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Election Q&A: (7) Resourcing HMRC
11 April 2015

With the general election imminent, where do the political parties stand on the key tax questions?

We posed 16 questions to the parties and are posting the questions and answers over the course of a week.

7. Do you believe HMRC is adequately resourced to carry out all the tasks required of it?

Conservatives
Yes. Conservatives point out that while increased efficiency has enabled reductions in staff numbers, the number of people working in compliance and enforcement has gone up under this Government. This has enabled HMRC to increase compliance yield.

Labour
The collection of tax is one of the most important things a government does and it is crucial that HMRC has the resources it needs in order to fulfil this role. We will make sure that resources in HMRC are deployed more efficiently: for example, by liberating resources currently tied up in administering the Government’s “shares for rights” scheme. Our independent review of HMRC will also examine resource prioritisation for tax compliance work.

Lib Dems
In government, Lib Dems argue they have driven a rebalancing of HMRC’s budget, to focus greater resources on tackling evasion and avoidance. The party would also “seek to ensure that sufficient funds are devoted to continuing efforts to improve the speed, quality and accessibility of the service HMRC provides to all taxpayers, particularly small businesses and individuals”.

SNP
We condemn the cuts implemented by successive UK governments to HMRC, which have left staff over-stretched and undermined the quality of service provided.

Greens
Certainly not. No government serious about reducing tax avoidance and evasion would have reduced HMRC staffing from 93,000 in 2004 to 52,000 in 2015. We have called for an increase in the number of tax inspectors so that it at least equals the number of accountants working in large and specialist accountancy firms seeking to help their clients avoid tax. We would increase staff by 15,000 per annum. We would also focus HMRC effort on the wealthy rather than those on average incomes. Specialist investigators can bring in many multiples of their salary through increased tax revenue.

Sources: Conservative answer from David Gauke, Treasury Questions, 10 March 2015
Labour answer provided by Shabana Mahmood, Shadow Exchequer Secretary
Lib Dem answer from Fairer Taxes - Policies for the Reform of Taxation, passed by Lib Dem conference September 2013
SNP answer provided by Stewart Hosie, SNP Treasury Spokesman at Westminster
Green Party answer provided by Molly Scott Cato MEP, Green Party Spokesperson on Finance
NB. UKIP declined to take part in the Q&A and Plaid Cymru did not reply, but we’ll be blogging on their tax policies later in the election campaign.

The CIOT is of course strictly politically neutral and nothing in these posts should be interpreted as endorsement for or opposition to any of the policies mentioned.

George Crozier
CIOT Head of External Relations
Saturday 11 April 2015

Media and Politics
 
Election Q&A: (6) HMRC powers and taxpayer rights
10 April 2015

With the general election imminent, where do the political parties stand on the key tax questions?

We posed 16 questions to the parties and are posting the questions and answers over the course of a week.

6. Are you happy with the current balance between HMRC’s powers and the rights of taxpayers? If not, what would you change?

Conservatives
Ministers defend the Government’s actions as maintaining an appropriate balance between HMRC’s powers and taxpayers’ rights. David Gauke argues that, under the previous government, “HMRC did not get the support it needed to take effective action against those dodging taxes.”

Labour
This is clearly a delicate balance. HMRC needs to be equipped to perform its key function of collecting taxes. However, the outcry over this Government’s plans for the direct recovery of debts showed how easy it is to mismanage the balance between equipping HMRC and ensuring sufficient taxpayer safeguards are in place.

Lib Dems
Lib Dem ministers have strongly supported measures such as accelerated payment notices and the new strict liability offence for offshore evasion, arguing that they are necessary to deal “with the fact that a small minority felt it perfectly OK to indulge in tax avoidance and commit the crime of tax evasion.”

SNP
The SNP in Government has taken an approach to devolved taxes which balances the rights of taxpayers with ability to collect all taxes owed to ensure that our cherished public services are properly funded.

Greens
We are utterly opposed to negotiation between corporations and HMRC which indicates to citizens that the rich are exempted from taxes because of their power. We believe that HMRC needs the support of a strong anti-avoidance rule and a large increase in staff numbers.

Sources:
Conservative answer from David Gauke, House of Commons, 11 February 2015
Labour answer provided by Shabana Mahmood, Shadow Exchequer Secretary
Lib Dem answer from parliamentary statement by Danny Alexander, 19 March 2015
SNP answer provided by Stewart Hosie, SNP Treasury Spokesman at Westminster
Green Party answer provided by Molly Scott Cato MEP, Green Party Spokesperson on Finance
NB. UKIP declined to take part in the Q&A and Plaid Cymru did not reply, but we’ll be blogging on their tax policies later in the election campaign.

The CIOT is of course strictly politically neutral and nothing in these posts should be interpreted as endorsement for or opposition to any of the policies mentioned.

George Crozier
CIOT Head of External Relations
Friday 10 April 2015

Media and Politics
 
Election Q&A: (5) Anti-avoidance strategy
10 April 2015

With the general election imminent, where do the political parties stand on the key tax questions?

We posed 16 questions to the parties and are posting the questions and answers over the course of a week.

5. What are the key planks of your anti-avoidance strategy?

Conservatives
David Gauke describes the Government’s strategy as follows: “We will create a competitive regime on tax. We will make it easy for you to do the right thing. But you actually have to pay those taxes.” George Osborne has highlighted the Government’s record on tackling avoidance: “More than 40 tax avoidance schemes or loopholes have been closed… We came in, closed the loopholes, introduced the anti-abuse rule, got rid of the abuse of partnerships by hedge funds, got rid of the abuse of stamp duty by the richest in our society and started collecting the tax that should have been collected long ago.” Looking ahead the party points to the Diverted Profits Tax and the Government’s leading role in pushing forward the OECD/G20 BEPS project. At Budget 2015 the Chancellor announced a range of new measures targeting those who persistently enter into tax avoidance schemes, as well as plans to issue more accelerated payment notices and clamp down on employment intermediaries.

Labour
The next Labour Government will act where the Tories have failed in tackling tax avoidance. This will include making tax havens with links to the UK publish information about beneficial ownership, adding penalties to the GAAR, making sure hedge funds aren’t able to avoid paying stamp duty on shares, ensuring umbrella companies aren’t used to avoid tax and National Insurance by exploiting expenses rules and scrapping the Government’s failed ‘shares for rights’ scheme which has opened up massive opportunities for tax planning.

Lib Dems
As well as claiming credit for existing government measures, the party says that in the next Parliament it would continue to push for international tax reform and strengthen the general anti-abuse rule into a general anti-avoidance rule. It would also introduce rules to prevent earnings stripping through payments of excessive interest on related party debt.

SNP
We believe that tax avoidance is immoral and that there should be a zero tolerance approach to the issue, with an effective tax authority that’s going to clamp down on it and prosecute people.
When establishing Revenue Scotland, which administers devolved taxes, we ensured that they can combat tax avoidance as vigorously as possible by containing a wide-ranging General Anti-Avoidance Rule (GAAR). This rule will allow them to take robust counteraction against artificial tax avoidance schemes – not just the most abusive end of the spectrum.
Until such a time that the Scottish Parliament has the full control over all powers of taxation, we would support the UK Government matching the provisions of the Scottish GAAR.

Greens
We are working through the European Parliament ECON and TAXE committees to address these issues on an EU-wide basis. The key components of our strategy are: mandatory country-by-country financial reporting; a common, consolidated corporate tax base (CCCTB), which would provide for a uniform definition of profit across the EU; a public register of the beneficial owners of all businesses. Reform of the EU parent-subsidiary directive, the interest and royalties directive and the mergers directive must all be revised to close all existing loopholes. And we would increase HMRCs resources.

Sources:
Conservative answer from David Gauke speech at HMRC Stakeholder Conference, November 2014; George Osborne, House of Commons, 23 February 2015; George Osborne’s Budget statement, March 2015
Labour answer provided by Shabana Mahmood, Shadow Exchequer Secretary
Lib Dem answer from Fairer Taxes - Policies for the Reform of Taxation, passed by Lib Dem conference September 2013
SNP answer provided by Stewart Hosie, SNP Treasury Spokesman at Westminster
Green Party answer provided by Molly Scott Cato MEP, Green Party Spokesperson on Finance
NB. UKIP declined to take part in the Q&A and Plaid Cymru did not reply, but we’ll be blogging on their tax policies later in the election campaign.

The CIOT is of course strictly politically neutral and nothing in these posts should be interpreted as endorsement for or opposition to any of the policies mentioned.

George Crozier
CIOT Head of External Relations
Friday 10 April 2015

Media and Politics
 
Election Q&A: (4) Tackling tax complexity
9 April 2015

With the general election imminent, where do the political parties stand on the key tax questions?

We posed 16 questions to the parties and are posting the questions and answers over the course of a week.

4. Are you concerned about the complexity of the UK tax system – and if so, what do you propose to do about it?

Conservatives
Tax simplification is a key focus for the Conservatives. The party promised an Office of Tax Simplification in its 2010 manifesto and delivered on that promise in government. At HMRC’s Stakeholder Conference in 2014 David Gauke explained: “Simplifying the tax system doesn’t just make life easier for individuals and businesses. By making the policy easier to understand, you also increase compliance – maximising the benefit to the Exchequer.” At Budget 2015, the Chancellor announced two major simplifications - abolishing Class 2 NICs for the self-employed, and abolishing the annual tax return.

Labour
This Government is responsible for the longest Finance Bill in UK history and according to the ICAEW we now have the longest tax code in the world. This additional complexity imposes extra compliance costs on British businesses, and increases the burden on HMRC’s limited resources. There is clearly work to be done. We are committed to a straightforward tax system, striving for the minimal level of complexity needed for a robust regime that supports investment, enterprise and innovation.

Lib Dems
A simplified system benefits taxpayers and government alike, providing greater certainty and less bureaucracy. Lib Dems would simplify personal tax returns by pre-completing them with relevant information held by HMRC, provide more flexible options for contacting and interacting with HMRC, make greater use of ‘sunset clauses’ and renew the mandate of the OTS.

SNP
We believe the UK tax system is complex and inefficient. The Scottish approach to taxation, that the Scottish Government has taken with regard to devolved taxes, is founded on Adam Smith’s four principles: taxes should be certain, convenient, efficient and proportionate to the taxpayer’s ability to pay. We believe that this approach should be extended to all taxation in the UK.

Greens
We believe that a complex tax system encourages complex webs of tax avoidance involving the wealthy as well as bankers and accountants who support them. We would strengthen and enforce the general tax avoidance rule and, have pledged to introduce a Tax Dodging Bill in the first 100 days after the election. Our policies of abolishing VAT and NI would in the long run also help to simplify the tax system. Although our proposed introduction of progressive tax bands would add complexity, tax in the different bands could be collected automatically through PAYE. We also think there is scope to reduce many of the existing exemptions and allowances ¬– why for example should there be a capital allowance for building a polluting power station?

Sources:
Conservative answer from David Gauke speech at HMRC Stakeholder Conference, November 2014; George Osborne’s Budget statement, March 2015
Labour answer provided by Shabana Mahmood, Shadow Exchequer Secretary
Lib Dem answer from Fairer Taxes - Policies for the Reform of Taxation, passed by Lib Dem conference September 2013
SNP answer provided by Stewart Hosie, SNP Treasury Spokesman at Westminster
Green Party answer provided by Molly Scott Cato MEP, Green Party Spokesperson on Finance
NB. UKIP declined to take part in the Q&A and Plaid Cymru did not reply, but we’ll be blogging on their tax policies later in the election campaign.

The CIOT is of course strictly politically neutral and nothing in these posts should be interpreted as endorsement for or opposition to any of the policies mentioned.

George Crozier
CIOT Head of External Relations
Thursday 9 April 2015

Media and Politics
 
Election Q&A: (3) Taxing to change behaviour
9 April 2015

With the general election imminent, where do the political parties stand on the key tax questions?

We posed 16 questions to the parties and are posting the questions and answers over the course of a week.

3. To what extent should the tax system be used to change people’s behaviour?

Conservatives
The Conservatives argue that you cannot micro-manage people through the tax system but you can influence people in a positive way, for example income tax cuts to make work pay and incentives for businesses to invest in R&D. The party also favours using the tax system to send signals of the type of behaviour government supports, such as recognition of marriage through a transferable allowance. While still seeing a role for green taxes the party has in recent years emphasised the risks of raising them too high, freezing the carbon price floor and compensating manufacturers in some sectors where green levies were felt to be damaging their competiveness.

Labour
Environmental taxes have an important role in tackling climate change as well as bringing in revenue. Also, one of the most important behaviours that a tax system can change is ensuring that everyone pays their fair share of tax by ensuring that the ramifications of not doing so are made explicitly clear. This is why a Labour Government would bring in penalties, of up to 100 per cent of the value of the tax which was avoided, for the General Anti-Abuse Rule.

Lib Dems
Any tax system encourages and discourages certain types of behaviour. In particular the party supports incentivising of environmentally beneficial activities and penalising of polluting activities.

SNP
We believe that the tax system can be used to change behaviour where appropriate. For example, the Scottish Landfill Tax is a cornerstone of Scotland’s Zero Waste Plan, which aims to maximise the resource value of materials in our economy, ensuring that landfill is a last resort option.

Greens
We believe strongly in the strategic role of tax as well as its importance in ensuring redistribution and funding public services. In particular, we believe that fossil fuels should be taxed heavily to reduce CO2 emissions and that the anomalous exemptions for aviation and shipping fuels should be ended immediately. Resource taxation will be charged on the use of raw materials, and will reflect their relative scarcity and the environmental disruption caused by their extraction. The raw materials which would be subjected to such resource taxes include fossil fuels, hardwoods, metals, minerals and aggregates.

Sources:
Conservative answer from David Gauke’s response to CIOT/ATT Q&A, March 2010; Autumn Statement 2013
Labour answer provided by Shabana Mahmood, Shadow Exchequer Secretary
Lib Dem answer from Fairer Taxes - Policies for the Reform of Taxation, passed by Lib Dem conference September 2013
SNP answer provided by Stewart Hosie, SNP Treasury Spokesman at Westminster
Green Party answer provided by Molly Scott Cato MEP, Green Party Spokesperson on Finance
NB. UKIP declined to take part in the Q&A and Plaid Cymru did not reply, but we’ll be blogging on their tax policies later in the election campaign.

The CIOT is of course strictly politically neutral and nothing in these posts should be interpreted as endorsement for or opposition to any of the policies mentioned.

George Crozier
CIOT Head of External Relations
Thursday 9 April 2015

Media and Politics
 
Non-doms: A short briefing note
8 April 2015

The Labour Party announced this morning that, if elected as the next government, they would abolish ‘non-dom’ tax status. Our Q&A below explains what a non-dom is and how the system works.

The CIOT is of course strictly politically neutral and nothing in this post should be interpreted as endorsement for or opposition to any particular party’s policy.

What does non-dom mean?

‘Non-dom’ is shorthand for a person who is not domiciled in the UK.

Domicile is a common law concept rather than a UK tax rule. It is used to decide which legal system applies where someone has family or personal connections in different jurisdictions. It’s particularly relevant to marriage, divorce and succession issues.

Domicile is not the same as nationality or citizenship or residence. You can only have one domicile at any point. You can be resident for tax purposes in the UK (for example by visiting regularly or living here for some time) but remain domiciled in another country because an individual’s domicile is broadly the place where he or she has their permanent home.

How do you get your domicile? Can you change it?

Everyone acquires a domicile of origin at birth (most often your father’s domicile) but it is possible (although difficult) to displace a domicile of origin with a new domicile of choice if you settle permanently in a different country and sever all your links with the previous country of domicile.

When is non-dom status relevant to tax?

UK tax legislation uses the concept of domicile in some circumstances to determine an individual's liability to income tax, capital gains tax and inheritance tax.

People who are UK resident and domiciled in the UK are liable to UK tax on their worldwide income and capital gains. However, individuals who are UK resident but not UK domiciled are liable to UK tax on all their income and capital gains which arise in the UK, but have to pay UK tax on overseas income and capital gains only if those funds are remitted to the UK. This is known as the remittance basis of taxation. Very broadly funds are remitted to the UK if a person receives, uses or benefits from them in the UK. The remittance basis must be claimed (except in some circumstances, eg where unremitted income and gains for the tax year is less than £2,000).

There is a charge for accessing the remittance basis where the claimant has been resident in the UK for an extended period. New charges apply from 6 April 2015:
• £30,000 for those UK resident for 7 of the past 9 years (unchanged from previous years)
• £60,000 for those who have been UK resident for 12 of the last 14 years
• £90,000 for those who have been UK resident for 17 of the last 20 years

What about inheritance tax?

Inheritance tax applies to an individual’s worldwide property if an individual is UK domiciled but to their UK property only if an individual is domiciled in another country. In some cases an otherwise non-UK domiciled individual may fall within the UK IHT regime by being deemed UK domiciled for IHT purposes only. This occurs in 2 main circumstances:

• Where a non- UK domiciled individual has been resident in the UK for at least 17 out of the previous 20 years;
• Where an individual remains within the charge to IHT for 3 years after ceasing to have a UK domicile.

In addition a non-UK domiciled individual can in certain circumstances elect to be treated as UK domiciled for IHT purposes.

How many non-doms are there?

As of 2011 (which is the latest figure we’ve found) there were 116,000 non-doms registered with HMRC. Of these 49,000 elected to be taxed on the remittance basis (see above) but only 5,000 – 6,000 of these had to pay the remittance charge. (As stated above you only have to pay the charge if you have been UK resident for 7 of the past 9 (or 12 of the last 14, or 17 of the last 20) years.)

But note that not everyone entitled to non-dom status is included in that 116,000 figure. As an HMRC spokesman explained to the publication Tax Journal: “Individuals are only required to indicate their domicile status where it has a bearing on their UK tax liability; there are a significant number of non-doms who do not indicate their domicile status on their tax return, for example those who chose not to be taxed on the remittance basis.”

In November 2012 Treasury minister Lord Sassoon told the House of Lords: “HMRC only holds information on those individuals who are required to declare their domicile status because it is relevant to their tax affairs. HMRC do not hold any estimates for the number of individuals who are entitled to claim to be non-domiciled but choose not to do so.”

Are all non-doms wealthy?

No, but those who choose to be taxed on the remittance basis can reasonably be assumed to be wealthy / high income individuals.

Are all non-doms immigrants?

No. Many are: some are wealthy entrepreneurs choosing to locate in the UK, some are individuals who come to the UK for employment at all levels of remuneration (bankers and footballers, but also doctors, nurses and fruit pickers), some are students. In theory at least, they are only in the UK temporarily and will return to their home countries in due course. But some non-doms will have been born and brought up in the UK, and inherited their non-UK domicile from their father or even grandfather (it usually passes down the male line). Many in this latter group in particular will gain no advantage from their non-dom status (because they have no overseas income, gains or assets) – it is just an accident of ancestry.

Do other countries have the same system?

Not many. Britain is unusual in allowing permanent residents to remain non-doms. Ireland and Switzerland have similar systems.

How does being a non-dom save you money?

As set out above, you are only taxed on overseas income and gains when you bring it or them to the UK or otherwise enjoy them here. In broad terms, if you don’t bring it to the UK you won’t be taxed on it. To save money the amount of tax you save must be larger than the remittance basis charge (see above) the UK Government currently levies on you.

How much would abolishing non-dom tax status raise?

It’s very hard to say.

As stated above 5,000 - 6,000 non-dom individuals choose to pay the remittance basis charge (RBC) each year. A further 43,000 or so are taxed on the remittance basis but haven't been in the UK long enough to pay the RBC. These are the people abolishing non-dom tax status would affect. It is reasonable to assume those people paying the RBC are opting to do so because it costs them less than paying full tax on their worldwide income in the UK would. However we don’t know how much they are saving because they don’t at present have to declare their worldwide income to the UK authorities. Even if we did we would then need to factor in behavioural effects – that is wealthy people who might leave the country for somewhere with lower tax rates, or who might find other ways of rearranging their financial affairs (eg by transferring assets to other family members). We don't know how many of the 43,000 would pay a significant amount of tax in the UK if the remittance basis were abolished or radically restricted (Labour's proposal).

Could it cost money?

It’s possible, once you take into account knock-on effects. The amount of tax raised from non-doms themselves would almost certainly rise if their non-dom status was taken away (even allowing for some behavioural effects – see above). But the argument made by those who think it might cost the Exchequer money is usually based around the wider benefits of having wealthy non-doms in the UK – employing people, basing companies here, paying VAT and other taxes on the expensive goods and services they consume.

What are Labour proposing?

To abolish non-dom tax status. However they would allow some exceptions for those resident in the UK for only a short period. On his blog, Ed Balls states:
“our plans… do allow for temporary residence for people genuinely here for a temporary period, for example people who are here for two or three years at university. Not to have a short-term option would mean students or business visitors being deterred from coming to our country.”

Patrick Stevens
CIOT Tax Policy Director
Wednesday 8 April 2015

Media and Politics
 
Election Q&A: (2) Closing the fiscal deficit
8 April 2015

With the general election imminent, where do the political parties stand on the key tax questions?

We posed 16 questions to the parties and are posting the questions and answers over the course of a week.

2. What share of closing the fiscal deficit should be borne by tax increases – and which taxes should bear the brunt?

Conservatives
None. The Conservatives are committed to balancing the books without tax increases. At conference 2014, the Chancellor declared that “the option of taxing your way out of a deficit no longer exists, if it ever did.” The party is committed to achieving an overall budget surplus by 2018-19. This will come from £12billion of cuts in the social security budget and another £25 billion from non-social security spending.

Labour
We can only properly reduce the deficit if our recovery is balanced, long-term and delivers rising living standards for the many. We will ensure that that the burden is fairly shared by restoring the 50p rate on incomes over £150,000, to make a contribution to cutting the deficit.

Lib Dems
Finishing the job of economic recovery requires roughly £30bn of fiscal consolidation by 2017/18. The party’s Alternative Economic Plan would see a further £6bn raised from ‘tax dodgers’, and an additional £6bn of tax rises.

SNP
The fiscal deficit can be tackled by making different choices to those of both the Tories and Labour. While we believe that debt should be reduced as a percentage of GDP – we reject the approach of the largest UK parties. For example, by limiting real terms growth in departmental spending to 0.5% each year the deficit would reduce in every year from 2015-16 and that would permit a further £180 billion of investment across the UK over the next four years compared to current government plans. And of course, we could also release savings through some very straightforward choices. Deciding not to renew Trident, for example, would save around £100bn, at 2012 prices, over the next 35 years.

Greens
Closing the deficit is not our prime economic objective; the important thing is to build a more equal and ecologically sustainable economy. We would balance the current account over time, but are prepared to borrow to invest. We would increase both government spending and taxation, and so your question about the share in closing the deficit doesn’t really make sense. Our major revenue increases would come from a Wealth Tax, a Financial Transactions Tax and a much more rigorous approach to evasion and avoidance.

Sources:
Conservative answer from George Osborne’s party conference speech, September 2014
Labour answer provided by Shabana Mahmood, Shadow Exchequer Secretary
Lib Dem answer from parliamentary statement by Danny Alexander, 19 March 2015
SNP answer provided by Stewart Hosie, SNP Treasury Spokesman at Westminster
Green Party answer provided by Molly Scott Cato MEP, Green Party Spokesperson on Finance
NB. UKIP declined to take part in the Q&A and Plaid Cymru did not reply, but we’ll be blogging on their tax policies later in the election campaign.

The CIOT is of course strictly politically neutral and nothing in these posts should be interpreted as endorsement for or opposition to any of the policies mentioned.

George Crozier
CIOT Head of External Relations
Wednesday 8 April 2015

Media and Politics
 
Election Q&A: (1) Is the current balance of the tax take right?
8 April 2015

With the general election imminent, where do the political parties stand on the key tax questions?

We posed 16 questions to the parties. Shabana Mahmood, Shadow Exchequer Secretary, responded for Labour; Stewart Hosie, SNP Treasury Spokesman at Westminster, answered for the SNP; Molly Scott Cato MEP, the Green Party’s Spokesperson on Finance, answered for her party. The Conservatives and Lib Dems were unable to provide answers in the time available, so we’ve adapted answers from their recent policy statements and speeches. UKIP declined to take part and Plaid Cymru did not reply, but we’ll be blogging on their tax policies later in the election campaign.

We will be blogging the 16 questions and answers over the course of the next week.

The CIOT is of course strictly politically neutral and nothing in these posts should be interpreted as endorsement for or opposition to any of the policies mentioned.

1. Is the current balance of the tax take – between rich, poor and middle incomes, and between personal, business, sales, property and other taxes – right? If not, how should it be changed?

Conservatives
The Conservatives emphasise the need for lower taxes, rather than for structural changes to the tax system. The party emphasis the two principles of economic competitiveness and making work pay. The party’s tax priority for the next Parliament is cuts in personal taxes – cutting income tax by raising the tax-free personal allowance to £12,500 and the point at which the 40p rate begins to be paid to £50,000, as well as scrapping most taxation of interest income (announced in the Budget). The party is also widely expected to go into the election promising cuts in inheritance tax (though at time of writing no formal announcement had been made). On business taxation, there is no commitment to further cuts but the party has said it would continue to have the most competitive corporate taxes in the G20.

Labour
We do not think the current balance between those on different incomes is right. Under this Government we have seen those who earn over £150,000 receive a £3bn tax cut while they raise VAT for ordinary working families. We would restore the 50p rate for those on top incomes, while cutting tax for those on middle and low incomes. We would also introduce a mansion tax on properties over £2m, while cutting business rates on small business properties.

Lib Dems
In order to make the tax system fairer and encourage employment and economic growth, the party would rebalance UK taxation towards increased taxation of wealth and lower taxes on earned income. This would include further increases in the income tax personal allowance. The party would raise taxes on the richest so they pay ‘their fair share’.

SNP
We believe that fairness, equity and the ability to pay should be at the heart of taxation policy. That is the approach that the SNP Scottish Government has taken to devolved tax, and why the SNP in Westminster voted against cutting the 50p top rate of income tax for top earners.

Greens
Neoliberal policies have shifted the burden of tax onto lower-paid workers and contributed to rapidly growing inequality. We would introduce a more progressive tax system requiring the wealthier to pay more. In the long run we would abolish VAT and national insurance in order, over time, to ensure a fiscal shift from work and consumption towards energy, resources, and land. We would apply capital gains tax on a lifetime basis to prevent avoidance.

Sources:
Conservative answer from David Cameron’s party conference speech, October 2014; George Osborne’s Budget speech, March 2015; media reports
Labour answer provided by Shabana Mahmood, Shadow Exchequer Secretary
Lib Dem answer from Fairer Taxes - Policies for the Reform of Taxation, passed by Lib Dem conference September 2013
SNP answer provided by Stewart Hosie, SNP Treasury Spokesman at Westminster
Green Party answer provided by Molly Scott Cato MEP, Green Party Spokesperson on Finance
NB. UKIP declined to take part in the Q&A and Plaid Cymru did not reply, but we’ll be blogging on their tax policies later in the election campaign.

The CIOT is of course strictly politically neutral and nothing in these posts should be interpreted as endorsement for or opposition to any of the policies mentioned.

George Crozier
CIOT Head of External Relations
Wednesday 8 April 2015

Media and Politics
 
Finance Bill 2015 - What did happen (part 2)
7 April 2015

Finance Bill 2015 went through all its stages in the House of Commons in six hours on Wednesday 25 March. This note and an earlier one on second reading debate pick out the parts of the debates likely to be of most interest to tax professions – that is, relating to tax technical issues – as well as briefly summarising other discussions. As anticipated the focus of the debates was political with relatively little exploration of technical issues.

House of Commons debate – Wednesday 25 March

Committee of the Whole House

Overview

The clauses were grouped into nine groups –

  • Clauses 66-67 (Value added tax) including a Labour new clause
  • Clauses 1-5 (Income tax: charge and rates) including a Labour amendment
  • Clause 6 (Corporation tax: charge and rates) including a Labour amendment
  • Clauses 7 to 24 (Income tax: general) including a Green / Lib Dem backbench amendment
  • Clauses 25 to 33 (Corporation tax: general)
  • Clauses 34 to 51 (Income tax, corporation tax and capital gains tax: other provisions)
  • Clauses 52 to 65 and 68 to 76 (Excise duties and other duties other than VAT)
  • Clauses 77 to 116 (Diverted profits tax)
  • Clauses 117 to 127 (Other and final provisions)

However debate was curtailed by a guillotine which fell after discussion on the first three of these groups. The remaining clauses (clauses 7 to 127, apart from 66-67, and associated schedules) were passed as a single group without debate.

Clauses 66-67 (Value added tax)

A Labour new clause proposed the Treasury should publish a report on the impact of the increase in the standard rate of VAT which took effect from 4 January 2011, on living standards, small businesses, the fairness of the taxation system; and economic growth.

Financial Secretary David Gauke opened by paying tribute to Dawn Primarolo, the former tax minister now Deputy Speaker who was chairing proceedings in her final week as an MP (she is retiring at the general election). “This is the last afternoon on which you will be dealing with tax matters, having done so for an unconscionably long period, so I thank you for all that you have done over many years and for your service as Deputy Speaker and wish you a very happy retirement.”

Gauke briefly explained what clauses 66 and 67 would do - refund VAT to various charities and to the strategic highways company which will take over from the Highways Agency – before turning to Labour’s new clause. He argued there was “no need to publish a report on the impacts of the rise in VAT announced in 2010 as “the Government’s economic record speaks for itself”. He defended the increase in the standard rate of VAT in 2010 as “a consequence of the mess that the Opposition left the public finances in”. He noted the Prime Minister’s commitment earlier that day that a Conservative Government would not increase the VAT rate in the next Parliament. This led to some political knock-about with Labour MPs drawing attention to similar statements made before the last election, as well as broader issues around the Government’s progress on deficit reduction. Gauke challenged Labour to rule out increasing employers’ national insurance contributions. Shadow Exchequer Secretary Shabana Mahmood said that Labour had made a statement earlier that day ruling out any rise in national insurance.

In a lengthy speech for Labour, Shabana Mahmood said her party was asking for a review because Oppositions are limited in what they can call for in amendments to a Finance Bill (they can’t propose changes to tax rates). Describing VAT as “the tax that hits everyone”… every single day” she reminded the House of the Shadow Chancellor’s “crystal clear pledge” the previous day “that a Labour Government will not raise VAT or extend VAT to food, children’s clothes, books, newspapers and public transport fares”. With reference to previous Conservative Chancellors who had broken promises not to increase VAT she said the past performance and form of the Conservatives was “the clearest and surest indicator” that they would put up VAT: “It is in their collective DNA".

Among other speakers, Scottish Labour MP Fiona O’Donnell attacked Tory “broken promises on borrowing, the deficit and VAT”. She claimed the 2010 increase in VAT had “stifled confidence and the spending power of many in our communities”. Welsh Labour MP Ian Lucas spoke of the benefits of having the information the new clause requested. Sheila Gilmore – also Scottish Labour – said that one of her big concerns was that low-paid workers already under the tax threshold are being offered nothing from the Government and “face a real risk that if VAT is increased, they will end up paying the price of a reduction in income tax from which they will not benefit by one penny”.

Clauses 66 and 67 were approved without a vote. Labour’s new clause was voted down by 305 votes to 231.

Clauses 1-5 (Income tax: charge and rates)

Shabana Mahmood, for Labour, moved an amendment which would require the Treasury to publish a report on the impact of setting the additional rate of income tax at 50 per cent, and pretty unenlightening political argument over the additional rate was the nature of most discussion under this group of clauses. Lib Dem Ian Swales challenged Mahmood over the fact that the top rate had been 40p until the final week of the last Labour Government. Labour MPs juxtaposed the cut to the 50p rate with tax and tax credit changes which had hit average and poorer families. Stewart Hosie of the SNP attacked Labour for not supporting an SNP bid to keep the 50p rate. Mahmood attacked the Government’s costing of the cut in the additional rate (which reduced it from a ‘static cost’ of £3bn to just £100m after behavioural effects were considered) and repeated Labour’s commitment to return the additional rate to 50p. She in turn was challenged on whether she thought the change back to 50p would raise £3bn; her response was that there would be some behavioural effects but £3bn was “the only certain figure we have”.

Responding for the Government, David Gauke explained what clauses 1-5 would do – that is, set the rates, limits and allowances for income tax for 2015-16 and the following two years, In particular the personal allowance would rise to £11,000 in 2017-18. He noted that earlier that week Labour had voted against the Budget resolution renewing income tax, which would have “put a £150 billion hole in the public finances” if they had succeeded. Turning to the additional rate he said the 50p rate was failing to raise the money anticipated because of behavioural effects. This was not only about tax avoidance, said Gauke, “it can also be behaviour that is clearly compliant both with the letter and the spirit of the tax system yet will reduce yield. Increasing contributions to pension schemes, for example, could result in a reduction in revenue. It could be that somebody decides to relocate out of the United Kingdom. It could be… that international businesses in deciding where to locate staff might conclude that the costs of doing so in the UK are greater than elsewhere, and that there are better climates and environments in which to locate highly paid staff.” Gauke and Swales both quoted IFS estimates that reversing the cut would raise only about £100m. Gauke said Labour’s amendment was unnecessary as “the Government always keep tax rates under review and monitor receipts” anyway.

The Labour amendment was voted down by 309 votes to 230. Clauses 1 to 5 were passed without a vote.

Clause 6 (Corporation tax: charge and rates)

Shabana Mahmood for Labour moved an amendment requesting a review of the impact of a 1% cut in Corporation Tax in 2016, with particular reference to the impact on small businesses and on investment by them, and whether a business rate cut (which Labour favour) would have a greater benefit for these small businesses. Mahmood stressed that Labour “does not oppose the recent changes to the rate of corporation tax that have so far come into effect” but “now is the time to give much more support to smaller businesses” – “my case is that SMEs need particular help with business rates”. She spent some time explaining the effect that business rate increases had had on small firms. The cut being advocated by Labour would be worth an average of £450 over two years to 1.5 million businesses, she said.

Lib Dem Ian Swales made what he expected to be his last speech before retiring from Parliament. He thanked colleagues “for making my time here such a vivid experience. I would struggle to apply the word “vivid” to the many Finance Bill Committees and finance debates I have taken part in, but overall I have had a terrific time.” He spoke in support of the lower rate of corporation tax, and against tax avoidance and evasion. On avoidance he highlighted how the Bill would stop contrived arrangements on carried forward tax reliefs, restructures bank loss relief and put limits on R&D tax credits. On evasion he welcomed the consultation on a new offence for those who aid and abet evaders. He said there was “a lot more to be done for [tax rules for] internet companies”.

Labour MPs contributed mostly on constituency issues. Sheila Gilmore spoke about a small fitness studio in her area who worried about high business rates. Fiona O’Donnell also spoke about small firms in her constituency as well as noting the SNP’s ‘U-turn’ on its plan to reduce corporation tax by 3%. Andrew Gwynne argued that, “in respect of corporation tax, we are talking about a very small number of large businesses operating across the country. The benefits of that tax cut will not necessarily be felt throughout the wider economy. [But] targeting the same amount of money on a business rate cut… would affect 5.1 million small and medium-sized businesses and others.”

Responding to the debate for the Government, David Gauke praised Ian Swales’ contributions during the Parliament and made some general remarks about the business tax regime the Government have sought to move towards. He paid particular attention to simplifying measures including moving to a single rate of corporation tax. He also highlighted the Government’s support for small business rate relief schemes. Reversing the Government’s corporation tax cut “would be a big mistake and send a terrible signal to businesses around the world”, he concluded.

Labour’s amendment was defeated by 306 votes to 229.

Six hours having adjourned the Chair then ended the debate, putting the question that the remaining 120 clauses and 21 schedules be agreed to ‘forthwith’, which they were. The House then moved to a third reading vote, which passed the Bill 207-226.

Green MP Caroline Lucas made a point of order to complain that the organisation of the debate brought the House’s procedures into disrepute because a set of amendments tabled by her (along with a backbench Lib Dem) had not even been debated. These would have delayed 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 had published a report on the impact of including “carried interest” in the definition of “management fee”. The Chair suggested this was a point for the Procedure Committee not him.

House of Lords debate – Thursday 26 March

The Finance Bill passed through all its stages in the House of Lords in just over one hour the following day, under the stewardship of former Customs and Excise Officer Lord Newby.

Opening second reading debate Lord Newby defended the rapid passage of the Bill through Parliament, saying “80% of the legislation before us has already benefited from public scrutiny and comment” and the Government had also held back around 50 pages of previously announced legislation “which, in our judgment, could be delayed until after the election”. He then ran through the range of measures in the Bill.

For Labour, Lord Haskel made some general remarks about productivity and, in particular, why there was no strategy for raising productivity in the Finance Bill. Another Labour peer, Lord Desai, favoured radical tax reform: “when we tax income we make far too many small distinctions—between married people and this and that—so that the whole thing becomes very complicated.” He felt that consumption would be easier to define than income, so “we should think of doing a consumption tax”. Also, “The whole approach is really to go down the expenditure tax route—purely expenditure—and not to worry about income of other kinds. If people are deriving income from capital, that is fine. What we would want to know is what expenses they incur in trying to do that, and tax that.”

Lord Soley, also Labour, made some general points about productivity and the relationship between immigration and growth. He called for the Government to get rid of air passenger duty tax. He welcomed the move to make gift aid easier for intermediaries, declaring an interest as the chairman of a charity. Lord Davies of Oldham, again Labour, described this Finance Bill as “a pretty mean-spirited effort” and “an irrelevant Bill”. He quoted figures from the Resolution Foundation think tank, showing falling incomes. He accused the Government of looking after the better-off while doing very little to help the less well-off.

Winding up the debate Lord Newby noted that, with regard to Lord Desai’s radical plans, “I am not a tax radical, I am afraid, partly because I started my working life as a tax man. I think that grand taxation schemes often have a whole raft of unanticipated consequences. Of course, those who suffer from any tax change make about 100 times as much noise as those who benefit, so politically I wish the noble Lord luck with the sort of grand scheme that he has in mind, but I hope that I am never called upon to try to do something equally ambitious.”

As is customary in the Lords, the Bill was granted its second and third readings without a vote, and passed, ready for Royal Assent, which it gained later in the day, before Parliament was prorogued, and dissolved the following Monday ahead of the general election on May 7th. A second Finance Bill is expected in the summer.

George Crozier
CIOT Head of External Relations
Tuesday 7 April 2015

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.

Media and Politics
 
Finance Bill 2015 - What did happen (part 1)
7 April 2015

Finance Bill 2015 went through all its stages in the House of Commons in six hours in one afternoon, just one day after the Bill was published. This note and a further one to be published shortly pick out the parts of the debates likely to be of most interest to tax professions – that is, relating to tax technical issues – as well as briefly summarising other discussions. As anticipated the focus of the debates was political with relatively little exploration of technical issues.

House of Commons debate – Wednesday 25 March

Finance Bill second reading debate

David Gauke, Financial Secretary to the Treasury, commenced proceedings, focusing on the Government’s message that the Finance Bill was about ‘getting the economy working’. Labour’s Shadow Chief Secretary, Chris Leslie, for his part derided the Coalition for doing too little to help working people.

Concerns over slow progress on tax simplification, compounded by an ‘under-resourced’ OTS was central to Labour's critique. Gauke refuted this accusation, arguing that the Government had adopted a number of OTS recommendations. In addition, he pointed to the fact that large numbers of people had been taken out of the self-assessment system altogether as a result of changes to paying income tax on savings, announced at the Budget.

Gauke said that five clauses had been removed from the Bill at the request of the opposition. (It is customary to do this when rushing a Bill through in the final few days of a Parliament.) These were a new tax exemption for the travel expenses of members of local authorities; a new statutory exemption from income tax for trivial benefits in kind, implementing a recommendation of the OTS’s review of employee benefits and expenses; simplifying link company requirements for consortium claims under corporation tax; a separate rate of excise duty for aqua methanol; and changes to scheme rules for the enterprise investment scheme and venture capital trusts. Gauke confirmed that the “Government would look to legislate on all five of those clauses at the earliest opportunity at the start of the new Parliament”.

Chis Leslie, along with Labour colleagues who spoke, was highly critical of the rushed-through nature of the Bill, particularly that matters would not be discussed in a Public Bill Committee. He quoted criticism by ICAEW and Heather Self of Pinsent Masons on this issue. His colleague Andy Love also noted the “significant concern, indeed alarm, out there among some of the tax professionals and accountancy bodies about the lack of adequate scrutiny”.

In a lengthy speech Leslie attacked what he said were falling living standards and grim prospects for youth employment. He argued that the Bill should have contained a proper bank bonus tax to help young people having difficulty finding employment. He said that the married couples allowance would only benefit one third of married couples. Regarding the personal allowance increase, he said that it would have been better to introduce a 10p rate to ease people on lower incomes into income tax. He also took the opportunity to repeat his party’s strong opposition to the ‘bedroom tax’.

Leslie also spent some time probing particular measures in the Bill, drawing on briefing provided by CIOT in some areas. However, with only five minutes to reply to the debate, Exchequer Secretary Priti Patel was not able to provide substantive responses to most of his questions. Leslie welcomed the extension of CGT arrangements to foreign individuals when they dispose of UK residential properties, but again expressed concern at the lack of opportunity for proper scrutiny. “It is worrying to those outside this place to see attempts to pass such provisions in this way,” he noted, asking whether the Government would “address the concerns of the Chartered Institute of Taxation about the complexity of the new rules and the perceived unfairness in how they apply to people temporarily on assignments overseas who would not normally be required to pay a CGT charge on their main residence?”

On avoidance, Labour argued that the Coalition’s record was ‘shameful’. Nonetheless, Leslie did welcome specific measures such as anti-avoidance measures on carried-forward losses and provisions on entrepreneurs’ relief. On clause 12, which deals with the abolition of the dispensation regime, Leslie voiced concern that opportunities for abuse might arise. For example, he remarked, a flat-rate expenses allowance could lead to some avoidance issues. Responding, Priti Patel argued that the measure would stop employers artificially lowering their national insurance contribution bills by replacing some of their employees’ salaries with expenses.

On clauses 13 and 14, which protect carers and ministers of religion from the effects of the abolition of the £8,500 exemption on ‘benefits in kind’, Leslie wanted to confirm that due diligence had been done to ensure that other categories of low income workers would not be poorly affected. On intermediaries and gift aid, dealt with by clause 20, Leslie, whilst welcoming online donations, sought information on how the Government would be able to confirm how they will prevent rogue intermediaries from seeking to profit from the gift aid market. (Patel replied that more details would be set out in regulations.) Leslie also questioned whether changes outlined in clauses 26 and 27 undermined the original anti-avoidance intentions of the late interest rule, and whether the progress of BEPS would now make these redundant. On clause 28’s R&D relief restrictions, Leslie asked whether the Government had considered any exemptions for companies selling items that they had not intended to sell – for cash-flow reasons, for example.

Leslie spoke favourably on the Diverted Profits Tax. However, both he and Ian Swales (Liberal Democrat), a certified accountant, were critical that the provision had been developed with ‘haste and laxity’. He said that the first his party had seen of the new iteration of the provisions was when the Bill was published the previous day. He posed a series of questions on the expected impact on BEPS, any challenges expected on the basis of EU law, the apparently low yield shown in the Red Book, and how effective the proposed enhanced civil penalties for offshore tax evasion would be. Still on multinationals he welcomed country-by-country reporting and common reporting standards.

Leslie welcomed the new flood prevention relief as well as reliefs for the creative industries but sought reassurance that they would not be open to abuse. Responding, Priti Patel said that the structure of the current relief was completely different from that introduced under the previous government’s scheme, which was “prone to abuse” remarking that there “are no issues of avoidance in this case”.

Among other speakers Conservative Nigel Mills, a chartered accountant, suggested that the GAAR could allow the Government to “do away with individual anti-avoidance rules”. David Gauke replied that a future government would not want to risk ‘opening up new loopholes’ because of uncertainty on how the GAAR applies. Chris Evans, a Labour MP from the south Wales valleys, attacked the Government for not offering any economic hope or optimism for the future for constituencies like his. Ian Swales (Lib Dem) focused on how the measures in the Bill benefited his constituency in the north east. Geraint Davies (Lab) attacked the “massively political Budget” and ‘clobbering’ of poor people.

In his final speech as an MP before retiring, Finance Bill and Treasury Committee veteran Andy Love (Labour) attacked the Bill for adding to tax complexity and challenged the Government’s chances of meeting their targets for saving money from anti-avoidance and evasion measures. (Responding, Priti Patel maintained the Government’s targets were realistic.) Love also asked whether the bank levy was likely to be permanent, to which David Gauke suggested it would, saying it was “not just for the short term, but [would] need to be sustainable”.

Debate on the Bill at committee stage is contained in a separate blog entry

George Crozier, CIOT Head of External Relations
James Knell, CIOT External Relations Officer

Tuesday 7 April 2015

Media and Politics
 

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