Year of the Tax Hike, which is due to start on 6 April.

Anyone with a better name, please share your wit and wisdom by emailing me or commenting on this post with suggestions. There is no prize (times are tight, you know) but you will benefit from the kudos that attaches to such things…

The year of the Tiger signifies bravery. The year of the Tax Hike signifies increases in tax for individuals with income over £150,000 and for trustees (whatever the trust’s income); and the gradual reduction in personal allowances for those with income over £100,000. And the year after, NICs will be increased by 1%.

What to do?

There are several ideas which can be utilised to reduce the impact of these changes. These can be summarised as follows:

Accelerate

Income (e.g. bonuses or dividends) which would otherwise have been paid in 2010 / 2011 might be brought forward to this year (i.e. before 6th April). You will still suffer tax but this simple step will give rise to tax of 40% rather than 50%. The employer will need to agree to this, since it will also need to pay PAYE and employers NICs earlier than possibly anticiapted. If your employment status is tenuous, don’t expect your employer to agree….

Defer

You may want to defer allowable expenditure and reliefs until next year. Alternatively defer might mean hold off on making payments out of companies until tax rates reduce. This is only suitable for owner managed businesses and will need to be kept under review.

Restructure

There are tax efficient structures which can be utilised to reduce overall rates of tax. These should only be undertaken with proper professional advice. Some of these are quite strightforward such as careful use of tax approved employee share incentives, e.g. EMI options. Another well trodden path is to address the balance between spouses, when one spouse or civil partner will be a 50% taxpayer and the other will pay tax at a lower rate. Income producing assets can generally be transferred between spouses with no capital gains tax or inheritance tax implications but often the income tax benefits are surpising.

Invest

The EIS and VCT schemes (possibly combined with pensions planning) can be used to reduce your effective rate of tax. This is only of use if you have cash to invest. Further, you will need to take proper investment advice to ensure that a particular investment is suitable for you. Note, some providers offer “protected” EIS and VCT investments with a lower risk profile.

Watch this site for some more ideas on how to beat the tax man and steps which should be considered before we usher in the new year.

HMRC will write to all employers this month to remind them to file their Employer Annual Returns online by the 19 May deadline – there is no longer a paper filing option for small employers with fewer than 50 staff. So, if you file your return on paper, even if it’s before 19 May, you could receive a penalty.

To file online, employers must register with HMRC’s PAYE Online service – they can do this by clicking here and following the link to ‘Register for PAYE Online’. Smaller employers can then use HMRC’s own free software to file their employee data securely online, while larger employers can purchase a range of commercial software. Alternatively, an intermediary can file on an employer’s behalf.

Also from May 2010, HMRC is introducing new penalties for late payment of PAYE – this includes Income Tax, National Insurance Contributions (NICs), student loan deductions and Construction Industry Scheme deductions. Employers may incur penalties if they don’t make PAYE payments on time, and in full. The penalties will be calculated as a percentage of the amount paid late, and, for in-year payments, the percentage charged increases as the number of late payments in the year increases.

Employers who think they may have difficulty paying should call HMRC’s Business Payment Support Service, before the payment is due, on 0845 302 1435. If they do, and HMRC agrees time to pay, it will not charge late payment penalties – provided the business keeps to the agreement.

For more information on employment tax call James Odds, Shimon Shaw or a member of the Employment team.