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Finance Bill 2015 - what will happen today
25 March 2015

Finance Bill 2015 goes through all its stages in the House of Commons this afternoon, just one day after the Bill was published.

How will the day be timetabled?

The Government passed a timetable motion yesterday. Simplified, it means:

12.40pm – 2nd reading debate starts – runs for 2 hours – David Gauke and Chris Leslie expected to lead, Shabana Mahmood and a Treasury minister to wind up

2.40pm (earlier in the unlikely event of running out of second reading speakers) – Committee of Whole House starts – runs for 4 hours – in the following order -

These are the clause / amendment groupings with text of amendments –

Clause 66 (Value added tax)
Clause stand part + Clause 67 stand part + New Clause 1

New clause 1, from Labour, reads:
Report on impact of value added tax
(1) The Chancellor of the Exchequer shall, within three months of the passing of this Act, publish a report on the impact of the increase in the standard rate of VAT which took effect from 4 January 2011.
(2) The report must estimate the impact of the increase in the standard rate of value added tax on - (a) living standards; (b) small businesses; (c) the fairness of the taxation system; and (d) economic growth.”

Clause 1 (Income tax: charge and rates)
Amendment 1 + Clause stand part + Clauses 2 to 5 stand part

Amendment 1, from Labour, reads:
Clause 1, page 2, line 1, at end insert –
“(3) The Chancellor of the Exchequer shall, within three months of the passing of this Act, publish a report on the impact of setting the additional rate of income tax at 50 per cent.
(4) The report must estimate the impact of setting the additional rate for 2015-16 at 45 per cent and at 50 per cent on the amount of income tax currently paid by someone with a taxable income of – (a) £150,000 per year; and (b) £1,000,000 per year.”

Clause 6 (Corporation tax: charge and rates)
Amendment 2 + Clause stand part

Amendment 2, from Labour, reads:
Clause 6, page 3, line 39, at end insert -
“(3) The Chancellor of the Exchequer shall undertake a review, within six months of the passing of this Act, of the impact of a cut of one per cent to the main rate of Corporation Tax for financial year 2016, with particular reference to -
(a) the impact on businesses with fewer than 50 employees;
(b) the impact on investment by businesses with fewer than 50 employees; and
(c) alternative tax measures, including non-domestic rates, which would have a greater benefit for businesses with fewer than 50 employees.
(4) The Chancellor of the Exchequer must publish the report of the review and lay the report before the House.”

Clauses 7 to 24 (Income tax: general)
Clause 7 stand part + Clauses 8 to 20 stand part + 3 + Clause 21 stand part + Clauses 22 to 24 stand part + Schedule 1 stand part + New Clause 2

Amendment 3 has been tabled by Caroline Lucas (Green) and Andrew George (Lib Dem), and reads:
Clause 21, page 24, line 46, at end insert—
“809EZI Commencement
This Part shall not come into force until the Chancellor of the Exchequer has published a report on the impact of including “carried interest” in the definition of “management fee” in section 809EZA.”
Member’s explanatory statement: This Amendment would delay implementation of changes to legislation that would allow private equity fund managers who have formed Limited Liability Partnerships to avoid “carried interest” being taxed as ordinary income until the Chancellor of the Exchequer has published a report on the impact of including “carried interest” in the definition of “management fee”.

New clause 2 has been tabled by Caroline Lucas (Green) and Andrew George (Lib Dem), and reads:
“Income tax treatment of private equity fund securities
(1) The Chancellor of the Exchequer shall, within three months of the passing of this Act, publish a report on the impact of changing the income tax treatment of employment-related securities where the employment relates to the operations of a collective investment scheme the sole or main purpose of which is to invest in unquoted shares or securities.
(2) The report mentioned in subsection (1) must in particular assess the impact of treating as employment income of the employee for the tax year in which it arises any sum arising in respect of such a security (being a sum not otherwise charged to income tax) which (whether in connection with a disposal or otherwise) directly or indirectly represents profits or gains on investments made for the purposes of the scheme.
(3) For the purposes of subsections (1) and (2) “employment-related securities”, “the employment” and “the employee” have the meanings indicated in section 421B(8) of the Income Tax (Earnings and Pensions) Act 2003 and “collective investment scheme” has the meaning given in section 420(2) of the Income Tax (Earnings and Pensions) Act 2003.”
Member’s explanatory statement: This New Clause would require the Chancellor to report on the impact of changing the law so that ‘carried interest’ is taxed as ordinary income, and therefore at a higher rate, for private equity fund managers.

Clauses 25 to 33 (Corporation tax: general)
Clause 25 stand part + Clauses 26 to 33 + Schedules 2 and 3 stand part

Clauses 34 to 51 (Income tax, corporation tax and capital gains tax: other provisions)
Clause 34 stand part + Clauses 35 to 51 + Schedules 4 to 14 stand part

Clauses 52 to 65 and 68 to 76 (Excise duties and other duties other than VAT)
Clause 52 stand part + Clauses 53 to 65 and 68 to 76 + Schedule 15 stand part

Clauses 77 to 116 (Diverted profits tax)
Clause 77 stand part + Clauses 78 to 116 + Schedule 16 stand part

Clauses 117 to 127 (Other and final provisions)
Clause 117 stand part + Clauses 118 to 127 + Schedules 17 to 21 stand part

Debate will conclude after four hours of committee stage – at 6.40pm (later if there are any statements)

All this means there will be relatively little consideration of the actual contents of the Bill, even in the context of the time available. Committee stage is likely to focus on Labour's new clause and amendments and debate may well not get beyond clause 6 before the guillotine falls and the rest of the clauses have to be passed (or voted down, which is while theoretically possible, won't happen due to the Government's majority) without debate.

The Bill is expected to go to the Lords tomorrow for their customary one hour of debate (Lords are not able to amend Finance Bills) before gaining Royal Assent.

George Crozier
CIOT Head of External Relations
Wednesday 25 March 2015

Media and Politics
CIOT in the media on evasion and avoidance
13 February 2015

CIOT Tax Policy Director Patrick Stevens appeared on the 8.10 slot on Radio 4’s Today programme this morning discussing HMRC’s strategy for dealing with undeclared tax. The context was, of course, the leaked HSBC data which has drawn attention to HMRC’s strategy of focusing on civil penalties rather than prosecutions.

The discussion was summarised by Today as:

How should tax evasion be punished?
The Chartered Institute of Taxation policy director Patrick Stevens says: "HMRC's overriding objective is to bring in as much as money as possible for as least cost as possible, so that net-net, the Exchequer is better off and we've got more money to pay for schools and hospitals..."
But former director of public prosecutions Sir Keir Starmer disagrees: "In my view criminal prosecution should be the default position for tax evasion, not civil penalties."

You can listen to a 6 minute audio clip of the discussion at

Patrick has also featured on Simon May Drive Time which you can listen to here;

and on Radio5Live, which you can listen to here:

George Crozier
CIOT Head of External Relations
Friday 13 February 2015

Media and Politics
IFS papers on HMRC’s Ultra Vires Rule and the Office of Tax Simplification
6 January 2015

The Institute for Fiscal Studies is best known for its even-handed critiques of the tax and spending policies of the political parties. But it also carries out an impressive amount of more detailed, generally lower profile work. Two new discussion papers from the IFS’s Tax Law Review Committee fit into this category.

Both papers have been written for the TLRC by Tracey Bowler, TLRC Research Director. Both are available in full online (click on the links below) and are well worth a read.

HMRC’s Discretion: The Application of the Ultra Vires Rule and the Legitimate Expectation Doctrine

This paper considers the development of HMRC’s discretionary powers and the limits applied by the courts on the use of those powers with particular reference to the legitimate expectation rule. The paper aims to promote discussion about the extent of HMRC’s discretion in interpreting and applying the tax rules set out by Parliament and whether taxpayers’ abilities to challenge the use of that discretion are sufficient. The paper identifies problems with the application of HMRC’s discretionary powers and the ability of taxpayers to rely on the various forms of statements and guidance which HMRC are increasingly under pressure to provide, as well as considering the procedures for claiming reliance on statements. It also suggests some ways to improve the position.

Specifically the paper supports calls for a review of the application of the ultra vires rule. Options would include enabling the courts to award compensation to people who rely on HMRC statements which are later found to be ultra vires, making clearer the ability of the courts to weigh up the interest of the individual in relying on the statement against the public interest of not permitting public authorities to exceed their powers when deciding whether a legitimate expectation may be enforced, and giving taxpayers a clear statutory right to rely on guidance or specific forms of guidance. The paper invites comments.

The Office of Tax Simplification: Looking Back and Looking Forward

This paper considers what the OTS has achieved to date and what can be learnt about the impact of the OTS on simplification of the tax system. It considers what conclusions can be drawn from the past four years in assessing whether the next government should continue with the OTS and what changes to its operation could be considered.

Key among the report’s recommendations are that when the OTS is reviewing an area, it should be looking at the entire area (and not have bits excluded as happened with IR35 for the employment status project), and that simplification needs to run hand in hand with tax policy making (ie. government should not propose changes to an area under consideration by the OTS, before the OTS has reported, as happened with recent changes to the tax treatment of limited liability partnerships). The paper also looks favourably on the creation of a Joint Parliamentary Select Committee on Taxation which the OTS could report to.

NB. The CIOT and our sister body the Association of Taxation Technicians are among the corporate sponsors of the IFS’s Tax Law Review Committee and a number of senior CIOT members sit on the Committee.

George Crozier
CIOT Head of External Relations

Tuesday 6 January 2015

VAT on digital services to overseas persons
22 December 2014

Recent media coverage has highlighted possible problems for smaller businesses from January as a result of changes in the rules that determine where VAT must be paid in the EU.

This blog aims to briefly –

• Outline who needs to take action
• Advise what that action is
• Point out some alternatives

Who needs to take action?

You need to take action if BOTH of the following apply –

• You supply ‘digital services’ to customers elsewhere in the EU. For a description of what is covered, see below.
• The customers are not using the services for business purposes – usually this will mean that they do not have a VAT registration number issued by the country where they live.

IMPORTANT NOTE: It does not matter how small your turnover is, you must still account for VAT on all sales in that country starting with the first €1 of sales .

What action must be taken?

You can do one of two things –

• You can register for VAT in every EU member state where you provide the services mentioned above; OR
• You can use what is known as the Mini-One-Stop-Shop which allows you to account for VAT on those transactions to HMRC using their electronic portal.

To use the electronic portal you must register with HMRC. More details can be found at this LINK. Smaller business should start by considering the details at this LINK.

What are the alternatives?

You might choose to cease to provide those services above if the cost of registering for VAT outweighs the benefits of doing that business. Alternatively, you could also sell through an intermediary but again there would be a cost in the form of the intermediary’s commission; and other complications and risks may arise from the use of an intermerdiary.

What are digital services?
For a description of what is covered, you should start by reading HMRC’s Revenue and Customs Brief, which can be found at this LINK.

In brief however the services covered by the scheme are –

• Broadcasting;
• Telecoms; and
• Electronic services

Electronic services covers a host of services eg website hosting, the provision of software or games download, email services and more generally any service provided through electronic means where human interaction is minimal.

However, just because you deliver a service using the Internet does not make it a digital service. For example, an accountant who emails a set of accounts he has prepared to a client does not supply a digital service – he provides a professional service. However, if he set up a portal to collate information for a simple tax return which was then used to submit the return via HMRC’s self-assessment portal it might be.

Still not clear?

The CIOT cannot provide specific advice to its members so readers who need specific help should use the HMRC helpdesk. However, if you have any general issues you do not think are covered by HMRC’s guidance, please comment below.

Maric Glaser
CIOT Technical Officer
22 December 2014

After the 2014 conferences (10): Green Party - wealth and resource use targeted
17 December 2014

This is the tenth and final article of a series of blog articles looking at what we know about the direction of tax policy following this year’s political party conference season. While most other articles in this series have been thematic this one looks at the policies of the Green Party specifically.The CIOT is strictly politically neutral and nothing in this article should be interpreted as endorsement for or opposition to any of the policies mentioned.

Green Party (conference 5th – 8th September)

Green Party leader Natalie Bennett announced a wealth tax on the richest 1% at her party’s conference as part of the Greens’ ‘progressive policy’ agenda. The party is calling for a charge of between 1-2% on wealth over £3 million which it thinks would raise between £23 billion and £43 billion. A party briefing states: “An individual with assets of £3 million would pay between £30,000 and £60,000 a year as a result of our Wealth Tax. Most people with assets at this level will have sufficient income to pay the wealth tax from their current income. A very few people will have perhaps a very low income and a single rather illiquid asset, such as a house. Arrangements could be made in such cases to pay any accumulated wealth tax when the house is eventually sold, usually on the death of the owner.”

The Green Party also supports a variety of policies to reduce the gap in earnings between those at the top and those at the bottom. These include a new higher rate of income tax at 50% for incomes above £100,000 per annum, as well as a living wage and company-wide maximum pay ratios to ensure a CEO gets no more than 10 times the salary of the lowest paid employee.

Underlying the party’s tax policies is their support for a ‘Citizen's Income’, essentially a universal benefit “sufficient to cover an individual's basic needs… which will replace tax-free allowances and most social security benefits. A Citizen's Income is an unconditional, non-withdrawable income payable to each individual as a right of citizenship. It would not be subject to means testing and there will be no requirement to be either working or actively seeking work.” Personal tax-free allowances would be abolished, having effectively been replaced by the Citizen's Income. Income Tax would be levied on all income above the Citizen's Income. Capital Gains Tax exemptions / thresholds would also be removed with the exception of a person's only or main home which would continue to be exempt. Capital gains would be added into a person's income for a tax year and be subject to Income Tax in the normal way. Similarly capital losses would be used to reduce a person's taxable income. Inheritance Tax would be reformed so that it is calculated on a "recipient basis". It would also be extended to include gifts made during a donor's lifetime, rather than just those given as inheritances on death, therefore becoming an accessions tax.

Businesses engaged in tax avoidance and evasion were labelled ‘parasites’ by Natalie Bennett in her party conference speech. She said that the Green Party offered “concrete, clear action, such as the country by country reporting in [Green MP] Caroline Lucas’s Tax and Financial Transparency Bill. We say that if you do business here, get profits here, you should pay taxes here.” There were no specifics beyond this, though the party has existing policy of banding corporation tax, with higher rates payable by larger companies in order to encourage smaller businesses, and closing loopholes “so that company profits earned in the UK were taxed here, even where this would mean that profits of trans-national corporations may be taxed twice - once in the UK and again in a foreign country.” In November Bennett said enforced taxation on multinational companies would be used to increase support for higher education.

The Greens want to phase out VAT and replace it with a system of eco-taxes. They argue VAT is regressive, bureaucratic and a severe burden on small businesses. The eco-taxes replacing it would target specific products, production methods, resources used and pollutants produced in order to discourage ecologically unsustainable consumption. The party would also introduce a system of Land Value Taxation to replace the Council Tax and the National Non-Domestic Business Rates.

The Greens want to allow local councils to impose extra business rates on out-of-town supermarkets, allowing them to use the money to support local businesses.

George Crozier
CIOT Head of External Relations
Wednesday 17 December 2014

Media and Politics
After the 2014 conferences (9): UKIP - insurgent party plans radical reform
16 December 2014

This is the ninth of a series of blog articles looking at what we know about the direction of tax policy following this year’s political party conference season. While the other articles in this series have been thematic this one looks specifically at the policies of the UK Independence Party. The CIOT is strictly politically neutral and nothing in this article should be interpreted as endorsement for or opposition to any of the policies mentioned.

United Kingdom Independence Party (conference 26th – 27th September)

UKIP said at its conference that it would cut income tax from 40p to 35p for people earning up to £55,000. Under UKIP's plans, everyone earning between about £44,000 and £55,000 would pay income tax at 35p. Those earning more will pay 40p, with the additional rate scrapped. UKIP also promised to raise to £13,500 the amount people can earn before paying any income tax. Party economic spokesman Patrick O’Flynn said that, in time, the party would like to go further: “An eventual tax structure of a personal allowance at the level of the full-time minimum wage, followed by a 20p standard rate, a 30p intermediate rate and a 40p top rate would be simpler, flatter and in my view compatible with both a dynamic economy and a fair society.”

The party has dropped its commitment to a flat tax. Party leader Nigel Farage has confirmed that UKIP are not likely to repeat their 2010 manifesto pledge to merge employee’s national insurance with income tax at a flat rate of 31 per cent.

UKIP would abolish inheritance tax. The party website explains: “Inheritance tax brings in under £4bn - less than a third of what we spend on foreign aid. The super-rich avoid it, while modest property owners get caught by it. It hits people during a time of grief and UKIP will budget in its 2015 spending plans to completely abolish this unfair death tax.” UKIP has also pledged to abolish all green taxes. They would develop shale gas to cut energy bills and place the subsequent revenue into a ‘British Sovereign Wealth Fund’.

Where would UKIP find the money to make these tax cuts? The party believes leaving the EU would save at least £8bn pa in net contributions. The party would also make savings from the foreign aid budget (£9bn pa), scrapping HS2, abolishing the Department of Energy and Climate Change (while scrapping green subsidies) and Department for Culture, Media and Sport, and reducing Barnett Formula spending (giving devolved parliaments and assemblies further tax powers to compensate).

The party proposes that “a Treasury Commission, using the best brains of that elite Whitehall department, be set up to design a turnover tax for large businesses. Every major company would have to show it had paid a set proportion of its turnover in corporation and other taxes or would face an additional charge to bring it up to the minimum. This would work as a back stop for the tax system and ensure that every big company pays a fair share of tax.” A Conservative Party critic of the policy described it as: “Essentially, a tax on unprofitable businesses – hardly an enterprise-friendly environment or an encouragement to invest in the UK.”

Also announced at the party conference was a proposal for a higher rate of VAT on luxury goods such as shoes, handbags and sports cars, dubbed the ‘WAG’ (as in footballers’ wives and girlfriends) tax. However within 48 hours Nigel Farage had declared the proposal ‘dead’. He told an interviewer: “I am very happy to give the freedom to our spokesmen and spokeswomen to float ideas but I'm pretty certain that while I'm leader that will not be in our manifesto. As far as I am concerned it's dead.” Alongside rowing back from the ‘flat tax’ proposal this illustrates some of the challenges UKIP is facing in keeping its mostly small state, right of centre activist base happy while developing its appeal to a more left of centre working class electorate in many areas.

Last week UKIP unveiled what has been dubbed a ‘mansion-tax break’. The party would exempt historic properties from VAT at 20 per cent on their building work. It would be replaced with a rate of 5 per cent. The party took flak when journalists highlighted how some of the party’s biggest donors could benefit from it. A UKIP spokesman argued that the tax cut would help thatchers, stone masons and carpenters, and said many owners of listed properties are not wealthy.

George Crozier
CIOT Head of External Relations
Tuesday 16 December 2014

Media and Politics
After the 2014 conferences (8): SNP and Plaid Cymru - full speed ahead for federalism?
15 December 2014

This is the eighth of a series of blog articles looking at what we know about the direction of tax policy following this year’s political party conference season. While the other articles in this series have been thematic this one looks at the policies of the SNP and Plaid Cymru.The CIOT is strictly politically neutral and nothing in this article should be interpreted as endorsement for or opposition to any of the policies mentioned.

Scottish National Party (conference 14th – 15th November)

Referendum result notwithstanding, the SNP continue to call for the Scottish Parliament to have full control over tax and fiscal policy. This includes control over not only income tax but national insurance, corporation tax, capital gains tax, fuel duty, air passenger duty and inheritance tax. The party has quoted polling showing seven out of ten Scots favour the Scottish Parliament having control of all taxation raised in Scotland.

The SNP reacted with disappointment to the report of the Smith Commission into further devolution at the end of November. Finance Secretary John Swinney claimed the UK parties’ pre-referendum vow of substantial devolution “has simply not been delivered”. He did welcome the devolution of air passenger duty, more extensive power over income tax and a range of benefits, among other things. He promised the SNP would take a constructive approach to implementing the Smith proposals: “Whilst the Commission may not have given us all the tools we want and for which we will continue to argue, we in the Scottish Government stand ready to play our part, and we now look forward to the next steps in Scotland’s journey.” Some SNP members take a stronger stance – three councillors posted footage online of themselves burning a copy of Lord Smith’s report to show the contempt in which they held it; the party leadership responded by suspending them from the party.

The SNP Government recently announced the rates for Scotland’s new property tax, the Land and Buildings Transaction Tax (LBTT), taking criticism for the scale of increases on the most expensive properties (a 10 per cent levy on the purchase price over £250,000). It was announced that buyers of residential property worth less than £325,000 would pay less than under the current system (Stamp Duty Land Tax) and buyers of property worth more than £325,000 would pay more, once the new tax comes into effect in April 2015. However, the reforms to SDLT announced by George Osborne in the Autumn Statement, which cut the tax for 98 per cent of house sales, and which took immediate effect, including for Scotland, change the economics. Anyone buying a house at a value of £254,000 or above now has an incentive to buy before LBTT comes into effect in April. While Osborne’s reforms are at one level a form of flattery, imitating the Scottish Government’s scrapping of the slab structure, cutting the tax take by £800 million has allowed Osborne to make the Scottish revenue-neutral reforms look distinctly ungenerous. For example a buyer of a house worth £350,000 will pay about £5,000 more in tax north of the border.

Tensions between Westminster and Holyrood were further inflamed when George Osborne announced, in the Autumn Statement, that he intended to devolve corporation tax to Northern Ireland but not Scotland. John Swinney said that there was “absolutely no good reason” why Scotland should not have the power to adjust corporation tax in the interests of growing its economy. The Westminster Government argues that Northern Ireland is distinguished from Scotland by virtue of being in direct competition with a neighbouring state, the Irish Republic, which has an exceptionally low rate of corporation tax.

The SNP have revealed that their manifesto for the 2015 UK General Election will include proposals for a 10p a gallon cut in fuel duty and an income tax increase for those earning more than £100,000 per annum, as well as a pledge to transfer control of corporation tax to Holyrood. The manifesto will also contain a commitment to deliver more welfare powers on top of those recommended by the Smith Commission, including powers over tax credits. The manifesto is expected to restate the SNP’s belief in independence, but not to contain a commitment for another referendum.

The SNP’s 2015 manifesto is also expected to propose the devolution of the income tax personal allowance, arguing it would give Holyrood the power to increase the money in workers’ pockets. The party’s opponents, however, argue that the Smith Commission’s proposal to devolve all income tax bands and rates would give a Scottish Government the power to manipulate the tax system to achieve the same effect. Scottish Lib Dem leader Willie Rennie said: “The Scottish Parliament will have the power to cut tax by putting the personal allowance up through a new zero rate. The parliament would only be prevented from cutting the allowance and increasing income tax.”

Some light has been cast upon the approach the SNP will take in the event of the 2015 general election producing a hung Parliament. New party leader and First Minister Nicola Sturgeon stated in her party conference speech: "My aim is that the SNP wins the General Election in Scotland, and there is every prospect of a hung parliament at Westminster. The SNP would never act to put the Tories in power. In these circumstances, our constructive approach is that the SNP will seek common cause in a balanced parliament with progressive forces across the regions of England, Wales and Northern Ireland to rebalance the UK in political and economic terms.” Recent polls have shown the SNP with a staggering lead of 20-30 per cent over Labour, which would give the party more than 50 of Scotland’s 59 Westminster constituencies (compared to just six at the moment).

The SNP, Plaid Cymru and the Green Party are working increasingly closely together. Nicola Sturgeon, Plaid leader Leanne Wood and Green Party leader Natalie Bennett held talks today (Monday 15 December) in London to discuss their strategy for the coming months.

Plaid Cymru (conference 24th – 25th October)

Wales’s nationalist party Plaid Cymru enthusiastically welcomed amendments from the UK Government to the Wales Bill to devolve to future Welsh governments more flexible income tax- varying powers (removing the ‘lock step’ which requires all rates to change by the same amount). . The green light for the proposals will be dependent on a referendum. However Plaid Treasury spokesman Jonathan Edwards MP has argued that no referendum should be needed, and warned it would fail to generate the levels of enthusiasm and engagement seen in Scotland. Asked about Plaid’s demands in post-hung Parliament negotiations the party’s Westminster leader Elfyn Llwyd put “moving on taxation without a referendum” at the top of his list, followed by a better deal on the Barnett formula, which is widely believed (not only in Wales) to give Wales a raw deal.

More broadly Plaid argues that Wales should have the same tax powers as Scotland, and has had significant success in winning other parties in Wales over to this position. Immediately after the party conferences a perhaps surprisingly strong joint motion on devolution was agreed by the leaders of Labour, Conservatives, Plaid Cymru and Liberal Democrats in the Welsh Assembly. The parties agreed that a future Welsh Government should have the same powers as Scotland, including control of air passenger duty and corporation tax if that is devolved to Scotland and Northern Ireland. The leaders called for talks between the governments in Cardiff and Westminster to begin immediately and be concluded by the beginning of 2015, and for proposals to be published before the general election.

In her conference speech Plaid leader Leanne Wood argued for the Welsh Assembly to have the power – similar to that currently available in Canada – to offer tax breaks to pension funds prepared to invest in their own communities. She noted that public sector pension funds in Wales have £6 billion in assets, hardly any of which is invested in Wales. “Investing 2 or 3% of our own workers assets in Wales would help transform the Welsh economy,” she said.

George Crozier
CIOT Head of External Relations
Monday 15 December 2014

Media and Politics
After the 2014 conferences (7): Devolving taxes - Change on the way
24 November 2014

This is the seventh of a short series of blog articles looking at what we know about the direction of tax policy following this year’s political party conference season. The CIOT is strictly politically neutral and nothing in this article should be interpreted as endorsement for or opposition to any of the policies mentioned.

The challenge of balancing the freedom to set different tax rates and create incentives while avoiding both a ‘race to the bottom’ and the provision of opportunities for avoidance is not only an issue for international tax negotiations; it is at the heart of the debate around the devolution of taxes within the UK.

Beginning just two days after the Scottish independence referendum, issues around the devolution of powers within the UK caused a significant amount of awkwardness at Labour’s conference. Labour are the least enthusiastic of the three main UK parties for tax devolution, their latest policy document recognising the risks of both competitive tax cutting between different jurisdictions, and that devolution of powers could make redistributive policies more difficult. In his leader’s speech, Ed Miliband tried to push the ‘English question’ into the middle distance with a proposal for a constitutional convention. There were calls from all parts of the party for devolution to city and county regions within England.

Scottish Conservative leader, Ruth Davidson MSP, committed her party to the devolution of greater income tax raising powers north of the border as a key platform for the 2016 elections; the Scotland Act 2012 currently allows Holyrood to increase/decrease the income tax rate by 10%. Party representatives are currently engaging on devolution via the Smith Commission, which is due to publish proposals in November. The conference also saw David Cameron strengthen his commitment to legislating to prevent Scottish MPs from voting at Westminster on devolved issues (including any elements of the tax system devolved to the Scottish Parliament), stating: “This is my vow: English votes for English laws – the Conservatives will deliver it.”

At Lib Dem conference in Glasgow Scottish Secretary Alastair Carmichael set out a vision of “a Scotland that raises the majority of its own revenues, that can borrow, tax and spend to meet Scotland’s priorities, and have the freedom to innovate and reform as never before.” He said that vision, as set out in the report of Ming Campbell’s Commission, would be the party’s contribution to the Smith Commission. Lib Dem policy, as set out in the Campbell Commission, is in favour of devolving not just further income tax powers but also inheritance tax and capital gains tax to Scotland, as well as assigning corporation tax receipts generated in Scotland.

The Scottish National Party's support for the Scottish Parliament having full control over tax and fiscal policy remains full-throated. This includes control over income tax, national insurance, corporation tax, capital gains tax, fuel duty, air passenger duty and inheritance tax. The SNP Government recently announced the rates for Scotland’s new property tax, the Land and Buildings Transaction Tax, and faced criticism for substantially increasing the amount of tax payable by buyers of the most expensive properties, with some labelling it a Scottish ‘mansion tax’.

At Conservative conference, Welsh Secretary Stephen Crabb announced a plan for more flexible income tax-varying powers for Cardiff. Under the previous plans, if the Welsh government wanted to cut the basic rate by 1p, all other rates of income tax would also have to be cut by 1p. Removing the much criticised “lockstep” system means that Wales could vary income tax rates without ensuring all income tax bands change by the same amount. The green light for the proposals will be dependent on a referendum. They appear in the Wales Bill, currently on its way through the UK Parliament, which will also devolve stamp duty land tax and landfill tax, with a target date of April 2018.

Plaid Cymru welcomed the announcement of additional powers. The party argues that Wales should have the same tax powers as Scotland. Immediately after the party conferences a perhaps surprisingly strong joint motion on devolution was agreed by the leaders of Labour, Conservatives, Plaid Cymru and Liberal Democrats in the Welsh Assembly. The parties agreed that a future Welsh Government should have the same powers as Scotland, including control of air passenger duty and corporation tax if that is devolved to Scotland and Northern Ireland. The leaders call for talks between the governments in Cardiff and Westminster to begin immediately and be concluded by the beginning of 2015, and for proposals to be published before the general election.

The UK Government is currently mulling over whether corporation tax (CT) powers should be devolved to Northern Ireland. Northern Ireland Secretary Theresa Villiers told a Conservative conference event that Stormont (the Northern Ireland Assembly) “needs to be in the best possible shape if it is to take on such a significant fiscal devolution." She said it was hard to see how the Northern Ireland Executive could fund a CT cut whilst there was an ongoing impasse over welfare reform. A decision is widely expected alongside the Autumn Statement. All of Northern Ireland's main business organisations and the Executive parties agree are supportive in principle of devolving the power though there is some trepidation about the initial loss of revenue. It was notable that both Conservative and Liberal Democrat ministers were keen during the conference season to mark out Northern Ireland as a special case with regards to CT devolution because of its land border with the Irish Republic. Northern Ireland may well get the right to set its own CT rate but this is unlikely to be extended to other parts of the UK.

George Crozier
CIOT Head of External Relations
Monday 24 November 2014

Media and Politics
After the 2014 conferences (6): International business taxation - Multinationals under pressure
19 November 2014

This is the sixth of a short series of blog articles looking at what we know about the direction of tax policy following this year’s political party conference season. The CIOT is strictly politically neutral and nothing in this article should be interpreted as endorsement for or opposition to any of the policies mentioned.

Quiz time. Which leading politician said this: “We have all read about large multinational companies that have chosen to avoid paying their fair share of taxes. For many years, a small minority have flitted between tax havens, paying little or nothing anywhere. A message to those global companies: We have cut your taxes – now you must pay what you owe.”

It is a sign of the remarkable unity of purpose between the parties over the need to find ways to extract more tax from multinational corporations – especially those based around the internet – that it could be equally easily be a spokesman from any of the main parties. In fact it is a composite – the first sentence was Ed Balls, the second Danny Alexander and the third David Cameron.

A combination of huge media attention, intense political scrutiny (especially by the Public Accounts Committee) and the campaigning of groups such as Christian Aid has put the tax policies of multinationals at the top of the political agenda and – polls have shown – made them a concern to voters across the board, regardless of political affiliation. So it is unsurprising that, in cash-strapped times, all parties are straining to persuade voters of their determination to squeeze more revenue out of this source. The OECD’s work on Base Erosion and Profit Shifting (BEPS) is still ongoing but it is clear the politicians are keen to be seen to be acting with due urgency, especially with an election on the horizon.

Consequently both parties of government had announcements to make of proposals that will appear in the Autumn Statement. Despite no explicit mention of the company, an announcement by George Osborne of a move to clamp down on multinational tax avoidance by, in particular, technology companies, has been widely christened the ‘Google tax’. Government advisers briefed that they are attempting to crack down on a particular avoidance technique, the ‘double Irish’, where companies collect profits in jurisdictions with substantially lower tax rates than where the majority of their profits are made. The Government have indicated they will publish legislative proposals at the Autumn Statement which would force multinationals to pay UK taxes on UK profits. Asked why this had not been done sooner, The Guardian reports a ‘source close to Osborne’ as saying introducing changes earlier may have ‘scared’ companies away from the UK and the country could have lost them as big employers, but the tide of global public opinion had now changed.

The Liberal Democrats also had action to announce aimed at tackling perceived tax avoidance by multinationals. Danny Alexander said: “Our government has led the way in a global movement to rewrite the tax code. That work is nearing completion, and I can tell you Britain will be one of the first countries to put the new rules into action. This December, we will take the first steps with new rules to stop firms lending money across borders just to minimise tax.” Alexander announced that the Government’s action would stop hybrid mismatches: “This could yield hundreds of millions of pounds and it will put Britain in the lead with the first of many steps to implement the new global tax rules.”

Transparency and tackling international avoidance remain central to Labour’s tax policies. These were fleshed out a little in the party’s business tax paper, published in June, and in the report presented to the conference by the party’s Stability and Prosperity Policy Commission, co-chaired by Ed Balls. They include:
• Prioritise increasing transparency in the Crown Dependencies and overseas territories, including requiring UK tax havens to reveal the identity of British tax evaders;
• “Fundamental reform” of the international corporate tax system to develop a system which is robust and effective in the modern world, which supports investment and job creation, and deals effectively with the complexities of international business;
• Consider how greater transparency around revenues, profits, and taxes paid could be delivered domestically if international agreement takes time to be reached;
• Examine the international lessons on how we can improve transfer pricing rules, so that the way in which companies allocate their profits for tax purposes is fair.

Labour is also under pressure from party members and trades unions to go further in its support for a Financial Transactions Tax (FTT). Gail Cartmail of the union Unite told a fringe meeting that the FTT would be good for solidarity and would help end ‘casino capitalism’. Shadow treasury minister Catherine McKinnell responded that Labour actively supports the tax but would not rush into it. She said the FTT was not a panacea and shouldn’t be treated as such. The party’s position remains that it would only introduce an FTT if it gains sufficient international support, including specifically a commitment from the United States to introduce it at the same time. Lib Dem policy is similarly supportive in principle but goes further in requiring the tax to be adopted by all the world’s major financial centres. The Conservatives go further still, saying they would require the whole of the rest of the world to agree to introduce it at the same time.

The conference announcements were cautiously welcomed by campaigners. An ActionAid spokesman said that, if the ‘Google Tax’ was “broadly and robustly designed, it could be used to cut through the thickets of legal and accounting complexity which some big companies hide”. ActionAid joined with Christian Aid and Oxfam to once again hold fringe events at all three conferences on the theme of corporate avoidance. Speakers highlighted the extent of the anger felt by the majority of the British public (84% of voters according to one poll). Losses to the UK Exchequer were substantial (a figure of £12 billion was quoted) but, unsurprisingly given the focus of the three bodies, the impact on developing countries was given even greater attention. The three charities trailed their forthcoming campaign for a ‘Tax Dodging Bill’ which they will be running between the autumn and next May’s general election, seeking to persuade the political parties to bring in a range of measures including publication of country-by-country reporting of profits and taxes, and reform of UK corporate tax rules which they believe are overly generous to big business and in some cases harmful to poor countries. This issue is set to remain in the spotlight over the coming months.

While generally supportive of BEPS some commentators have sounded a note of caution over its potential to be a revenue-raiser for the British Government. At the CIOT’s joint fringe debate with the IFS in Birmingham Patrick Stevens, the Institute’s tax policy director, said that the UK could ultimately end up a net loser from the BEPS reforms. ITV News’ Business Editor, Joel Hills, made a similar point, saying people should remember that “Britain has multinational companies too and ultimately the likes of GSK, BP and Vodafone – registered in Britain but with large global footprints - may end up paying rather less here.”

George Crozier
CIOT Head of External Relations
Wednesday 19 November 2014

Media and Politics
Public Accounts Committee take HMRC to task over compliance yield figures
18 November 2014

The House of Commons Public Accounts Committee have returned to one of their favourite topics, tax compliance, in a report issued today, and widely covered in today’s newspapers (see, for example, HMRC ‘unacceptably slow’ to tackle tax avoiders, say MPs (FT) and MPs’ report on tax compliance finds HMRC to be slow to take action (Guardian)).

The report is a short one (only about nine pages of substance), and covers two areas – the reliability of HMRC’s measures for tax compliance yield, and whether the tax authorities are doing enough to tackle tax avoidance.

On the first of these at least, the report is best seen as a follow-up of the National Audit Office’s annual report on HMRC’s accounts, published in July this year. This found that while HMRC were exceeding their targets for increasing compliance yield they were not doing so by as much as had been thought. This was because they had miscalculated their baseline for compliance yield during the current Parliament, resulting in the targets they were set being nearly £2 billion too low.

A quick explanation of what happened is this. The baseline figure was for the year 2010-11. At the time it was set – November 2010 – HMRC used a forecast for expected compliance yield over the year as final figures were not available. As HMRC was making significant changes to how it calculated compliance yield this forecast had a high degree of uncertainty about it. It turned out that the actual yield from disrupting organised crime that year (£2.52 billion) was three times the estimate (£0.84 billion). Added to other smaller deviations from the forecasts it meant the baseline compliance yield for 2010-11 (£14.7 billion) was £1.9 billion lower than the actual compliance yield (£16.6 billion) that year. This wouldn’t have mattered if HMRC had updated the baseline when final figures for 2010-11 were available, but they didn’t. As it turned out HMRC exceeded the targets set for them in the years following by enough that they actually met or exceeded the targets set for them, even taking into account the miscalculated baseline. For example in 2011-12 the target was to raise compliance yield by £2 billion. On HMRC’s published figures they raised compliance yield by £3.9 billion. However given the baseline should have been £1.9 billion higher in reality they raised compliance yield by the required £2 billion – no more, no less.

HMRC, in their defence, can (and do) point out that even on the adjusted higher baseline (ie the real compliance yield for 20101-11) they have increased compliance yield by £7.3 billion or 44% in three years – no mean achievement, and significantly above the original target of a £5 billion increase set in 2010. However to an extent HMRC have been victims of their own apparent success, in that the Chancellor increased their target for 2013-14 by a further £3.3 billion in 2012 and 2013. Whether they have met this new target depends on whether it is best seen as a target total compliance yield of £23 billion, in which case it has been exceeded by £0.9 billion, or as a target increase from 2010-11 of £8.3 billion, in which case they have fallen short by £1 billion once the higher baseline has been factored in. Given the setting of the higher target was largely in response to HMRC’s apparent success (in retrospect overstated) at exceeding earlier targets it is probably reasonable to see it as more the former.

Nevertheless the Public Accounts Committee (PAC) are, not unreasonably, concerned that a £1.9 billion error could have found its way into HMRC's figures and remained there undiscovered for a number of years. So when they called Lin Homer (chief executive) and other HMRC bosses before the PAC in July for their annual grilling over their accounts the baseline error was a key focus, and this is reflected in today’s report, which demands improvements in the reliability of HMRC’s compliance yield figures. Specifically the PAC asks for:
• HMRC to ensure key performance indicators are robust and subject to internal and external (NAO) checks, before they are reported publicly
• More transparency around HMRC’s compliance yield figures, including making it clearer what is actually ‘cash in the bank’, as opposed to expected future revenue or anticipated losses that had been prevented
• HMRC to keep a comparable measure of compliance yield over time

The other area covered by the PAC report is whether HMRC are making enough progress in tackling tax avoidance. Specifically the accusations being made by the Committee are that (a) HMRC is being too slow in taking action against avoidance schemes, and (b) HMRC is not doing enough to tackle companies which exploit international tax structures.

On the first of these they use the example of the Liberty scheme which began in 2005, was closed down in 2009 but has only this year been taken to a tax tribunal. The PAC acknowledge that accelerated payments could have a significant effect. They want HMRC to show it is using these and other powers “with sufficient urgency” and to report regularly on progress in this, for example in its annual report. The Committee has also highlighted that at least one promoter is currently pushing a scheme which claims to be outside both DOTAS and the GAAR “and results in an employee being in the position of receiving PAYE-free funds in his/her hands” (promoter’s claim).

On international tax structures the PAC takes a sceptical view on the merits of a number of recent changes to UK tax rules, including the patent box and changes to the regime for controlled foreign companies, and has asked HMRC and the Treasury to “set out the actual costs and benefits” of these changes. The Committee also wants the Treasury and HMRC to provide them with “details of progress in identifying and addressing the ways that international tax structures and exploited”.

As PAC reports go this one is not especially scathing, but it does illustrate that the Committee remains aggressively on HMRC’s case.

George Crozier
CIOT Head of External Relations
Tuesday 18 November 2014

Media and Politics

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