Recently in The taxman Category
The Chairman of Her Majesty's Revenue and Customs has resigned. Rumour has it that this relates to a breach of data security, involving the records of 7.5 million child benefits claimants. The Chancellor will be giving a statement to the House of Commons later today.
Hmm. And this is the Government that keeps trying all means to get its hands on our data? How secure is any data that we give to this Government?
I have queried in the past the wisdom of requiring a tax collection authority to pay out benefits. The taxman knows more about collecting money than about paying it out, so getting him to administer child benefits was always going to be tricky. That aside, a security breach is a security breach. It could still have happened even if the taxman wasn't administering benefits (ie it could still have happened in the course of the taxman's handling of taxpayers' records), but the extra role as benefits administrator only made it even more likely.
As a side point, it's a bit strange these days to see a honourable resignation.
Will write more after hearing what the Chancellor has to say.
Inheritance tax - transferability of allowances between spouses and civil partners.
A cunning move to unsettle the Tories, but let us see how this tax break works in practice.
Capital gains tax - abolition of taper relief.
Yes, you heard correctly. Taper relief, which was introduced by Gordon Brown in 1998 to replace the indexation allowance, is now to be abolished. Another example of a tax u-turn by this Government. Remember the zero per cent rate on corporation tax?
The abolition of taper relief is being spun as a necessary measure to deal with the private equity issue. However, they are not the only people affected. Taper relief is available to every taxpayer who disposes of chargeable assets, so they are all affected. See Bel for an interesting piece on the effects of the abolition.
Also with the abolition of taper relief is the 'withdrawal' of indexation allowance. What does this mean? Does it mean that any indexation allowance accrued to date, is lost? When selling a capital asset, allowance is normally made for inflation from the date the asset was acquired, or March 1982, whichever is earlier. This inflation is calculated as an 'indexation allowance', and deducted from any gain on sale. Indexation allowance is abolished for sales by individuals with effect from 1998, and replaced by taper relief. So what would happen would be that, on a sale after that date, indexation allowance is calculated from the date the asset was acquired until April 1998, and then taper relief would be calculated from that period onwards. So the indexation allowance that was built up was preserved.
I assume that, when the April 2008 changes take effect, any indexation allowance accrued until April 1998 will be preserved - there will be a huge outcry otherwise.
Indexation allowance still continues for companies, and I assume that this remains the case even after April 2008.
£30,000 levy on non-domiciles.
Well, you know where they got that idea from. They just added an extra £5,000 to the Conservative Party's proposal.
To read the Pre-Budget Report notes in full, click here.
The Chancellor will deliver the Pre-Budget Report next Tuesday (9 October 2007). Speculation is rife that there is a General Election on the cards. If so, the Report will be all the more interesting for what it leaves out, rather than what it says.
Gordon Brown may have handed over nominal control of the Treasury to Alistair Darling, the Chancellor, but only the very naive would assume that the latter has any real control over what goes into the Pre-Budget Report.
There were reports today in the media that the taxman was planning an inheritance tax 'crackdown'. This was in relation to gifts made by a deceased person within the last seven years of his life. Inheritance tax law provides for these to be caught by the inheritance tax rules. The purpose of this is to ensure that people do not decrease their inheritance tax liability by giving away their assets before they die, thereby leaving the taxman with a reduced estate to tax on their death.
So anyway, the story today was that the taxman was getting suspicious that some estates had escaped the charge to inheritance tax because gifts given in the seven years before death had not been declared to the authorities. So the taxman announced that whenever inheritance tax forms were submitted to him, he would be paying particular attention to 'lifetime transfers', in order to discover if any gifts had been given away by the deceased in the past seven years. Click here to read the taxman's statement, contained in the August 2007 edition of the IHT and Trusts newsletter.
This news sparked alarm all over the place. Tax advisers were concerned about the administrative consequences; bereaved family members and friends were concerned about being put through the stress of an investigation by the taxman; and opposition politicians have concluded that this is just more evidence of Gordon Brown's 'greed' for cash. There were also fears that the taxman would start aggressively demainding to see the bank statements of the deceased, and possibly even those of bereaved family members, as well as any other financial information that he thought necessary. I think that all these concerns and fears are well-founded.
Anyway, following the outcry, the taxman has now issued a statement that he did not mean to be quite as aggressive. Apparently, it was all down to a poor choice of words in the newsletter, which, the taxman concedes, was 'poorly worded and aggressive'. (I don't have a link to the statement, but here is AccountancyAge's report on it.)
Hmm. So that's the end of that, then. One wonders if the taxman would have backed down so quickly had there not been an outcry from all those quarters. While the taxman is perfectly entitled to collect tax due and owing, and while the original statement was not exactly proposing a change in the existing law, the taxman must recognise that there is a place for sensitivity, even in the collection of taxes. I think he has learned that lesson tonight. Let's hope that it's a lesson that endures.
The taxman's long-held view has been that where there is an all-inclusive fee that covers all the services in such a centre, then that indicates a single supply for VAT purposes. So a membership fee that entitles the member to use all the facilities, would attract VAT.
The situation is different where the leisure centre charges different fees for different services. So where a visitor to a leisure centre is charged based on what services he uses, then the exact VAT position of the service can be taken into account. So let's take as an example a customer who does not pay a membership fee, but is instead charged based on what he uses in the gym. If he avails himself of, say, the swimming tuition, there will be no VAT to pay, as that would be exempt. If, on the other hand, he used the sauna, then VAT would be payable.
Contrast that with a member who pays an annual fee. The court's view was that his fee is a single supply, amounting to a right to exercise and enjoy the use of the facilities as and when and to whatever extent required. As the member can use whatever he likes, it is not possible to know at the outset whether he would use only VAT exempt services, VATable services, or a mixture of both. The membership fee is therefore subject to VAT at the standard rate (17.5 per cent).
However, if the fee entitles the member to use services, all of which would have been exempt if he had paid for them individually, then the taxman accepts that there is no need to charge VAT on the fee.
Click here to read the taxman's statement on the court case.
This judgment was given in May, but the case has just come back again into the news. The Telegraph today reports on the judgment, against the backdrop that the taxman's determination to collect the VAT (has he any choice?) undermines the Government's stated aim of getting us all fit and healthy.
The concern is that the Highland Council case is being extended by the taxman to apply, not just to local authorities, but to leisure trusts as well. The accountants, Baker Tilly, make the excellent point that a leisure trust, which is an 'eligible body' for VAT purposes, has the right to exempt from VAT the supply of sporting facilities to the public.The Highland Council case wouldn't be that much an issue for private gyms, as many of them already charge VAT on annual fees. In addition, membership schemes, such as sports clubs run by non profit-making bodies, do not come within the Highland Council decision.
© Photographer: Cthoman | Agency: Dreamstime.com
The taxman has announced that interest and penalty charges will be waived in cases of late payment by taxpayers affected by the recent floods.
Under self assessment, two payments on account must be made in respect of a tax year. The first is on 31 January during the tax year, and the second is on 31 July following the tax year. For the 2006-07 tax year, the second payment on account is due on 31 July 2007.
The recent floods have caused untold upheaval. In Gloucestershire, for example, many have been evacuated from their houses. Meeting their tax obligations must be the last thing on their minds. Jolly decent of the taxman, and a sign that we live in a civilised country, after all.
Photo credit: © Photographer: Kenneth Summers | Agency: Dreamstime.com
Time for the taxman's report card. The HMRC Standard Report and Accounts for 2005-06 has just been published (pdf).
Very interesting reading. So far, I have gone through the Tax Credits section, and here is an extract from the concluding section (emphasis mine):
(2.52) During 2006-07 the Department paid a net £18.7 billion in tax credits and an average of 5.5 million families received provisional 2006-07 awards.
The Department estimates that year end adjustments to awards meant it overpaid £1.7 billion and underpaid £549 million in 2005-06.
In the first three years since the scheme was introduced, the Department calculates that these adjustments, and other small changes to entitlement after the finalisation of awards, have led to a debt of £6.0 billion.
It has also identified £600 million from in year adjustments to 2006-07 awards and will identify further overpayments for this year once awards are finalised.
By the end of March 2007 the Department had collected £2.0 billion of this debt and written off £0.7 billion. £3.9 billion of overpayments remain to be collected by the Department. It has provided for £1.6 billion in respect of doubtful debts.
When Gordon Brown was asked during Prime Minister's Questions earlier this week about the overpayment of tax credits, he launched into self-congratulatory mode on how the tax credits system has alleviated hardship for many. I don't doubt that. I only wonder whether the high price (in terms of overpayments, etc) is worth paying for whatever benefits the system brings.
For taxpayers with undeclared offshore income and gains, today is the last day to take advantage of the taxman's generous offer to come clean.
To recap, following a court case, the taxman obtained from certain banks information relating to offshore account holders. He then announced that offshore account holders with undeclared taxable income and gains had until 22 June (ie today) to come forward and notify him of their intention to disclose. Disclosures then had to be made by 26 November 2007, and all the back tax, plus interest, paid by that date. The taxman kindly reduced from 100 per cent (of the unpaid tax) to 10 per cent, the penalty that would normally apply in such cases.
So today, 22 June, is the deadline for notifying intention to disclose. Anybody with undeclared taxable income in an offshore account who does not, by the end of today, notify intention to disclose, is in danger of criminal prosecution. Thanks to the court, the taxman has information on these offshore account holders, and will waste no time going through that information in order to identify anyone who has not paid his tax and who has also failed to take advantage of this 'amnesty'.
UPDATE. 23 June 2007. The Telegraph is reporting that of the 400,000 people identified by the taxman (based on the information obtained through the court), as having not paid the correct tax, only 56,000 had, by the end of yesterday, notified their intention to disclose. Somehow I don't think the taxman will be very amused.
With effect from tomorrow, 15 June, a new EU law on the declaration of cash by travellers, comes into force.
The aim of the European Parliament and Council Regulation (EC) No 1889/2005 is to target money laundering. If you are travelling to the UK from outside the EU, or travelling from the UK to anywhere outside the EU, then you could be affected by the law.
If you are making either of the above journeys, and are carrying cash of 10,000 or more euros, or the equivalent, you will be required to declare the cash to the taxman. Failure to do so will lead to a fine of up to £5,000.
'Cash' doesn't cover just banknotes and coins, but extends to bank drafts and cheques.
The declaration must contain the following information:
- the declarant, including full name, date and place of birth and nationality;
- the owner of the cash;
- the intended recipient of the cash;
- the amount and nature of the cash;
- the provenance and intended use of the cash;
- the transport route;
- the means of transport.
Any information obtained under the declaration may be shared with the authorities responsible for dealing with money laundering, as provided under art 6 of the EEC Council Directive 91/308 (on prevention of the use of the financial system for the purpose of money laundering). On close reading of the new regulation, it appears that even where a declaration has been made, and accepted as legit, this information can still be shared.
Cash that has been properly declared may be seized by the taxman, under the Proceeds of Crime Act 2002, if he has reasonable suspicion that it has come from dodgy dealings. So is it then up to the traveller to prove that the money is legit?
Also, if a traveller is carrying cash below the 10,000 euros mark, and there are indications to suspect that the money is linked to illegality, those indications, together with the traveller's name, date and place of birth, nationality, and means of transport, may be recorded and processed, and shared with the authorities responsible for dealing with money laundering.
The declaration form should be up on the HMRC website from tomorrow. I will add a link to this post when I find the form.
The Fisherman recently referred to an article in the Times that claimed the taxman was planning a crackdown on landlords in the buy-to-let sector.
Not so, says the taxman. Not a 'crackdown' at all. Rather, the aim is to give landlords 'improved access to guidance and support so that they can understand how to calculate their own tax liabilities'.
That's reassuring. And not only that, the taxman promises that even where it turns out that there is tax due, he will use 'the lightest touch possible' to recover it from the landlord.
The Fisherman is a bit wary of this new cuddly taxman. First, an 'amnesty', and now this. We're much more used to the demanding-money-with-menaces style approach. Wonder how long this softly-softly manner will last.
