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After the conferences (2): Boon for basic rate taxpayers
4 November 2013

Income tax and the broader tax cutting agenda

This is the second 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. These are based on the extended version of an article by CIOT External Relations Manager George Crozier that appears in this month’s edition of Tax Adviser.

The Liberal Democrats, Labour and the Conservatives are likely to go into the next election promising to cut income tax bills further for basic rate income tax payers.

Raising the threshold

Lib Dem leader and Deputy Prime Minister Nick Clegg gave a strong indication at Liberal Democrat conference that increasing the income tax personal allowance to the level of the National Minimum Wage (currently around £12,300) would be one of his "red lines" in any coalition talks after the next election. The proposal was the headline in a Lib Dem tax paper adopted at the conference. In a TV interview Clegg went further. While he declined to reveal which policies he would ‘die in a ditch for’, he said: "I can give you a clue that tax fairness will of course be one of the signature tunes for the Liberal Democrats. We are committed as a party - and I am committed to this - to raising the allowance further so that everybody on the minimum wage pays no income tax." The achievement of raising the personal allowance to £10,000 was a fixture of all the big speeches of the week. Clegg, Alexander, Business Secretary Vince Cable and Party President Tim Farron all held it up as the party’s proudest achievement.

The Lib Dems have said that they would phase this change in in stages over the course of the next parliament. It would be paid for through the other tax changes the party proposes to make, such as introduction of a Mansion Tax, Capital Gains Tax and pension tax reform, and a range of measures designed to tackle tax avoidance. (These will be covered in later blog posts.)

While the Lib Dem move came as little surprise, more unexpected were post-conference reports suggesting that further increases in the personal allowance may be the Conservative tax priority at the election too. In the week following the conference the Financial Times quoted ‘one of the Conservatives’ most senior figures’ as saying: “We will have to see if the numbers add up nearer to the election, but of course we are very keen to do it” in relation to increasing the allowance to £12,500. A cabinet member went further, insisting the policy would be pushed through come 2015. He said it would carry well on the doorstep and enable the party to answer Labour’s populist interventions on energy bills and the 10p tax band. The Lib Dems, seeing the prospect of their flagship policy becoming somewhat less of a USP, unsurprisingly reacted robustly, with Treasury minister Danny Alexander saying: ““The other parties may try to imitate our policy. But if you’re after the real thing, you need the Lib Dems in government.”

Tax cuts: stimulus or reward?

These rumours follow evidence that, as the economy slowly recovers, pressure on the Conservative leadership for bigger tax cuts, both from pressure groups such as the Taxpayers’ Alliance (TPA) and the IoD and from some Conservative MPs, is growing. The TPA’s radical ‘cut and simplify’ plan, the 2020 Tax Commission report, was prominently advocated on the fringe (admittedly mostly by those who helped write it). John Redwood MP, who is chairing the Conservative Economic Affairs Committee, and will produce a report for George Osborne next year as part of the party’s manifesto process, argued strongly for much lower taxes in a lecture. However, despite David Cameron’s vow that “we will keep on cutting the taxes of hardworking people”, it is thought any cuts in the overall tax burden are unlikely to come into effect before the end of the next Parliament. This is because Osborne has ruled out borrowing more to fund tax cuts. A key dividing line between the Chancellor and the tax cut cheerleaders appears to be that the Chancellor sees (or at least they perceive he sees) tax cuts mostly as a reward that can be delivered for good economic performance, while the TPA and fellow-travellers see them as the key to achieving growth in the first place. This is a slightly simplistic analysis, but it helps explain why so many on the Tory right are frustrated with the Government’s tax policies which they see as insufficiently ambitious.

National insurance – the levy left behind?

With all the focus on the income tax personal allowance it was easy to forget during the conference season that all those being ‘brought out of tax’ are still paying national insurance as the IT threshold speeds away from the NI entry level. With this in mind it was noteworthy that Lib Dem MP Lorely Burt, Danny Alexander’s PPS, said during the party’s tax debate that once a Lib Dem government had got to the minimum wage level on the income tax personal allowance they would start reducing NI contributions. Given the ambitiousness of the first of these that may well envisage a timetable beyond the next Parliament.

10p for your thoughts

Labour are also proposing income tax cuts. Ed Balls announced at the conference that a 10p starting rate (funded by a mansion tax) will be in Labour’s manifesto in 2015. While the policy was announced in February this was the first time it was stated that it would be in the manifesto. Balls stated that the 10p rate would be “a tax cut for 25 million hard-working people on middle and lower incomes”, a clear indication that higher-rate taxpayers would not benefit from the proposal as Labour would reduce the point at which the 40p rate starts to be applied.

A transferrable allowance and marriage – go together like…?

Restricting the benefits of tax cuts to basic rate taxpayers seems to be the order of the day. The Coalition’s increases in the personal allowance have so far mostly benefited only basic rate taxpayers as well. The Conservative proposal for a transferable tax allowance – announced at the start of the conference – will only benefit couples where neither pays higher rate tax, as well as the lower or non-earner not using their full PA.

The allowance will initially be worth up to £200 a year for each couple. It will be available to same sex civil partners as well as married couples. The tax break will be applied for online (NB. This raises some possible worrying digital exclusion issues). It comes in for the 2015-16 tax year but will only be claimable after the year has ended.

The Lib Dems passed a motion critical of the policy at their conference. The speaker proposing it argued that it would be prejudicial against children who grow up in single parent families. The party’s MPs will abstain on it (this is set out in the Coalition Agreement signed back in 2010) but it will still go through.

Not all Conservatives are enthusiastic about the tax break either. It is very much associated with the David Cameron traditional wing of the party (‘Country Life Conservatives’ as they have been dubbed) rather than the more economically liberal George Osborne wing (‘The Economist Conservatives’). London Mayor Boris Johnson has been the most prominent critic, albeit using fairly guarded language in public. "It’s not something I would necessarily put at the top of my list, but what’s impressive is that it’s something that the Prime Minister promised in the 2010 manifesto and has delivered,” he told BBC News. The IFS also have various problems with the policy, warning that it could deter people from accepting pay rises in some circumstances because they stand to lose the allowance if they move into the higher tax bracket. The IFS points out this will grow as a problem if the allowance is made larger. At a fringe meeting the editor of City AM, Allister Heath, criticised the high marginal rate brought in by the transferable allowance and got a round of applause for this.

Higher rate – the new normal?

Speaking at CIOT/IFS fringe meetings during the conferences, the IFS’s Paul Johnson predicted that if the current trend of increasing the income tax personal allowance without commensurate increases in the higher rate threshold continued, most people could end up in the higher rate. Johnson even suggested that in a decade or two we could have moved to basic rate of tax of 40p ‘because we’ve been moving in that direction for the last 20 years without anyone telling us’.

The prospects of a return to a 50p additional rate of income tax dimmed during the conference season. This will be covered in more detail in the next post in this series, which deals with taxes on the wealthy and high earners.

Dividing lines

In greatly simplified form these are the main political dividing lines emerging in this area:

Keep raising the personal allowance (Lib Dems and Conservatives) versus a 10p starting rate (Labour)

Tax cuts only when growth renders them affordable (Conservative leadership) versus tax cuts to deliver growth (the low tax lobby on the political right)

Support marriage through the tax system (Conservatives) versus not doing so (Lib Dems and Labour)

George Crozier
CIOT External Relations Manager
Monday 4 November 2013

Media and Politics
 
After the conferences (1): The right kind of recovery?
1 November 2013

Public finances, austerity and the recovery

This is the first 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. These are based on the extended version of an article by CIOT External Relations Manager George Crozier that appears in this month’s edition of Tax Adviser. 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 battle lines are being drawn.

Unlike in previous Parliaments, politicians have the luxury of knowing when the next general election will take place – barring government collapse in the meantime it will be on May 7th 2015. Yet while that may be more than 550 days away, the ground on which the election will be fought is being staked out now, as the parties battle to set the context, frame the questions and lay down the markers on which voters will be invited to decide. As ever, tax and the public finances in general are at the centre of this.

The public finances: Desperately seeking surplus

At the Conservative conference in Manchester Chancellor George Osborne announced two new principles for the public finances under a Conservative Government. Firstly, he would aim to achieve an absolute surplus by the end of the next Parliament, provided the recovery is sustained. Second, he would ensure that capital spending grows at least in line with GDP. He said both of these principles could be delivered without raising taxes: “while no responsible Chancellor ever rules out tax changes, I think it can be done by reducing spending and capping welfare, not by raising taxes. That’s my plan.” Only if the Government properly control public expenditure will they “be able to keep lowering taxes for hardworking people in a way that lasts”. The verdict of most commentators was that the Chancellor’s speech was the most important one made during the conference. One described it as “an economic prospectus of striking political clarity”.

While there is no reason to think the Chancellor does not believe in the economic strategy he has set out in its own terms it does also offer tactical opportunities. By promising to run a budget surplus by 2020 he sets a challenge for Shadow Chancellor Ed Balls to meet. If Balls refuses to match this commitment the Chancellor will no doubt say that is proof of Labour irresponsibility, a message he is keen to communicate and contrast with Conservative responsibility.

At Liberal Democrat conference in Glasgow party leader Nick Clegg opened up a dividing line with the Conservatives by saying tax rises will be needed after the election to bring the deficit down. While George Osborne has said that the final two years of deficit cuts up to 2017-18 can be secured by spending cuts alone (or possibly by higher than forecast revenues) Clegg said he was "completely against" this. In a Q&A session he said: "We will go into the next election in favour of more fair taxes and not follow George Osborne's plan, since it makes further savings only out of spending cuts. Of course we are not going to do that. That's not Liberal Democrat. It won't happen under my watch." Danny Alexander had earlier warned that the next Parliament would be “another five years shaped by the necessity of fiscal restraint”. At the CIOT/IFS fringe meeting Lib Dem peer and Government Treasury Spokesman in the House of Lords, Dick Newby, said that, to the extent that further fiscal consolidation was needed in the next Parliament, he expected it to be broadly 20% tax increases and 80% cuts in expenditure.

Labour’s macroeconomic strategy is less clear. In Brighton the party pledged to get the deficit down in a fairer way than the Coalition, “to balance the current budget and get the national debt on a downward path”. They have promised ‘iron discipline on spending’ with a zero-based review of every pound spent in Government to identify savings “so that we can switch resources to Labour’s priorities.” But they have not said how fast they would reduce the deficit nor how much of the work would be done by tax rises as against spending cuts. Shadow Chancellor Ed Balls has committed that the Coalition Government’s day to day spending totals for 2015/16 will be the starting point, with any changes to current spending plans for that year fully funded and set out in advance in Labour’s manifesto. There will be no more borrowing for day to day spending in 2015-16 but Balls has left open borrowing for capital investment. Some commentators anticipate a Shadow Budget in March 2015.

A footnote on this topic: At the CIOT/IFS fringe meeting in Brighton, Paul Johnson of the IFS said that, while the past was not necessarily a guide to the future, on average over the last 30 years each Budget has raised taxes by about £1 billion. Each post-election Budget has raised taxes by an average of about £7 billion. Most of these increases had not been trailed during the election campaign.

The right kind of recovery?

What a difference a year makes! The job of balancing the budget may still have a long way to go but the debate about the deficit has already turned into a critique of the recovery. Are we getting the right kind of growth? How shall we spend the proceeds of growth? And most heatedly of all, are ordinary people feeling better off, or is it just a recovery for the few?

The change in focus was most obvious at Labour conference. In Manchester 12 months ago Labour was advocating a temporary cut in VAT as the centrepiece of an economic stimulus package to ‘kick start the economy’. A year on the VAT cut is dropped (in cash terms, the biggest policy change of the week, cutting £13 billion from the party’s spending plans) and the focus has changed entirely. As recovery has begun the balance has moved from immediate stimulus to a combination of capital investment and measures designed to help households who are suffering from wages that are not keeping up with the cost of living (see below). Labour’s main economic message is no longer that the Government are choking off the recovery, rather that whatever the GDP figures might say, ordinary families are not getting better off. If anyone is getting better off, it is only the wealthy few, is the message, or as Labour leader Ed Miliband succinctly put it: “They used to say a rising tide lifts all boats, now the rising tide just seems to lift the yachts.” The policies adopted at this conference were designed to send the message that Labour is the friend of ordinary hardworking families, the Conservatives only of the privileged few.

The need to generate sustainable growth was once again a prominent theme at all three party conferences this year, and the subject of numerous fringe meetings. At the Lib Dems, Nick Clegg and Vince Cable both used their conference speeches to take credit for the Government’s initiatives in this area, such as the £2,000 Employment Allowance (NI cut) and the Business Bank, which aims to mobilise private capital to support new banks, local banks and non bank finance. The Lib Dems’ big summer and autumn campaign – the ‘Million Jobs’ campaign – taps into this, highlighting how ‘Lib Dems in Government have helped businesses create over 1 million private sector jobs’ with measures such as the Employment Allowance and the Regional Growth Fund, and vowing to help create a million more.

The cost of living – or the fundamentals?

As mentioned above, Ed Miliband put the ‘cost of living crisis’ and Labour’s determination to help struggling households at the centre of his conference speech. The pledge of an immediate freeze to gas and electricity bills for two years for all Britain's homes and businesses was the policy announcement which got the most attention, but more help for childcare, support for an increase to the minimum wage, promotion of the ‘living wage’ and a commitment to a 10p starting rate of tax were also designed to support this message. Some dubbed it ‘consumer socialism’.

The Conservative response is to try to keep the debate on economic fundamentals. There are two strands to this. First, persuading people that, while a corner is being turned, “this battle to turn Britain around - it is not even close to being over [and the Conservatives should be allowed] to finish what we have started” (George Osborne). And second, to persuade people that the key to improving living standards is not ‘gimmicks’ like the energy proposal, but underlying sound economic policy which will keep interest rates low and encourage business to create jobs: “People know the difference between a quick fix con and a credible economic argument… The bedrock of any sustained recovery and improved living standards is economic stability” (Osborne again). This battle to frame the economic debate is heavily influenced by polling which shows that while voters believe Labour are more likely to tackle the cost of living crisis, they think the Tories are more likely to deliver economic growth. These messages (‘serious economic plan’, ‘economic responsibility’, ‘let us finish the job’) will continue to be pushed by the Conservatives between now and the election.

The Conservatives recognise the need to respond directly on the cost of living though. Real terms cuts in council tax and fuel duty, and the increase in the income tax personal allowance were emphasised here as they were by the Lib Dems in Glasgow. ‘Help to Buy’ is a key part of the Conservative message in this area, but the party is also planning to announce a series of measures such as cuts to the price of rail commuters’ season tickets and a curb on bank fees and water bills. A senior government source told The Times that the measures would be introduced in the run-up to the Autumn Statement.

The Lib Dems’ main contribution to the cost of living agenda is obviously the increase in the income tax personal allowance. But a number of other ideas are floating around too. Vince Cable revealed that he has asked the Low Pay Commission “to advise how we might achieve a higher minimum wage without damaging employment”. Cable told The Guardian that employers could be compensated for paying the higher wage with a cut in National Insurance, which "would be a far better option for tax cuts than the Tories' marriage tax allowance". Party President Tim Farron vowed: “It is time that we made the minimum wage a living wage.” The party is also increasingly claiming a share of the credit for the Government’s real terms cuts in fuel duty and council tax, as well as the pension ‘triple lock’ which did appear in the Lib Dem manifesto.

The cost of living was also at the centre of a policy paper called A Balanced Working Life, containing policies for low and middle income households. Among the proposals in the paper – which was passed – are support for a ‘living wage’, which central government would guarantee to pay, flexible working and an increased allocation of free childcare. The paper also proposes a review of Universal Credit two years after its introduction with a view to possibly increasing work incentives or introducing a disregard for families with disabled children and a disregard for second earners.

The central Lib Dem message is summed up by the party’s maxim that while Labour cannot be trusted with the economy the Conservatives on their own cannot be trusted to deliver fairness (hence the conference slogan: Stronger Economy. Fairer Society).

Dividing lines

On policy going forward there are three big dividing lines on public finances, austerity and the recovery. In simplified form they are:

Eliminating the deficit: Tax rises needed (Lib Dems and, probably, Labour*) versus no tax rises needed (Conservatives)

Cost of living (1): microeconomic measures (Labour) versus focus on the ‘economic fundamentals’ (Conservatives)

Cost of living (2): cutting bills (Labour) versus cutting taxes (Conservatives and Lib Dems)

* Labour have not yet said explicitly, but they have already announced a number of planned tax increases which they have said will appear in their manifesto.

George Crozier
CIOT External Relations Manager
Friday 1 November 2013

Media and Politics
 
Both sides of the story on Eurobonds
25 October 2013

The Independent newspaper is running a series of articles this week about the taxation of UK companies, mainly those owned from overseas and particularly those owned by private equity funds. The complaint seems to be that the UK companies are paying little UK corporation tax because most of their trading profits are offset by interest paid on loans put in place when the companies were acquired. In addition, the interest is paid out without withholding tax by using the ‘quoted Eurobond exemption’ using loan instruments quoted on the Channel Islands stock exchange.

There are two pieces of tax policy here to be debated and for everyone to take a view on what the law should be.

The first is the wide question of whether interest on debt used to acquire a company should be available to set against the taxable profits of the target. This has been available for as long as I can remember (I can certainly remember it being the accepted rule for acquisitions 30 years ago). It has been thought about by successive governments (I have been part of the discussions on various occasions) and has been left as the law. It is fair to say that we have a more generous tax regime than several other countries. It is a topic up for debate. Just because past governments have decided that this is good policy does not mean that we should not change now. Is it fair to give a tax deduction for interest on an amount borrowed for capital investment, and, if not, how much will it inhibit investment in the UK. The current work being done by the OECD on the Base Erosion and Profit Shifting (BEPS) project will probably lead to further thinking in this area.

The second question is the withholding tax on interest paid to entities outside the UK. The basic rule is that tax should be deducted from interest at 20pc and retained by the UK government. If the entity receiving the interest is located in most of the 120 or so countries where we have a full Double Tax Treaty (DTT) the requirement to withhold is taken away by the DTT. However, if there is no DTT with the country of the lender there is a 20pc deduction. There is often no DTT where the country is a tax haven. Private equity funds (especially those originating in the US) are often transparent for tax purposes (that is, income flows through, so as soon as it hits the fund it becomes taxable for the investor), so the investor will immediately pay tax on interest received in their own country. The fund is located in a tax haven because, otherwise, there might be a second charge to tax.

In these cases the fund often receives the interest free of withholding tax by structuring the debt as a quoted Eurobond (that is, a loan note issued by a company quoted on a recognised stock exchange). There is an exemption for withholding tax in these cases. This also has been around for many years, including the use of it in this way. Again this has been accepted by successive governments. Only last year, HMRC put out a public consultation paper to discuss whether this withholding tax exemption should be withdrawn. After debate the government decided to leave the exemption in place. Even if this exemption was withdrawn many of the investors in the private equity fund would still receive their share of the interest free of withholding tax because they are located in a DTT country. This may have been part of the reason for leaving the exemption in place.

Both of these areas of tax policy have been accepted by successive governments as being best for the UK and they are regularly reviewed. You may take the view that this policy is wrong in one or both cases. It is reasonable for individuals or newspapers to make the case for a change in the law. To the best of my knowledge it is not the current policy of any of the main parties to make any such change.

It does seem a bit unreasonable to run a series of articles on this area of tax, on the first day criticising several companies for taking advantage of these tax exemptions and then on the second day revealing that the policy was consulted on publicly only last year and confirmed to be continuing government policy. But that's a story for you.

Patrick Stevens
CIOT Acting Tax Policy Director
Friday 25 October 2013

Media and Politics
 
Standing room only at third party conference tax debate
4 October 2013

Click here to read a short report on the fringes at Lib Dem and Labour conferences

The third and final of the party conference tax debates organised by the CIOT and the Institute for Fiscal Studies was at Conservative Party conference in Manchester on Tuesday October 1st. The debate was introduced and chaired by the Financial Times’ Economic Editor, Chris Giles. The audience was the highest of the three events, with around 90 people present.

Once again, Paul Johnson of the IFS spoke first. Paul explained that the IFS had been founded 45 years ago by a group of tax professionals fed up with a government reform of capital gains tax. He spoke forcefully about the need for government to have a strategy on tax. He addressed directly the Conservative Party’s announcement that there would be a married couples’ transferable allowance, saying the amount involved was very small. He wondered where it would go in the future. The proposal is that all benefit will be lost the moment one partner becomes a higher rate taxpayer. Is this sustainable in the long run if the allowance is increased, he wondered.

CIOT President Stephen Coleclough began by explaining why the CIOT had joined with the IFS to hold the party conference events. The Institute was trying to help people understand what tax means and to raise the level of understanding, he said. After exploring some of the causes of the complexity in the UK tax system he moved on to address the question of ‘who pays the taxes in Britain?’ to which the answer was, broadly, ‘all of us’. That was, he said, even true of corporation tax. Asking ‘who’s got a pension?’ Stephen pointed out that most of most people’s pensions was invested in big banks, energy companies and other large firms. ‘When somebody wants to take tax from one of those they’re taking tax from you,’ he explained. He also addressed the effect of the internet on corporate taxation, pointing out that lots of selling can now be done without physical presence. The system needs updating to deal with people who can trade with Britain while not being in Britain, he explained. He also addressed the need for greater public education in taxation (which would help improve compliance), and the need to support and help HMRC. What would help HMRC a lot, he said, would be if there were no changes to tax rules for two years to let them get the systems organised.

Exchequer Secretary David Gauke began by noting that the title of the discussion was ‘What next in tax – 2015 and beyond’ but that, as a minister, it would be extremely foolish for him to try to answer that question. ‘If I do’, he added, ‘it will be by accident.’ He did set out how the Government’s priorities – reducing the deficit, generating growth and helping hardworking people (in that order) – had led to the tax changes which had been made. On deficit reduction, he said, ‘Tax is a good lever to pull immediately. If you want to reduce your deficit by 12bn pounds straight away in order to reassure the markets the simplest thing you can do is increase VAT.’ Changes to corporation tax – cutting the main rate, a new controlled foreign companies regime, the patent box – had been motivated by the need to boost jobs and investment. The ‘brave’ decision to cut the 50p top income tax rate had been similarly motivated. The increase in personal allowance and freezing of fuel duty were designed to help hardworking people. The minister also addressed defended HMRC against criticism and explained the challenges governments face when they try to make simplifications and other tax changes. Namely that ‘the winners go ‘thanks very much’ and the losers make a racket.’

Questions addressed a wide range of topics, from green taxation to the SDLT slab system to whether aggressive tax avoidance will ever be stamped out. On the latter the minister thought ‘probably not’, but he thought government could make a lot of progress. He cited stamp duty, where he said the reputation was that it was widely avoided at top end. There was now, he added, ‘every indication that has been dealt with.’

A fuller report on the three events will appear in Tax Adviser.

George Crozier
CIOT External Relations Manager
Friday 4 October 2013

Media and Politics
 
First two party conference tax debates a great success
30 September 2013

Two down, one to go! The fringe meetings on tax organised by the CIOT and the Institute for Fiscal Studies at the autumn political party conferences have got off to a great start, with debates attended by around 60 people at Liberal Democrat and Labour conferences. The Conservative conference event takes place tomorrow in Manchester (and it’s not too late to attend – for further details see here).

At Lib Dem conference in Glasgow the debate was chaired by Financial Times political editor George Parker after the original chair, Faisal Islam of Channel 4 News, was diverted away from Glasgow to cover breaking news elsewhere. Paul Johnson of the IFS opened proceedings by setting out the context in which the debate on tax was taking place. That is, the need for government to either spend less on pensions and health; to spend less on other, already squeezed, areas; or to increase taxes. CIOT Deputy President Anne Fairpo spoke second, and addressed the causes of the complexity of the tax system. She concluded by identifying some of the principles which the system should ideally follow, including simplicity (so far as possible), certainty, international co-operation, an effective policy-making process, a balance of powers and adherence to the rule of law.

The political speaker in Glasgow was Lib Dem peer and Government Treasury Spokesman in the House of Lords, Dick Newby. Dick touched on his experiences as an employee of HM Customs and Excise, before he had gone into politics. He also addressed the difficulty of changing the tax system, even in small ways, citing the recent VAT boundary changes (the pasty tax!), the obstacles to a council tax revaluation and the huge fuss over the 50p tax rate even though it raised relatively little money.

In Brighton the event took place outside the ‘secure zone’ which meant a number of local CIOT members were able to attend and join in the discussion. Paul Lewis of Radio 4’s Money Box chaired the debate here and once again the IFS’s Paul Johnson was first to speak, again setting the scene. He noted that despite the austere times the Government had made some big choices on tax, making cuts to corporation tax, income tax and fuel duty which totalled around £20 billion. Patrick Stevens was the CIOT speaker in Brighton, making a speech which focused heavily on the issues around compliance and the tax gap, including what lies behind the headlines on corporate tax avoidance.

Shadow Exchequer Secretary Catherine McKinnell was the Labour panellist and set out the various initiatives and policies the party was advocating, including increasing the bank levy, lower tax relief for pension contributions for people earning over £150,000 p.a. and scrapping the Government’s ‘shares for rights’ initiative. She also addressed the hot topic of corporate avoidance, criticising some companies for ‘going to extraordinary lengths to avoid paying their taxes’ but also noting that some companies had been pilloried for not paying CT when the reason for this was massive investments they were making. She also expressed doubt as to whether HMRC could continue to face serial reductions in head count while still delivering.

There was plenty of time for questions at both events, on topics ranging from the difficulty for politicians of engaging in open debate on tax issues, to land value taxation.

A report will be posted on tomorrow’s Conservative conference debate in due course, and a fuller report on all three events will appear in Tax Adviser.

George Crozier
CIOT External Relations Manager
Monday 30 September 2013

Media and Politics
 
Institute and IFS take tax debate to party conferences – and you are invited
4 September 2013

Key policy-makers and high profile journalists will be joining the CIOT and the Institute for Fiscal Studies at the main party conferences this autumn for a series of debates on the future of the tax system.

Exchequer Secretary David Gauke will be on the panel for the Conservative conference event in Manchester, his opposition number Catherine McKinnell will speak at the Labour event in Brighton and another minister, Dick Newby, who speaks for the Government on Treasury issues in the House of Lords, will be taking part in the Lib Dem event in Glasgow.

The events will be chaired by Paul Lewis of Radio 4 MoneyBox fame (Brighton), FT Economics Editor Chris Giles (Manchester) and Channel 4 News Economics Editor Faisal Islam (Glasgow). The IFS’s Paul Johnson and senior CIOT representatives will complete the panels.

This is the first time the CIOT or the IFS have held events of this kind. We are aiming to explore how we can build an efficient, sustainable tax system and raise the resources needed to fund public services in the 21st century. We intend to help develop better informed tax policy and greater understanding of the issues and constraints facing tax policy makers.

As well as politicians, party members and media we are inviting CIOT members, their friends and colleagues to attend these debates. Indeed anyone with an interest in debating tax policy is welcome to attend. Attendance is free of charge and refreshments (hot canapés for evening events, finger buffet for lunch event) will be served. You do not need to register your attendance though you will require a party conference pass (not cheap, I’m afraid) for the Glasgow event as it takes place in the conference secure zone.

Further information including timings and venues is available at: http://bit.ly/18zT261

Hopefully see you there!

George Crozier
CIOT External Relations Manager
Tuesday 3 September 2013

Media and Politics
 
Vodafone ‘tax loophole’ nothing of the kind
3 September 2013

Vodafone announced the sale of its stake in Verizon Wireless yesterday and that it will not pay any UK tax on its profit. The situation is slightly confused by some of the stake being held through sub holding companies but the substance is that a UK company is making a substantial profit on the sale of its 45pc holding in the overseas joint venture.

The Substantial Shareholding Exemption was introduced in 2003 by the last Labour government and the current government has not seen fit to repeal it. This provision was specifically aimed at exempting this sort of profit (that is, profit made by a company from selling shares in another trading company) from tax. It was part of a whole string of measures introduced by the last and the current government aimed at persuading multinational companies to base themselves in the UK.

Some commentators and media have said that Vodafone has used a loophole to avoid paying tax on their profit. Many people use "loophole" to describe a situation where tax is avoided in a way not intended by the government when the law was introduced. It is difficult to understand how that can apply here. This is a deliberate piece of policy that has worked well for 10 years. It’s open to Government to change it, but while it remains it is unreasonable to criticise a company for taking advantage of it.

Patrick Stevens
Chartered Institute of Taxation
Tuesday 3 September 2013

Technical
 
Professions Week set for October
5 August 2013

A group of prominent professional bodies, including the CIOT, have announced the UK’s inaugural Professions Week will run from 21 – 27 October 2013.

The aim of the week is to increase interest and awareness in the professions among 14 – 19 year olds. It will support teachers and careers advisors, providing them with relevant materials to help young people make informed decisions with regards to the professions.

The week will be officially launched with a high-profile reception in the House of Commons on 21 October. The aim is for this to be followed by a series of regional and local activities organised by the professional bodies involving schools, colleges and other institutions.

The CIOT’s Head of Business Development, Irene Redman, who is leading the Institute’s involvement in Professions Week explained that while the initiative is aimed at all young people a particular effort is being made to reach those from non-privileged backgrounds:

“The UK is a world leader in professions such as accountancy, tax advice and other business services.

“The professions already provide one of the most effective routes to advancement for people not from privileged or wealthy backgrounds. The new higher apprenticeship in professional services, which the CIOT and our sister body the Association of Taxation Technicians are key partners in, is just the latest initiative to ensure the professions are open to all.

“With Professions Week we are aiming to make sure that the message about the opportunities the professions offer to those with ability, who are willing to work hard, gets to every part of the country, including groups traditionally under-represented in the professions. A job in tax or one of the other professions may not be for everyone, but we want everyone to at least have considered it. That is why we are putting effort into expanding outreach to schools, finding new places to publicise the profession and developing new routes to entry.

“Professions Week is a key part of this.”

Any CIOT or ATT member interested in promoting the professions in their local area around Professions Week should contact Irfan Qureshi at: iqureshi@att.org.uk.

Note

The founding professional bodies involved in creating the Professions Week are:
• Association of Accounting Technicians
• Association of Chartered Certified Accountants
• Association of Taxation Technicians
• Chartered Institute for Securities & Investments
• Chartered Institute of Taxation
• Chartered Institute of Management Accountants
• Chartered Institute of Patent Attorneys
• Chartered Institute of Payroll Professionals
• Chartered Institute of Personnel and Development
• Chartered Management Institute
• Institute of Chartered Accountants England & Wales
• Institute of Leadership and Management
• Institute for Learning
• International Association of Book-keepers

For further information please visit: www.professionsweek.org

George Crozier
CIOT External Relations Manager
Monday 5 August 2013

Media and Politics
 
Lords moot tax profession regulation
2 August 2013

On Wednesday the House of Lords Economic Affairs Committee published its report: Tackling corporate tax avoidance in a global economy: is a new approach needed?

The focus of media coverage has been the call on the Treasury to "urgently review" the UK's corporate tax regime, warning that the OECD programme of reforms may not be enough to prevent multinational firms avoiding billions of pounds in tax. The Committee has said it is unclear whether the reforms will go far enough. Coverage includes –
Get tough and make global companies pay their dues, peers urge the taxman (The Times, behind a paywall)
Corporate tax ‘not working’, and needs reform, say peers (FT, behind a partial paywall)
Lords say Amazon-style tax avoidance schemes must end (Guardian)

Of particular interest to tax advisers is likely to be the recommendation that government consider regulation of the profession. The key paragraph is:

76. We consider that a new system of regulation of tax advisers could be valuable in helping ensure that advice on tax matters is in accord with a strengthened code of conduct. We recommend that the Treasury and the professional bodies should urgently examine how such a system of regulation might be established and function, bearing in mind the many practical issues involved, including the form of a regulatory body and suitable sanctions for falling short of the standards required, which might include loss of the right to act as a tax adviser.

This recommendation will no doubt be reflected upon by the Institute in due course, perhaps in the context of the HMRC consultation paper on Tax Agent Strategy expected later this month.

The full list of the committee’s main conclusions and recommendations is:

We recommend that Parliament should establish a joint committee—made up of MPs and Peers—to exercise greater parliamentary oversight of HMRC and the settlements it reaches with multinationals. Like the Intelligence and Security Committee, the new Committee would examine confidential evidence in private.

We recommend that the Treasury should urgently review the UK’s corporate taxation regime and report back within a year with proposed changes to be made at home and pursued internationally, especially through the OECD.

On the international front, we recognise that the Treasury are already working for early implementation of the OECD’s Action Plan to tackle Base Erosion and Profit Shifting (BEPS). We recommend that the review should also consider other approaches to the taxation of multinational companies’ profits, such as a destination-based cash flow tax.

In the UK, we recommend that the review should re-examine some fundamentals of the UK’s corporation tax regime, including differential tax treatment of debt and equity and the scope for introduction of an allowance for corporate equity.

We recognise that the Treasury will already be working on policy initiatives against avoidance already announced by the Government, such as naming and shaming promoters of tax avoidance schemes, and self-certification of compliance with tax obligations by companies bidding for public contracts. We recommend that the review should also consider a series of anti-avoidance measures for the shorter term, such as:
(i) regulation of tax advisers;
(ii) measures to penalise users of failed tax avoidance schemes;
(iii) a requirement on companies with large operations in the UK to publish a proforma summary of their corporation tax returns, so as to bring about greater transparency.

We also recommend that HMRC should be better resourced to deal effectively with the tax affairs of complex and well-resourced multinationals.

Anyone interested in reading the full report can access it using these links: HTML / PDF.

George Crozier
CIOT External Relations Manager
Friday 2 August 2013

Media and Politics
 
Review of EU-UK balance of tax responsibilities
25 July 2013

The Government has published a review of the "balance of competencies" between the EU and the UK in the area of tax.

This was one of six reports on different policy areas published on Tuesday of this week. Media articles summarised the reports as having found the relationship is "broadly appropriate", which unsurprisingly riled those of a eurosceptic bent. See:

Having read the tax report through, there is not a lot to get excited about in it. The report (and, I assume, the five in other policy areas too) really just summarises the views of respondents to the review and a wider literature review. The CIOT was one of 16 organisations (plus one individual) to make a submission to the tax review. Most are professional bodies (eg ICAEW, British Bankers Association, Scotch Whisky Association) with a smattering of private companies (eg PWC) and governmental bodies (eg Northern Ireland Executive).

My brief summary of the executive summary is as follows (noting that this is a summary of respondents’ views rather than of government opinion):

  • Decisions on taxation are primarily for Member States, especially on direct taxation and even more especially on personal taxation
  • However EU-level action is appropriate where there is a clear internal market justification (to address obstacles to cross-border business, or administrative co-operation between Member States) and the principles of subsidiarity and proportionality are met
  • Tax policy at the international level preferable where necessary to facilitate global business (eg OECD Model Tax Convention to help address double taxation)
  • Support for indirect taxation measures which have facilitated, or addressed obstacles to, cross-border business activity (eg VAT regime)
  • Support for limited direct tax measures which have provided certainty of the tax treatment in specific cross-border situations (eg Mergers Directive)
  • Broad contentment with current balance of competence on taxation - no respondents identified any major gaps in the existing legislation
  • Unanimity voting for taxation should be retained (though downsides of this were acknowledged)
  • On the policy-making process, support for greater consultation by the Commission, more detailed analysis of the effects of EU tax policy on Member States and greater accountability for impact assessments
  • Concern over
    • risks from inclusion of tax or fiscal measures in non-tax proposals which are not assessed by tax experts and undermine unanimity,
    • use of enhanced co-operation on tax measures which could have extra-territorial effects, and
    • impact of rulings by CJEU on domestic tax measures and Member State competence
  • Appropriateness and utility of EU-level financial transactions tax questioned

The summarised summarised summary? No change please (or at least nothing radical)

You can read the full report here.

George Crozier
CIOT External Relations Manager
Thursday 25 July 2013

Media and Politics
 

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