A selection of views from professional advisers.
Bill Dodwell
Head of tax policy, Deloitte
The chancellor produced a Budget focused on savers, with additional funds devoted to bingo players and drinkers.
Increasing the ISA limit to £15,000 from 1 July 2014 – and merging cash ISAs and stocks and shares ISAs – will help millions of savers and reduce administration for the fund management industry. Removing tax from a greater level of ISA cash savings helps counter-act the impact of low interest rates, but the exchequer cost of the measure will naturally increase as interest rates rise. This will cost £80m next year, rising up to £230m and then £325m.
The proposed changes to defined contribution pensions – which now cover 13m people – will help individuals manage their own savings more effectively. It is good to see that the government is providing funds to help prospective pensioners with advice to cover the much wider range of choices. From 2015, it will no longer be necessary to take an annuity (relying on drawdown instead) and there will be some earlier relaxations from 27 March. The 25% tax-free cash lump sum is retained but from April 2015 withdrawals in excess of this amount will be taxed at marginal rate, instead of the penal 55% rate applying currently. There will be consultation about how to extend some of the reliefs to defined benefit schemes.
The main avoidance measure will be the new requirement for users of tax schemes to pay up front tax as if they had not undertaken the scheme. This takes effect from royal assent and is an acceleration of cash payments rather than an absolute increase in taxation. HMRC wins far more cases than they lose, when they litigate tax avoidance schemes. This is estimated to bring in £4bn over five years.
The main business tax measure is the boosting of the annual investment allowance – currently £250,000 per annum in the two years from January 2103 – to £500,000 from 1 April 2014 to 31 December 2015. This allows businesses to get immediate tax relief on investments in plant and equipment. Whilst the relief is welcome, constantly changing this relief is complicated to understand and may not have quite the beneficial effect intended.
Business will also note the chancellor’s commitment to bring into effect quickly the proposals on internationals tax changes coming from the OECD. The first five actions in the base erosion and profit shifting project are due for approval in September 2015.
The increase in the personal allowance to £10,500 from April 2015 has been well flagged and it will be worth £100 to a basic rate taxpayer and £184 to a higher rate taxpayer – with a small cut from those earning over £100,000 who see the allowance withdrawn.
Overall, this Budget is a modest giveaway of some £500+m, in the context of forecast taxes of over £600bn.
Michael Izza
Chief executive of ICAEW
This budget sends a strong message to business that they need to accelerate their plans to grow exports and increase investing. Doubling the annual investment allowance, doubling export finance whilst reducing interest rates on loans to exporters will provide much needed assistance, particularly to smaller businesses. However, for it to act as the incentive the chancellor wants, these measures need to be coupled with increasing access to advice and support for businesses who want to export and invest.
As the economic recovery continues to gain momentum, we still have concerns around its long term sustainability. The size of the deficit continues to be a millstone for this and future governments, and will act as a drag on the UK’s economic prosperity.
The pension reforms, which could be transformational, the changes to ISAs and the abolition of the 10p savings rates emphasize the need for a road map for personal tax. This will give taxpayers greater certainty over what they would be paying each year on tax. Budget 2014 has yet again failed to do this.
Andrew Hubbard
Partner, Baker Tilly
Generally this was a quiet budget for corporates. The gradual reduction of rates down to 20% was announced in advance and it won’t be until next year that we see the detail of any changes to reflect the widespread concern about perceived avoidance by multinationals. The increase of the annual investment allowance to £500,000 will be welcomed by companies who invest heavily in new equipment, though in reality the vast majority of businesses get nowhere near that level of expenditure.
Stephen Coleclough
CIOT President
The CIOT is disappointed that the government has decided to go ahead with controversial proposals to demand that users of existing disclosure of tax avoidance schemes (DOTAS) pay the tax in dispute up front without a right of appeal. The Institute sympathises with the government’s need to strike down mass-marketed tax avoidance schemes, but allowing HMRC to act as prosecutor, judge and jury based on the DOTAS regime, which was not meant to be used for these purposes, is going too far.
On the other hand, the equivalent rules applying to follower cases where an example case has lost before the courts, seem acceptable given the backlog of unsettled avoidance cases.
Nigel May
Partner, MHA MacIntyre Hudson
It is perhaps not unsurprising that the government is blundering on with proposed new rules for mixed partnerships and status rules for members as LLP. The lack of movement by the government in these areas does call into question the purpose and objective of any pre-legislative consultation process.
The Budget releases do not add anything to the guidance issued in the aftermath as the Autumn Statement and we must assume that the Finance Bill will contain woefully ill thought out proposals consistent with HMRC’s previous missives.
In what appears to be a money grab as opposed to a logical extension to the tax code, it remains to be seen wherever these provisions will raise the projected annual revenues of up to £1,045m.
Richard Woolich
UK head of tax, DLA Piper
A buoyant and ‘proud’ chancellor will catch the headlines for his proposed reforms to savings, ISAs and pensions. But he has also brought in a raft of anti-avoidance provisions in keeping with public sentiment. Notably, taxpayers using companies to buy residential property exceeding £500,000 (up from £2m) will after today incur a stamp duty land tax charge of 15%. Exceptions will apply, for example, if the property is let to an unconnected person on an arm’s length basis. The government continues to believe that such owner occupied properties are bought in companies to avoid SDLT. But this is very rarely the case. Non-UK incorporated companies are used to own properties to enable the asset to fall outside the IHT net. It is therefore puzzling why the chancellor is doing this, other than for political ends, with one eye on the election.
Michael Wistow
Head of tax, Berwin Leighton Paisner
What we need is a radical overhaul of the UK taxation system, which needs simplifying rather than complicating. The Office for Tax Simplification has singularly failed in its aim. This Budget is a missed opportunity to announce a much needed overhaul of the tax system.
The government has accepted the fundamental economic tenet that a dynamic approach to tax, that is low rates and fewer reliefs, actually raises tax receipts. That fundamental principle is being applied for corporate taxes but should also apply to personal taxes. Coalition politics seems to preclude its application to personal tax.
The top 1% of earners are paying an ever-increasing percentage of overall tax receipts, which currently stands at a third. This is what fairness in tax should be about: whether the top earners pay a higher proportion of the overall tax take rather than a mindless and populist fixation on headline rates.
David Heaton
Employment tax partner, Baker Tilly
The chancellor has announced staged increases in the tax that employees will pay on the benefit of company cars. Over the last few years, employers have been encouraged to ‘go green’, but now where the fleet is made up of the lowest-emission cars, the tax charge is set to increase significantly over the next four years. That’s not much of an incentive to go green, so perhaps the aim is to stimulate the economy so that only the newest cars get the lowest tax rates and there is an incentive to buy new vehicles?
Changes coming for company van drivers are disappointing in that they create more complexity but raise virtually no extra tax. Zero-emission vans provided to city-dwelling employees currently attract no taxable benefit, but over five years will gradually be brought up to the same benefit in kind charge as ordinary vans. So the taxable value will be just over £600 in 2015/16, £1,200 the following year, and so on. Most van drivers are basic rate taxpayers, so that will raise extra tax of just £120 per year per van, and about £85 of employer NIC – and then only if the employer permits private use. Some tinkering by a chancellor was expected, but some measures seem hardly worth the effort.
Sophie Dworetzsky
Partner, Withers
We were promised a big announcement in the Budget, and got quite a few of them. While there are lots of good headline announcements for savers, many of those investing in property through a company will be less happy. The much publicised annual tax on enveloped dwellings (ATED) has raised five times the amount expected for 2013/14 and, encouraged by this, the chancellor today announced that anyone holding residential property worth £500,000 or more through a company will now be exposed to ATED. It will be key to monitor any impact this has on the housing market especially for foreign investors.
As announced in the Autumn Statement, all taxpayers with existing tax disputes arising from planning which is within the DOTAS rules or which falls under the new general anti-abuse rule (GAAR) will have to pay the amount of tax HMRC says is under contention upfront. This could prove to be interesting, given that it extends to old open enquiries and given that what is said to be in dispute and any tax actually due are not always the same. This is clearly a massive cashflow issue for taxpayers who may also need advice on their position – and potentially a human rights issue.
HMRC is also going to have powers to dip into the bank accounts of taxpayers who owe more than £1,000 of tax and this may come as a nasty surprise for anyone with an open enquiry who may not have an actual liability, but faces either paying the tax in dispute in or having their bank account debited.
Malcolm Kerr
Executive director, EY
The changes to rules on pensions will be very liberating for consumers. There’s nothing fundamentally wrong with annuities, but at current interest rates they have seemed pretty poor value so the flexibility for consumers to choose an alternative is welcome.
It’s not necessarily Armageddon for annuities – a lot will depend on interest rates going forward. On the face of it this could seriously dent the annuity market in the short term, but how many people will actually opt to take the cash and invest it is yet to be seen. The fact that the tax rates have dropped will be helpful, but people will still pay tax on all but the first 25% and, depending on what happens with interest rates, an annuity may still be attractive.
Sean Drury
Head of employment solutions, PwC
It’s good news that HMRC has made clear that multiple employment arrangements or ‘dual contracts’ have their place as part of the commercial arrangements used by organisations and are not inherently artificial in nature. Dual contracts are common for international workers with different roles inside and outside the UK. HMRC is looking to raise £55m–£75m a year from blocking artificial arrangements, but it has listened to the various responses to the consultations and made some changes to the detail which will reduce the impact on commercial arrangements. These clarifications are helpful in attracting businesses with senior executives with responsibilities across multiple jurisdictions to base themselves in the UK.
Sean Randall
Head of stamp taxes, KPMG
The measures introduced by the chancellor to discourage sales of residential property bought via ‘corporate envelopes’ will now apply to all dwellings worth £500,000 or more. The measures include a super rate of SDLT of 15% on the purchase of a dwelling by a company and an annual charge on the ownership of a dwelling by a company.
The extent to which corporate envelopes are used for SDLT avoidance is unclear. But extending these measures sends a strong message that perceived stamp duty avoidance is not tolerated. The rate of tax for dwellings worth between £500,001 and £1m will rise by almost 400% where a company is the purchaser. Put another way, a company owning a dwelling worth £500,001 will need to be sold four times before the tactic of purchasing the dwelling using a company to avoid tax becomes cost effective.
The measures are controversial. They are designed to discourage the act of individuals putting high value residential property intended for personal use into corporate vehicles for tax avoidance. But they are indiscriminate in nature, failing to distinguish between ‘good’ enveloping and ‘bad’ enveloping, for example recognising that there are genuine reasons why companies are used to hold residential property that are unconnected with stamp duty avoidance, like privacy.
Heather Self
Partner, Pinsent Masons
The paper on Tackling aggressive tax planning in the global economy is a helpful summary of the UK’s position on the various actions in the OECD BEPs project. There is a clear acknowledgement that the benefits of additional transparency – in areas such as country by country reporting, and transfer pricing – should be balanced against the potential additional compliance burdens on business.
However, there is a worrying hint that the UK may succumb to pressure to limit interest deductions, set out in the response to action 4 (‘limit base erosion via interest deductions’). The defence of the current position is lukewarm at best: the UK ‘looks forward’ to the output from the BEPS work, ‘especially the identification of best practice’. Contrast this with the robust response on CFCs (action 3), where the UK ‘has recently reformed’ its rules and no further substantive change is anticipated.
I said in my comments last year (see ‘Special report: The OECD’s Action Plan on Base Erosion and Profit Shifting’, Tax Journal dated 26 July 2013) that it was important for the UK not to cede competitive advantage, particularly in relation to interest deductibility. It seems that the UK may now be coming under pressure to accept some form of general interest-stripping rule, perhaps as a lesser evil than comprehensive interest allocation rules.
Although there is an acknowledgement in the Budget paper that infrastructure and financial services sectors could be adversely impacted by any ‘structural’ changes to the UK system, there seems to me to be a black cloud on this particular horizon – and I fear that it is growing.
Anthony Thomas
Chairman, The Low Incomes Tax Reform Group (LITRG)
In his self-styled saver’s Budget, the chancellor confirmed that from 6 April 2015 the starting rate of tax for savings income (such as bank or building society interest) will be reduced from 10% to 0% and the maximum amount of taxable savings income that can be eligible for this starting rate will be increased from £2,880 to £5,000. This is great news for prudent savers on modest incomes.
This relief should help add value to people’s money, particularly for those nearing the end of their working life, thus helping both pensioners and those entering retirement.
To answer the criticism that the starting rate on savings is administratively so complex that few people claim it, savers who do not expect to be liable to tax on any of their savings income in the tax year will be able to complete a R85 form – the form used to register with a bank or building society for interest to be paid gross (i.e. without 20% tax deducted at source).
Currently, an R85 can only be completed by a saver whose total taxable income for the tax year is below their tax-free personal allowance. Without this change, the taxpayer would have to reclaim the tax automatically deducted from their bank interest.
This is generally good news, tempered by the consideration that people will only complete R85 if they know about it and understand that they are eligible. As LITRG has noted in a report published last year, this is often not the case. The onus is now on banks and building societies and HMRC to ensure that the R85 system is better publicised – now more than ever if today’s changes are going to have the desired impact on savers’ pockets.
Tina Riches
National tax partner, Smith & Williamson
HMRC is to be given powers to take money from the bank accounts of those who they think owe tax and who have chosen not to pay. This has been proposed before and did not see the light of day due to the huge concerns around HMRC’s systems, whether their record of amounts owed were correct and also whether the person really could afford to pay the tax. Given the current problems with HMRC occasionally pursuing incorrect PAYE debts, this does not seem the right time to be bringing in such a measure. It would need to be very carefully designed with adequate safeguards.
Matthew Hodkin
Partner, Norton Rose Fulbright
There were two main changes in the Budget relating to environmental taxes, one of which had been previously announced, the other of which was widely expected. These relate to the climate change levy (CCL) and carbon price floor (CPF).
The decision to create an exemption from the main rate of CCL for certain metallurgical and mineralogical processes is aimed at assisting those businesses which are energy-intensive but important for the growth in the Economy that the Chancellor wishes to see.
The freeze in the level of the carbon price floor until 2020 means that electricity bills are likely to be lower all round, but at the expense of non-polluting forms of energy.
It appears that the government, caught between political disquiet over domestic electricity bills, a need to ensure the energy-intensive manufacturing sector is not at a competitive disadvantage and a desire to reduce carbon emissions, has opted for the environmentally-unfriendly option.
Yvette Nunn
President of the ATT
The Association of Taxation Technicians (ATT) has expressed disappointment at the Budget announcement that the collection of class 2 NIC should be brought within the self-assessment system.
We are keen to ensure that taxpayers are able to pay their contributions in the easiest way possible. The current system of payment by direct debit achieves that as it requires no effort on their part once set in place. Furthermore, we do not believe that any change should create the possibility of delays in the entitlement to appropriate benefits.
In our response to HMRC’s consultation document issued in July 2013, the ATT pointed out that on the basis of the government statistics provided within the document, the majority of self-employed individuals who would be paying class 2 contributions were not within the scope of the small earnings exception, which seemed to be causing the concern that resulted in the Budget announcement.
This majority, some 93% of the self-employed population, were obviously finding payment by the current direct debit system easy and relatively painless in view of the modest amounts payable in each month. We find no justification for such a significant number of people having to endure unreasonable and unnecessary changes to what is and should remain a simple system for paying NIC.
A selection of views from professional advisers.
Bill Dodwell
Head of tax policy, Deloitte
The chancellor produced a Budget focused on savers, with additional funds devoted to bingo players and drinkers.
Increasing the ISA limit to £15,000 from 1 July 2014 – and merging cash ISAs and stocks and shares ISAs – will help millions of savers and reduce administration for the fund management industry. Removing tax from a greater level of ISA cash savings helps counter-act the impact of low interest rates, but the exchequer cost of the measure will naturally increase as interest rates rise. This will cost £80m next year, rising up to £230m and then £325m.
The proposed changes to defined contribution pensions – which now cover 13m people – will help individuals manage their own savings more effectively. It is good to see that the government is providing funds to help prospective pensioners with advice to cover the much wider range of choices. From 2015, it will no longer be necessary to take an annuity (relying on drawdown instead) and there will be some earlier relaxations from 27 March. The 25% tax-free cash lump sum is retained but from April 2015 withdrawals in excess of this amount will be taxed at marginal rate, instead of the penal 55% rate applying currently. There will be consultation about how to extend some of the reliefs to defined benefit schemes.
The main avoidance measure will be the new requirement for users of tax schemes to pay up front tax as if they had not undertaken the scheme. This takes effect from royal assent and is an acceleration of cash payments rather than an absolute increase in taxation. HMRC wins far more cases than they lose, when they litigate tax avoidance schemes. This is estimated to bring in £4bn over five years.
The main business tax measure is the boosting of the annual investment allowance – currently £250,000 per annum in the two years from January 2103 – to £500,000 from 1 April 2014 to 31 December 2015. This allows businesses to get immediate tax relief on investments in plant and equipment. Whilst the relief is welcome, constantly changing this relief is complicated to understand and may not have quite the beneficial effect intended.
Business will also note the chancellor’s commitment to bring into effect quickly the proposals on internationals tax changes coming from the OECD. The first five actions in the base erosion and profit shifting project are due for approval in September 2015.
The increase in the personal allowance to £10,500 from April 2015 has been well flagged and it will be worth £100 to a basic rate taxpayer and £184 to a higher rate taxpayer – with a small cut from those earning over £100,000 who see the allowance withdrawn.
Overall, this Budget is a modest giveaway of some £500+m, in the context of forecast taxes of over £600bn.
Michael Izza
Chief executive of ICAEW
This budget sends a strong message to business that they need to accelerate their plans to grow exports and increase investing. Doubling the annual investment allowance, doubling export finance whilst reducing interest rates on loans to exporters will provide much needed assistance, particularly to smaller businesses. However, for it to act as the incentive the chancellor wants, these measures need to be coupled with increasing access to advice and support for businesses who want to export and invest.
As the economic recovery continues to gain momentum, we still have concerns around its long term sustainability. The size of the deficit continues to be a millstone for this and future governments, and will act as a drag on the UK’s economic prosperity.
The pension reforms, which could be transformational, the changes to ISAs and the abolition of the 10p savings rates emphasize the need for a road map for personal tax. This will give taxpayers greater certainty over what they would be paying each year on tax. Budget 2014 has yet again failed to do this.
Andrew Hubbard
Partner, Baker Tilly
Generally this was a quiet budget for corporates. The gradual reduction of rates down to 20% was announced in advance and it won’t be until next year that we see the detail of any changes to reflect the widespread concern about perceived avoidance by multinationals. The increase of the annual investment allowance to £500,000 will be welcomed by companies who invest heavily in new equipment, though in reality the vast majority of businesses get nowhere near that level of expenditure.
Stephen Coleclough
CIOT President
The CIOT is disappointed that the government has decided to go ahead with controversial proposals to demand that users of existing disclosure of tax avoidance schemes (DOTAS) pay the tax in dispute up front without a right of appeal. The Institute sympathises with the government’s need to strike down mass-marketed tax avoidance schemes, but allowing HMRC to act as prosecutor, judge and jury based on the DOTAS regime, which was not meant to be used for these purposes, is going too far.
On the other hand, the equivalent rules applying to follower cases where an example case has lost before the courts, seem acceptable given the backlog of unsettled avoidance cases.
Nigel May
Partner, MHA MacIntyre Hudson
It is perhaps not unsurprising that the government is blundering on with proposed new rules for mixed partnerships and status rules for members as LLP. The lack of movement by the government in these areas does call into question the purpose and objective of any pre-legislative consultation process.
The Budget releases do not add anything to the guidance issued in the aftermath as the Autumn Statement and we must assume that the Finance Bill will contain woefully ill thought out proposals consistent with HMRC’s previous missives.
In what appears to be a money grab as opposed to a logical extension to the tax code, it remains to be seen wherever these provisions will raise the projected annual revenues of up to £1,045m.
Richard Woolich
UK head of tax, DLA Piper
A buoyant and ‘proud’ chancellor will catch the headlines for his proposed reforms to savings, ISAs and pensions. But he has also brought in a raft of anti-avoidance provisions in keeping with public sentiment. Notably, taxpayers using companies to buy residential property exceeding £500,000 (up from £2m) will after today incur a stamp duty land tax charge of 15%. Exceptions will apply, for example, if the property is let to an unconnected person on an arm’s length basis. The government continues to believe that such owner occupied properties are bought in companies to avoid SDLT. But this is very rarely the case. Non-UK incorporated companies are used to own properties to enable the asset to fall outside the IHT net. It is therefore puzzling why the chancellor is doing this, other than for political ends, with one eye on the election.
Michael Wistow
Head of tax, Berwin Leighton Paisner
What we need is a radical overhaul of the UK taxation system, which needs simplifying rather than complicating. The Office for Tax Simplification has singularly failed in its aim. This Budget is a missed opportunity to announce a much needed overhaul of the tax system.
The government has accepted the fundamental economic tenet that a dynamic approach to tax, that is low rates and fewer reliefs, actually raises tax receipts. That fundamental principle is being applied for corporate taxes but should also apply to personal taxes. Coalition politics seems to preclude its application to personal tax.
The top 1% of earners are paying an ever-increasing percentage of overall tax receipts, which currently stands at a third. This is what fairness in tax should be about: whether the top earners pay a higher proportion of the overall tax take rather than a mindless and populist fixation on headline rates.
David Heaton
Employment tax partner, Baker Tilly
The chancellor has announced staged increases in the tax that employees will pay on the benefit of company cars. Over the last few years, employers have been encouraged to ‘go green’, but now where the fleet is made up of the lowest-emission cars, the tax charge is set to increase significantly over the next four years. That’s not much of an incentive to go green, so perhaps the aim is to stimulate the economy so that only the newest cars get the lowest tax rates and there is an incentive to buy new vehicles?
Changes coming for company van drivers are disappointing in that they create more complexity but raise virtually no extra tax. Zero-emission vans provided to city-dwelling employees currently attract no taxable benefit, but over five years will gradually be brought up to the same benefit in kind charge as ordinary vans. So the taxable value will be just over £600 in 2015/16, £1,200 the following year, and so on. Most van drivers are basic rate taxpayers, so that will raise extra tax of just £120 per year per van, and about £85 of employer NIC – and then only if the employer permits private use. Some tinkering by a chancellor was expected, but some measures seem hardly worth the effort.
Sophie Dworetzsky
Partner, Withers
We were promised a big announcement in the Budget, and got quite a few of them. While there are lots of good headline announcements for savers, many of those investing in property through a company will be less happy. The much publicised annual tax on enveloped dwellings (ATED) has raised five times the amount expected for 2013/14 and, encouraged by this, the chancellor today announced that anyone holding residential property worth £500,000 or more through a company will now be exposed to ATED. It will be key to monitor any impact this has on the housing market especially for foreign investors.
As announced in the Autumn Statement, all taxpayers with existing tax disputes arising from planning which is within the DOTAS rules or which falls under the new general anti-abuse rule (GAAR) will have to pay the amount of tax HMRC says is under contention upfront. This could prove to be interesting, given that it extends to old open enquiries and given that what is said to be in dispute and any tax actually due are not always the same. This is clearly a massive cashflow issue for taxpayers who may also need advice on their position – and potentially a human rights issue.
HMRC is also going to have powers to dip into the bank accounts of taxpayers who owe more than £1,000 of tax and this may come as a nasty surprise for anyone with an open enquiry who may not have an actual liability, but faces either paying the tax in dispute in or having their bank account debited.
Malcolm Kerr
Executive director, EY
The changes to rules on pensions will be very liberating for consumers. There’s nothing fundamentally wrong with annuities, but at current interest rates they have seemed pretty poor value so the flexibility for consumers to choose an alternative is welcome.
It’s not necessarily Armageddon for annuities – a lot will depend on interest rates going forward. On the face of it this could seriously dent the annuity market in the short term, but how many people will actually opt to take the cash and invest it is yet to be seen. The fact that the tax rates have dropped will be helpful, but people will still pay tax on all but the first 25% and, depending on what happens with interest rates, an annuity may still be attractive.
Sean Drury
Head of employment solutions, PwC
It’s good news that HMRC has made clear that multiple employment arrangements or ‘dual contracts’ have their place as part of the commercial arrangements used by organisations and are not inherently artificial in nature. Dual contracts are common for international workers with different roles inside and outside the UK. HMRC is looking to raise £55m–£75m a year from blocking artificial arrangements, but it has listened to the various responses to the consultations and made some changes to the detail which will reduce the impact on commercial arrangements. These clarifications are helpful in attracting businesses with senior executives with responsibilities across multiple jurisdictions to base themselves in the UK.
Sean Randall
Head of stamp taxes, KPMG
The measures introduced by the chancellor to discourage sales of residential property bought via ‘corporate envelopes’ will now apply to all dwellings worth £500,000 or more. The measures include a super rate of SDLT of 15% on the purchase of a dwelling by a company and an annual charge on the ownership of a dwelling by a company.
The extent to which corporate envelopes are used for SDLT avoidance is unclear. But extending these measures sends a strong message that perceived stamp duty avoidance is not tolerated. The rate of tax for dwellings worth between £500,001 and £1m will rise by almost 400% where a company is the purchaser. Put another way, a company owning a dwelling worth £500,001 will need to be sold four times before the tactic of purchasing the dwelling using a company to avoid tax becomes cost effective.
The measures are controversial. They are designed to discourage the act of individuals putting high value residential property intended for personal use into corporate vehicles for tax avoidance. But they are indiscriminate in nature, failing to distinguish between ‘good’ enveloping and ‘bad’ enveloping, for example recognising that there are genuine reasons why companies are used to hold residential property that are unconnected with stamp duty avoidance, like privacy.
Heather Self
Partner, Pinsent Masons
The paper on Tackling aggressive tax planning in the global economy is a helpful summary of the UK’s position on the various actions in the OECD BEPs project. There is a clear acknowledgement that the benefits of additional transparency – in areas such as country by country reporting, and transfer pricing – should be balanced against the potential additional compliance burdens on business.
However, there is a worrying hint that the UK may succumb to pressure to limit interest deductions, set out in the response to action 4 (‘limit base erosion via interest deductions’). The defence of the current position is lukewarm at best: the UK ‘looks forward’ to the output from the BEPS work, ‘especially the identification of best practice’. Contrast this with the robust response on CFCs (action 3), where the UK ‘has recently reformed’ its rules and no further substantive change is anticipated.
I said in my comments last year (see ‘Special report: The OECD’s Action Plan on Base Erosion and Profit Shifting’, Tax Journal dated 26 July 2013) that it was important for the UK not to cede competitive advantage, particularly in relation to interest deductibility. It seems that the UK may now be coming under pressure to accept some form of general interest-stripping rule, perhaps as a lesser evil than comprehensive interest allocation rules.
Although there is an acknowledgement in the Budget paper that infrastructure and financial services sectors could be adversely impacted by any ‘structural’ changes to the UK system, there seems to me to be a black cloud on this particular horizon – and I fear that it is growing.
Anthony Thomas
Chairman, The Low Incomes Tax Reform Group (LITRG)
In his self-styled saver’s Budget, the chancellor confirmed that from 6 April 2015 the starting rate of tax for savings income (such as bank or building society interest) will be reduced from 10% to 0% and the maximum amount of taxable savings income that can be eligible for this starting rate will be increased from £2,880 to £5,000. This is great news for prudent savers on modest incomes.
This relief should help add value to people’s money, particularly for those nearing the end of their working life, thus helping both pensioners and those entering retirement.
To answer the criticism that the starting rate on savings is administratively so complex that few people claim it, savers who do not expect to be liable to tax on any of their savings income in the tax year will be able to complete a R85 form – the form used to register with a bank or building society for interest to be paid gross (i.e. without 20% tax deducted at source).
Currently, an R85 can only be completed by a saver whose total taxable income for the tax year is below their tax-free personal allowance. Without this change, the taxpayer would have to reclaim the tax automatically deducted from their bank interest.
This is generally good news, tempered by the consideration that people will only complete R85 if they know about it and understand that they are eligible. As LITRG has noted in a report published last year, this is often not the case. The onus is now on banks and building societies and HMRC to ensure that the R85 system is better publicised – now more than ever if today’s changes are going to have the desired impact on savers’ pockets.
Tina Riches
National tax partner, Smith & Williamson
HMRC is to be given powers to take money from the bank accounts of those who they think owe tax and who have chosen not to pay. This has been proposed before and did not see the light of day due to the huge concerns around HMRC’s systems, whether their record of amounts owed were correct and also whether the person really could afford to pay the tax. Given the current problems with HMRC occasionally pursuing incorrect PAYE debts, this does not seem the right time to be bringing in such a measure. It would need to be very carefully designed with adequate safeguards.
Matthew Hodkin
Partner, Norton Rose Fulbright
There were two main changes in the Budget relating to environmental taxes, one of which had been previously announced, the other of which was widely expected. These relate to the climate change levy (CCL) and carbon price floor (CPF).
The decision to create an exemption from the main rate of CCL for certain metallurgical and mineralogical processes is aimed at assisting those businesses which are energy-intensive but important for the growth in the Economy that the Chancellor wishes to see.
The freeze in the level of the carbon price floor until 2020 means that electricity bills are likely to be lower all round, but at the expense of non-polluting forms of energy.
It appears that the government, caught between political disquiet over domestic electricity bills, a need to ensure the energy-intensive manufacturing sector is not at a competitive disadvantage and a desire to reduce carbon emissions, has opted for the environmentally-unfriendly option.
Yvette Nunn
President of the ATT
The Association of Taxation Technicians (ATT) has expressed disappointment at the Budget announcement that the collection of class 2 NIC should be brought within the self-assessment system.
We are keen to ensure that taxpayers are able to pay their contributions in the easiest way possible. The current system of payment by direct debit achieves that as it requires no effort on their part once set in place. Furthermore, we do not believe that any change should create the possibility of delays in the entitlement to appropriate benefits.
In our response to HMRC’s consultation document issued in July 2013, the ATT pointed out that on the basis of the government statistics provided within the document, the majority of self-employed individuals who would be paying class 2 contributions were not within the scope of the small earnings exception, which seemed to be causing the concern that resulted in the Budget announcement.
This majority, some 93% of the self-employed population, were obviously finding payment by the current direct debit system easy and relatively painless in view of the modest amounts payable in each month. We find no justification for such a significant number of people having to endure unreasonable and unnecessary changes to what is and should remain a simple system for paying NIC.
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