February 2007 Archives
The Federation of Tour Operators (FTO) is suing the Government over the air passenger duty. And no, they are not restricting their objection to the latest controversial increase by Uncle Gordon. They are challenging the entire basis for air passenger duty. 
Their argument is that European Community law does not allow the Government to levy air passenger duty in the form in which it is levied in this country. The law in question is the 1944 Chicago Convention on International Civil Aviation, which has been incorporated into European Community law. That law allows for States to levy charges for services related to air travel. The FTO contend that UK law imposes air passenger duty merely for transit over, or in and out of the UK, and not for any services. They submit therefore that it is illegal.
They also challenge the levy on human rights grounds, claiming that it deprives them of legitimate income.
The Fisherman is not so sure that the second argument will succeed, but is interested in what the courts will make of the first argument. If it succeeds, the implication would be that air passenger duty should never have been charged in the first place. Air passenger duty was introduced by the Finance Act 1994, almost 17 years ago. That is a great amount of tax plus interest Uncle Gordon would have to refund if the courts rule in the FTO's favour. I would love to be proved wrong, but something tells me the courts may not see things the FTO's way.
The taxman has been running radio adverts urging employees to report any suspected tax-dodging activities by their bosses. So if an employee suspects that his boss is, for example, not remitting the right amount of tax deducted from his salary, he should ring the Tax Evasion Hotline and tell them what he knows.
The Federation of Small Businesses is not amused, though. Neither is the Fisherman. While not advocating tax-dodging of any kind, we have quite enough trouble with the taxman without having to listen to him bombard the airwaves with such appeals. As we are already so highly taxed, it is a bit much for the taxman to rub our faces in the fact that we have no choice under the law but to continue to pay.
Not a great day to be a motorist in this country. The London congestion charge zone was today widened to twice the size of its original area, bringing thousands more motorists within its net.
Also, the proposed national road pricing scheme is still provoking fury across the country. Over a million people have signed an online petition against the plan, and not many are impressed by Tony Blair's plan to email all the petitioners to put the Government's case before them.
Still, one crumb of comfort. If you drive a company car, and your employer pays the congestion charge for you, you are not taxed on that benefit. The reason is that the tax you already pay for the car is taken to include any payments by your employer for the congestion charge.
An ICM poll conducted for the Sunday Telegraph reveals that 73 per cent of respondents believe that City bonuses are excessive.
Just last week, Northern Ireland Secretary, Peter Hain, was saying the same thing, even going so far as to suggest that City employees donate two-thirds of their bonuses to charity.
The Sunday Telegraph editorial notes the 73 per cent level of unhappiness amongst those surveyed in the poll, and hints darkly that City employees might like to become more generous with their high earnings before the Government acts to seize some of it through higher taxation.
Maybe, but would Uncle Gordon really dare to slap higher taxes on what Leftwing politicians call 'obscene' bonuses? The Fisherman thinks he wouldn't dare. There have already been hints from a few places that some businesses are being tempted to relocate their head offices from London to more tax-favourable capitals in Europe. A further tax on bonuses could just edge some of the more unhappy firms out the door.
Also, Uncle Gordon is a bit preoccupied right now with trying to become the Prime Minister. He would conclude (rightly) that such a move would cause panic in the business world.
On top of that, he began a few months ago to make overtures to the financial sector (see here, here and here). He knows that he cannot afford to alienate them. The Fisherman concludes that large bonuses are safe for now. However, no-one knows what will happen after Uncle Gordon has been in charge of the country for even two years. We will almost certainly return to this topic in due course.
The Prime Minister, Tony Blair, writing in the Daily Telegraph, tells us something we all already know: universities are cash-strapped, and they cannot be expected to rely on taxpayers' funds for everything. The tuition fees of £3,000 per student is nowhere near enough, so some other solution must be found to ensure that universities have enough money to carry out their essential work.
Blair would like more of us to donate money to our former universities, as is the practice in the United States. A good idea, and if we could be given worthy tax incentives, it just may catch on here.
At the moment, when we donate money to charity, we get relief under the 'gift aid' rules. The charity also gets something from the taxman. The way it works is you make a donation, and the taxman 'pretends' that your donation was 22 per cent bigger than it actually was. This is done by using the 'grossing up' formula. The basic rate is 22 per cent, so the 'grossing up formula' is 100/78 (because 100 - 78 = 22).
So if, for example, you donated £500 to your former university, the tax man would assume that you made a gift of £500 x 100/78 = £641. You send a cheque for the £500 to your old university, and the taxman sends a cheque for the balance (in this example, £641 - £500 = £141) to the university.
In order for the university to get its hands on the taxman's 'contribution', the donor must give a 'gift aid declaration' stating that for the tax year in which the donation is made, he has paid, or will pay, at least as much tax as the amount being claimed by the charity from the taxman (£141 in our example).
The donor also gets a measure of relief on his donation which results in a reduction of the tax he is to pay. For the 2006-07 tax year, the basic rate limit is £33,300. Income over this amount is charged to tax at 40 per cent. If, however, someone has donated money to a charity, the basic rate limit is increased by the amount of the 'grossed up gift'.
The National Audit Office has been looking at the taxman's performance for the 2005-06 tax year (see pdf).
Here are some highlights from the taxman's report card:
- In that year, the taxman collected £405 billion in tax (including £91 billion of national insurance contributions.
- The Comptroller General and Auditor General (ie the official who checks the taxman's books) is still not happy with the level of tax credit error and fraud.
- The taxman paid out a net sum of £17.3 billion in tax credits. He estimates that there will be overpayments and underpayments similar to 2004-05. In that tax year, the taxman overpaid tax credits by £1.8 billion, and underpaid by £556 million. In 2005-06, £397 million worth of overpayments were written off, and the taxman made a provision for £409 million for doubtful debts.
- Regarding Pay as You Earn (PAYE), the taxman estimates that there is about £1 billion unpaid each year. At the same time, the taxman reveals that taxpayers have overpaid by £500 million, with the result that 5.7 million taxpayers may not be paying the right amount of tax.
The Fisherman's verdict? Poor. Really must try harder.
A few weeks ago, we mentioned this Government's latest trick: using the environment as a pretext to raise taxes.
Even so, the Fisherman was shocked to read in this morning's Telegraph about (no longer) secret Government plans to tax household 
waste. According to the report, the tax could be as high as £120 per year.
Just one question. Precisely what are the exceedingly high council tax charges we already pay supposed to cover, then? If we are now to pay a separate charge for having our bins emptied, one must wonder what we have been paying for all this time.
This has gone beyond normal taxation. This is theft, pure and simple.
Quite apart from that, has the Government considered the public health implications of levying a separate tax on rubbish collection? Have they not considered that some families may be tempted to avoid the charge by putting out their rubbish less frequently, or even by flytipping? Are they prepared to deal with the consequences that would arise from such actions?
It would come as no surprise to readers that the Government is denying the reports. This time, though, the denial is even less emphatic than usual. According to a Government spokesman, "there are no current plans to introduce a tax on household rubbish". That tells us all we need to know.
eBay is moving its tax base from the UK to Luxembourg.
Reason? Cheaper VAT rates. The Luxembourg standard VAT rate is 15 per cent, while the UK's is 17.5 per cent.
Not much, perhaps, but who can blame them?
The Fisherman believes that we are only at the beginning of a tax exodus, with Luxembourg benefiting at the UK's expense. We have highlighted this before.
The taxman has just received a gift of over £800,000.
The Fisherman sympathises with poor Angus Monro, a businessman who overpaid his tax by £846,000. His accountants made a mistake, and he paid more than he should have done.
There is a time limit of one year in which to correct such mistakes. The mistake was realised late. Mr Monro tried to claim back the overpaid tax outside the one year period, but the court said no.
The court refused to order repayment because the tax was paid in accordance with the prevailing practice at the time. That practice was subsequently found to be wrong. In addition, the court refused to allow the remedy of restitution, which usually applies in cases of mistake.
The taxman agrees that Mr Monro overpaid, but no way are they parting with the unexpected gift.
The Fisherman sends best wishes to Mr Monro. Stop by the wharf for a drink sometime.
The Fisherman is pleased to announce that this blog has joined the prestigious Taxblogger.org. It is a 'loose confederation of bloggers, writers, and other tax freaks who like to write and talk about taxes'.
We should fit right in, then.
Check out their blog here.
The increase in air passenger duty came into force today. There is an absurd position (discussed here) whereby even passengers who had pre-booked flights before the increase was announced were forced to pay the extra tax at the airport before being allowed onto their flights. However, some airlines (notably British Airways) graciously absorbed the increase, and did not pass it on to any passengers who had pre-booked with them before the date of the announcement.
Amid all this is the question whether this increase is even legal. The Chancellor of the Exchequer has no right to raise or increase taxes without the approval of Parliament. Parliament will not be in a position to approve this increase for a few months yet. The effect of this is that when they get round to doing so, the increase will be given retrospective effect. Is this legal? A lawyer argues in The Times today that it is not. If so, passengers are entitled to refuse to pay. Not just those who had pre-booked before the date of announcement, but any passenger intending to travel at any time before Parliament approves the increase.
