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Mark Hoban MP, Financial Secretary to the Treasury, has announced that the Government will abandon the previous Government’s proposals and will instead restrict tax relief on pension contributions by reducing the annual allowance (AA) to £50,000 from April 2011.

The CIOT thought the original proposals were disproportionately complex and had significant administrative burdens, and in correspondence we had suggested reducing the AA as an alternative means to achieve the Government’s objective.The FST’s announcement is therefore most welcome.

However, the flat factor to compute deemed contributions to Defined Benefit schemes has been set higher than we thought it should be and it is disappointing that the AA will not be indexed in line with earnings.We are also concerned that the lifetime allowance is set to be reduced and the impact this will have.

Additionally, there are some areas where further discussions will be needed, such as how we deal with overseas schemes and how we value contributions to hybrid schemes.

Matthew Brown

CIOT Technical Officer

27 October 2010

Last week’s spending review saw HMRC hit with a 15 per cent real terms cut in its Budget.

That is even after the extra £900 million (over five years) to tackle avoidance and evasion (as announced by Danny Alexander at Lib Dem conference in September), and a further £100 million to improve the operation of PAYE.

To free up the money for these projects and make the savings required of the department, HMRC is being expected to make efficiency savings of 25 per cent of its resource (i.e. non-capital) spending through “enhanced use of new technology, rationalising the HMRC estate and maximising savings from IT contracts”.

You can read the HMRC section of the spending review paper by clicking here and scrolling down to pages 71-72.

Gavin Hinks, editor of Accountancy Age, has written a good analysis of what the review means for HMRC which you can read here.

The CIOT‘s Low Incomes Tax Reform Group (LITRG) has expressed concern that the cuts will bear harshly on vulnerable poorer taxpayers and tax credits recipients, by further reducing their access to help and support, such as home visits, enquiry centres and hard copies of leaflets, and by increasing the pressure on Tax Help for Older People (TOP) and Tax Aid. You can read more of their response here.

The union representing HMRC staff has said that strike action will be inevitable in the Government does not change its course.

The CIOT raised our concerns about resourcing of HMRC with the Exchequer Secretary ahead of the spending review. HMRC’s staffing levels have already been cut by more than a quarter over the last six years. One of our concerns is about how often ‘efficiency savings’ really are true efficiency savings and how often they are just the shifting of a burden. If the result of HMRC discontinuing something is that taxpayers and their agents have to do the work instead most people would consider this displacement rather than efficiency.

The CIOT’s Tax Policy Director John Whiting responded to questions from FT readers on the paper’s website on the day after the review. The questioners did not restrict themselves to tax matters, wanting to know John’s view on whether house prices are going to go up or down, and whether the Government should not just print a trillion pounds of new money to clear the national debt!

George Crozier
CIOT External Relations Manager
27 October 2010

The Court of Appeal has rejected the Prudential’s argument that legal professional privilege extends beyond lawyers, to other professional tax advisers.

In a ruling given on Wednesday morning, following arguments heard over two days in July, Lord Justice Lloyd said that there had been a number of cases in which reforming LPP had been considered over the last 40 years and concluded that "Parliament's failure to change the law in this respect is not an accident".

The Prudential’s case is about whether particular information about a tax scheme has to be disclosed to HMRC. The case has far-reaching implications for the boundaries of LPP and whether it extends to advice on tax law given by suitably qualified non-lawyers.

The CIOT has long taken an interest in LPP, raising it regularly with Treasury ministers and HMRC. We have followed the Prudential case carefully, and decided it made sense for the Institute to seek to intervene in the Court of Appeal hearing – in the interests of our members, and of the wider tax-paying public.

The CIOT considered making a separate intervention, but decided that our arguments could be effectively (and cost-effectively) put and the interests of our members represented by providing support for the ICAEW’s existing intervention and contributing to the arguments put by their barrister, Charles Flint QC. It was made clear to the Court that the arguments in relation to the extension of LPP to chartered accountants could be applied also to chartered tax advisers (CTAs).

The Institute’s position on LPP is based on the principle of the level playing-field: there should be a common standard of privilege across all properly-qualified professionals able to advise on tax matters. To have a situation where expert tax advisers (and therefore their clients), operating to the highest professional standards, are accorded a lower level of privilege than advisers whose expertise in tax matters may be lesser, simply because one has a legal qualification and the other does not, is in the interests neither of the public nor of the tax authorities. Taxpayers should be able to go to the adviser best qualified to give the advice sought, without being influenced by the availability or otherwise of LPP.

Where do we go from here? Prudential may try to appeal to the Supreme Court, but it is looking increasingly likely that any change in this area will only come from parliamentary action.

George Crozier
CIOT External Relations Manager
15 October 2010

To read more on this issue:
Prudential loses legal privilege appeal, Accounting Web, 13 October 2010
ICAEW: Legal privilege rules "unsustainable", Accountancy Age, 13 October 2010
A Fundamental Human Right, article by Peter Fanning, Chief Executive of the CIOT, Tax Adviser, September 2010

With two of the three main parties in government Labour have the role of opposition largely to themselves for a while, so it was with particular interest that those of us in the world of tax and finance have been taking in news of the party’s new frontbench Treasury team, announced this week.

Alan Johnson’s appointment as Shadow Chancellor has been widely publicised. Asked by the BBC what his first move would be in the job, the former Home Secretary made light of his lack of Treasury experience by joking that it would be to "pick up a primer in economics for beginners". However he has not been slow to set out where he stands on the biggest economic issue of the moment, stating that his fiscal starting point will be Alistair Darling's plans to halve the deficit over four years.

Number two in Labour’s Treasury team will be Angela Eagle, the new Shadow Chief Secretary. Ms Eagle is the one member of the team with experience as a Treasury minister, having served as Exchequer Secretary from 2007-9, as well as having had several stints on the Public Accounts Committee and Treasury Select Committee. She is likely to have a high profile over the months ahead as Labour responds to the coalition’s spending review.

Roles have not yet been formally allocated to the remaining three members of the team, those outside Labour’s shadow cabinet. The most experienced of the three is David Hanson, a Welsh Labour MP who was previously Minister of State at the Home Office dealing with counter-terrorism issues. He was Alistair Darling’s PPS in 1997 when Darling was Chief Secretary and Tony Blair’s PPS from 2001-5. Before being elected an MP he was a charity director. He has relatively little financial background though he did spend a year on the Public Accounts Committee in 1997-8. He was drafted in to Labour’s Treasury team after the election.

Chris Leslie was a research assistant before becoming ‘Baby of the House’ (youngest MP) when elected in 1997 at the age of 25. He was a junior minister dealing with constitutional issues before losing his seat in 2005. Out of Parliament he was director of a think-tank and also led Gordon Brown's successful (though uncontested) campaign for leadership of the Labour Party. He returned to Parliament in May 2010 since when he has spoken extensively and combatively on finance issues, warning that “a strong dollop of dogma has been introduced into the Government's financial strategies” and accusing them of being “more interested in helping the wealthiest and putting obstacles in the way of the least well-paid”.

Kerry McCarthy was elected to Parliament in 2005 and has served on the Treasury Select Committee as well as two Finance Bill committees. She has not served as a minister but was a PPS at health and international development. She is lead contact for the End Child Poverty campaign amongst Labour MPs in parliament and has been vocal on issues affecting the low paid, such as tax credits.

Stephen Timms, who was Financial Secretary and minister for tax in the last Parliament, has been reshuffled to a role in Labour’s Work and Pensions team.

The CIOT engages with politicians from all parties, in and out of government, in pursuit of our aim of achieving a better, more efficient tax system for all affected by it – taxpayers, their advisers and the authorities. A vigilant opposition ready to ask difficult questions and hold the government to account is part of a healthy parliamentary system. We look forward to working with the new Labour Treasury team as we worked with their predecessors and with their opposite numbers in the other parties.

George Crozier
CIOT External Relations Manager