Category Archives: 2017 Budget

2017 Budget, Posts

The Problem with Capital Taxes

November 6, 2017 Jeremy Mindell

There has been considerable attention on the wealth gap within the UK. This has particularly focussed on the dividing line between home owners and non-home owners, the old and the young, those who have accumulated assets and those who have not.

This has been exacerbated by the period of extremely low-interest rates which has led to asset prices rising. The winners have been those who own properties, shares and other assets. The losers have been those who have very few assets, generally the young.

Some advisers have suggested imposing greater capital taxes in order to reduce the intergenerational divide. However, a quick glance at the national accounts would show that this does not work very effectively. In 2016/17 Inheritance Tax brought in about £5bn. Compare this with the in excess of £300bn brought in by Income Tax and National Insurance and you can see that Capital Taxes do not make a material contribution to funding our public services.

The reasons for this are not hard to find, when people receive income it is relatively easy to tax the flow of monies. By contrast, capital is more difficult to tax because it may be in the form of assets which are not easy to convert into cash.

Imposing taxes on people who do not have the means to settle them unless provoked into drastic action such as selling their house is not popular. As Theresa May found out, postponing charges until people die is not popular either.

Around the world, Inheritance Taxes have not been effective in collecting substantial income, nor have wealth taxes. The main purpose of Capital Gains Tax appears to be to protect income tax revenues.

There may have been a need to try and reduce the intergenerational gap and to seek new sources of revenue for public servicing but capital taxes are probably not the way to do it.

Primondell is running a series of courses on Capital Taxes including the new residential nil rate band.

2017 Budget, Budget, Posts

Pre-Budget Thoughts

November 2, 2017 Jeremy Mindell

On the 22^nd November the first official Autumn Budget for over 20 years will take place. It is fair to say that there is greater uncertainty both politically and economically than for many years. With the Bank of England likely to raise interest rates this month and the Brexit negotiations progressing in an unforeseeable manner, it is more difficult than usual to predict how the Budget will turn out.

Inevitably in the run up to the budget there are significant demands being made for extra resources in terms of housing, security, defence and of course the NHS. Some of the savings which the Government has planned in terms of social security may get delayed if there are changes in the roll out of Universal Credit. Set against this, the public finances have been performing better than anticipated which would appear to give the Chancellor some room for easing those pressures whilst still achieving his Budget targets.

If the Chancellor needs to raise money there are some obvious targets. Pensions tax relief, slowing down the growth in personal allowances and the higher tax band threshold are amongst the options that are often discussed. We may also see a different tactic in raising the NIC yield from the self-employed, potentially the extension of employer’s NIC rather than raising class 4 NIC. However, with only a small majority in the House of Commons, and that dependent on the DUP, the political room for manoeuvre in terms of unpopular measures is very limited.

Therefore, tax raising measures may generally be technical ones buried in the legislation which do not raise political controversy. The Budget reality may only be revealed when the third Finance Bill of 2017 is published in December.

2017 Budget, Posts, Tax

Another crackdown on tax avoidance?

November 1, 2017 Jeremy Mindell

At Wednesday’s 1st November 2017s, Prime Minister’s questions, Jeremy Corbyn devoted all 6 questions to the issue of tax avoidance, in particular a scheme allegedly involving private jets in the Isle of Man in order to avoid VAT. Although the opposition does not make the law it undoubtedly influences what is on the political agenda.

The motivation was quite clear when you looked at how the questions were framed. The opposition believes that the tax gap is anywhere between HMRC’s figure of £34bn and the estimates of the Tax Justice Network of somewhere north of £119bn. The narrative was that if the Government was more successful at collecting taxes then there would be extra money for public spending.

The Government defended itself by pointing out the richest 1% were paying 28% of all (income) taxes and that they had collected £156bn in additional taxes since 2010.

What is clear however is that there are no votes in being “soft” on tax avoidance and that as and when more draconian measures are unveiled and greater numbers of tax inspectors are recruited to deploy them, that those measures will have an easy ride through Parliament.

We can therefore expect a further crackdown on tax avoidance in the next budget.

Primondell is running a series of seminars on tax planning, professional conduct with relation to taxation and how to assist clients in tax investigations.

2017 Budget, Posts, Tax

Transfer Pricing – HMRC Toughens its Stance

November 1, 2017 Jeremy Mindell

What are we to make of the FT’s frontpage headline on the 25^th October that “Tax lost to multinational shifting profits climbs to £5.8bn.” As you might expect, there is more behind the headline than meets the eye. The doubling of the estimated tax loss is an estimate; no more no less. Part of the rise is undoubtedly attributable to HMRC pursuing a more robust (aggressive) interpretation on what constitutes uncommercial Transfer Pricing or Diverted Profits.

The information was extracted from a freedom of information request. However the timing does look suspiciously convenient for HMRC. In the pre-budget period all departments are competing for resources and this type of headline will help in its case for greater resources to tackle tax avoidance.

The other fact which has become crystal clear is that the Diverted Profits Tax (DPT) is being used much more widely than first planned. Originally it was thought that this tax would only be used for egregious tax avoidance and not for normal company tax affairs. Indeed, DPT was dubbed the “Google tax” precisely because it was seen to be targeted at a small number of well-known companies. This is not the case with at least 70 live investigations and 14 companies having paid DPT with a tax take of £281 million on DPT alone, this is an area where we will see an ever greater concentration of resources by HMRC.

Primondell runs a Transfer Pricing course for companies and their advisors which encompasses the Diverted Profits Tax as well and looks at how companies can protect themselves from what can be extremely expensive investigations.

2017 Budget, Posts, Tax

The will of Parliament – how do we know what it is?

May 26, 2017 Jeremy Mindell

The general election campaign has yet again exposed the shaky grasp that our elected representatives have on the realities of our tax system.

Apart from the laughable figure work which indicated that our new policemen would be paid £8,000 per year from new taxes, the campaign has showed yet again that the economic effects of taxation are poorly understood in Parliament. Just like when a store raises prices, it will often see a drop in turnover, so when Government’s raises tax rates, taxation rates often drops off. The experience of Corporation Tax is that as the Corporation Tax rate has dropped so the Corporation Tax take has increased. In the tax year that just passed it leapt to £55 billion.

There were similar behavioural reactions to other changes in tax rates in the past. So the reduction of the top rate of tax to 45% did not lead to a material drop in tax receipts from the highest paid. The increase in the dividend tax rate lead to individuals paying themselves large dividends in 2015/16 before the new rates came in.
This was one of the reasons why the Government did better on its public borrowing target in this tax year when the dividend tax was paid than they will do in 2017/18 when it is predicted that the self-assessment yield will fall because less people paid themselves dividends after the tax rates went up.

If politicians have such a low understanding of the mechanics of tax, how are they equipped to make complex laws?

More urgently, as professionals can know be disciplined by their bodies which goes against the will of Parliament, there is a real issue because it may be very difficult to tell what that will is in the first place.

Primondell is running courses on the new regime for advisers including the professional code relating to taxation which now covers seven professional bodies.

Make sure that you do not end up on the wrong side of the line.

2017 Budget, Budget, Posts

Good Governance Meets Political Reality – Political Reality Wins

March 20, 2017 Jeremy Mindell

The centrepiece of the March budget was the national insurance changes. In a Spring statement where almost all the measures which take effect in the new tax year had been announced in one of the previous three statements, the most eye-catching element was the proposed increase in class 4 national insurance.

As policies go, this was well considered, the Institute for Fiscal Studies had recommended this change in its Green Budget and looking ahead; something which Governments are accused of not doing, it was dealing with an issue which is only going to grow with the rise in the number of self-employed.

If the tax base is allowed to erode, we will all end up paying somewhere. The policy has now been kicked into the short-grass to await the publication of Mathew Taylor’s report on current work patterns. One element to note is that the major differential is not between the amount the employee pays and the self-employed person but the absence of the 13.8% charge on the company or business engaging the self-employed person. Expect action to be taken on this sooner or later and in the interim there will undoubtedly be a greater focus on the status of focus providers as HMRC seek to push more people into the PAYE and Employed NIC system.

Primondell is happy to run courses on the changes to IR 35, including the new provisions for the public sector and a review of recent case law.

2017 Budget, Budget, Posts

IR 35 and Status Issues

March 17, 2017 Jeremy Mindell

The new rules on IR 35 will affect many companies who have contracts either directly or indirectly with the public sector. The recent HMRC’s list of public sector bodies ran to about 40 pages. This course looks at how the new regulations will work in practice and in particular will look at:

IR 35 calculations
Defining relevant engagements
New issues with the public sector
Interaction with CIS
How to treat IR 35 income in the accounts
Using the new employment status indicator

It will also include a review of recent cases such as Pimlico Plumbers, Uber and Deliveroo, that have been decided on status in the courts and lessons that you can learn from them.

Even with the U-turn in the Spring budget on National Insurance rises for the self-employed, the Government has made it clear that it views the growing number of self-employed and one person businesses as a threat to the tax base.

It is likely that this will result in further rules on status and further challenges on status. A recent case involving about five lorry drivers resulted in a tax charge of a quarter of a million pounds.

All tax practitioners need to be aware of the risks and opportunities in this area.

2017 Budget, Budget, Posts

Philip Hammond under pressure before his first and last Spring budget

March 6, 2017 Jeremy Mindell

The political position for the Spring budget is perhaps the most interesting and unpredictable for a number of years. Following the Conservative success in the Copeland by-election, the Government is in its strongest position that it has held for many years.

However, the narrowness of the majority in the House of Commons means that false steps could cause problems. Philip Hammond will remember the concessions forced upon George Osbourne on tax-credits.

However, if he is to make a significant impact in terms of reshaping the tax system and take some unpopular decisions, now would be the best time.

Unpopular decisions might include targeting the self-employed for higher NIC or even introducing additional charges to fund social care. Even meeting the revised and delayed surplus target will require an additional squeeze on public spending. This comes at a time when the non-ring fenced departments such as prisons, police and social care are feeling the pressure.

This Parliament has already seen about £17 billion of tax rises, expect some more to be announced in the budget although probably not publicised!

2017 Budget, Posts

Lies, Damn Lies and IHT Tax Policy

February 20, 2017 Jeremy Mindell

If I had a pound for every time an opposition politician said that the new IHT relief was benefiting the richest in society I could probably retire. The fact is that this new relief has been designed specifically not to benefit the very richest in society as there is a taper that means that estates over 2 million pounds see the benefit phased out.

Now £2million may sound like a lot of money but in terms of where London property prices are, this taper will not just affect billionaires. Indeed, the richest are paying more IHT because the nil-rate band has been frozen at £325,000 for the lifetime of this Parliament.

So why is the Government allowing the opposition to get away with this unfounded assertion? The reason is simple, they do not wish to publicise the fact that the new reliefs for main residences are considerably less generous than the original proposal of simply increasing the nil-rate band to £500,000 per person.

Yes, some estates with houses worth £1million might escape IHT but that assumes they have no contents in there which are actually worth some money on top. Also, the new relief adds to the joy of tax complications as being full of conditions likely to trap the unwary.

It is a classic case of smoke and mirrors, promising much but delivering a lot less and hardly deserves the attention it is receiving when you look at the tax relief that it is actually giving.

2017 Budget, Posts, Tax

The problem of tax reform

February 16, 2017 Jeremy Mindell

Two news stories currently running show the difficulty with tax reform or anything which shifts resources.

The first is the changes to School funding where the “losers” are protesting and the winners are keeping quiet.

The second is the business rates revaluation due to come in to force in April 2017. This is a supposedly tax neutral exercise with businesses principally in the North benefitting and losing in the South. Not only has the Government been criticised by the losers out of this system, notably pubs and shops in more prosperous areas, but the winners include internet companies who are already under fire for not paying enough business taxes at present.

Tax reform appears an easy way to lose support which is why politicians are naturally cautious about even sensible changes. So, if you ever wondered why your Council Tax is based on a valuation that is over 25 years old, today’s headline will provide a strong clue!