Newsletter - March 2010

In this edition:

• Darling urged to reform pension tax proposals
• Business groups unite to oppose NICs increase
• Legislators ‘neglecting small firms’, argues FPB
• Brown confirms Budget date
• Offshore disclosure deadline imminent
• Revenue to 'name and shame' tax evaders
• Thousands of firms facing ‘higher VAT bills’

Darling urged to reform pension tax proposals

The Government is being urged to scrap its ‘complex and costly’ proposals on the tax treatment of pension contributions.

The call came from the National Association of Pension Funds (NAPF), which has warned that the Chancellor’s plans to tax the pension contributions of high earners will do ‘enormous harm’ to company pension provision.

‘Senior executives, who have responsibility for company pension provision [will] opt out of their company provision due to the new tax regime, with the result that they become less engaged with the benefits of offering a good pension,’ the NAPF said.

From April 2011 it is proposed that individuals earning more than £130,000 will not only have their usual tax relief on their pension contributions reduced, but they will also be taxed on the value of the contributions made by their employers.

The NAPF claims the changes could affect many people outside of the Government’s target income group and result in ‘unfair consequences’.

In its submission ahead of the 2010 Budget Report, the trade body has outlined a number of alternative measures which it says will simplify the system and avoid unjust effects.

It recommends reducing the value of the annual pension allowance of £245,000 a year to a range of between £45,000 and £60,000. It added that this would work with the grain of existing pensions tax policy, yet allow the Government to raise much-needed additional tax revenues.

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Business groups unite to oppose NICs increase

A host of business groups have joined forces to lobby against the proposed rise in national insurance contributions (NICs) planned for April 2011.

In a letter of petition, organisations including the Confederation of British Industry (CBI), Federation of Small Businesses (FSB) and British Chambers of Commerce (BCC), are calling on the Government to scrap the planned increase in NICs.

The heads of the Chartered Institute of Personnel and Development, Forum of Private Business, Institute of Directors, Recruitment Employment Confederation and British Retail Consortium have also pledged their support to the campaign.

Last year the Government announced plans to increase NICs by 1% in an effort to close the UK’s budget deficit. However, the business community has criticised the move, arguing that the rise amounts to a ‘tax on jobs’ and could undermine the nascent economic recovery.

The petition states: ‘We urge the Government to work with business groups to find alternative ways to close the UK's budget deficit - beginning with a credible plan to reduce inefficiency in public sector spending. Any Government has to realise that additional taxes on businesses, especially small-and medium-sized companies, must be a last resort, not an easy way forward.’

Commenting on the coalition, John Wright, FSB National Chairman, said: ‘This petition […] will tell Government that real action needs to be taken to really help tackle unemployment. The rise in National Insurance is a tax on jobs and will cost the country in thousands of jobs, as well as prevent small firms from taking on more members of staff at this crucial time in the country's economic recovery.’

The petition can be viewed in full at www.no-nics-rise.co.uk. The final numbers will be presented ahead of the Chancellor’s Budget, which is expected to be delivered later this month.

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Legislators ‘neglecting small firms’, argues FPB

The Government is being urged to prioritise the needs of small firms when drafting new legislation.

The call came from the Forum of Private Business (FPB) and follows the publication of a Government report on the impact of policy-making on enterprise.

Responding to the ‘Thinking Business in Policy’ interim report review, the FPB said it believes legislators devise new policies with large companies in mind. It added that policy-makers often fail to consider the implications that new rules and regulations will have for the UK’s smaller firms, many of which employ very few people.

With small firms typically having less time, money and resources to interpret and implement new legislation, the lobby group warns that SMEs will find it ‘increasingly difficult’ to compete with their larger competitors.

The FPB highlighted the impending Equality Bill as an example of the disproportionate consideration that is given when drafting policies.

While the Government estimates that the average SME will need just an hour to interpret a section of the new legislation, the FPB predicts that a typical business owner who has little experience of complex legal documents will take much longer.

Commenting, the FPB’s Policy Representative, Matthew Goodman, said: ‘We believe that, through improved understanding of the nature of small businesses and by making much more accurate assessments of the implications of the legislation, decision-makers can make informed judgements about the advantages and disadvantages of policies.

‘Policy-makers should also consider how their policies are going to boost the UK economy.

‘It's not enough simply to consider the social benefits of legislation without giving thought to the bigger picture. Many businesses feel they are often seen as those which should automatically pay for attempts at influencing social change.’

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Brown confirms Budget date

The 2010 Budget Report will be delivered ‘in two weeks’ time’, Prime Minister Gordon Brown has announced.

Speaking at Thomson Reuters in Canary Wharf, Brown confirmed that the Budget will take place on 24 March, fuelling speculation that the General Election will be held on 6 May.

The Treasury later confirmed the date in a written statement to Parliament.

‘We will set out in more detail in the Budget in two weeks’ time how we deliver on our commitment to restore the public finances while protecting the fundamental public services we all depend on,’ said Brown. ‘Our approach is clear and we will not be diverted from it.’

He continued: ‘Although the economy is growing, the recovery is still in its early stages and remains very fragile. The waters are still choppy, there are still real risks to the recovery and we must be alive to them.’

On Sunday Chancellor Alistair Darling said he was ‘absolutely committed’ to reducing the UK’s budget deficit, although ruled out a full spending review.

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Offshore disclosure deadline imminent

Individuals using the New Disclosure Opportunity (NDO) have been reminded that they have just days to make their disclosures online and to pay all tax, duties, interest and penalties owed in full.

Offshore investors who have notified HM Revenue and Customs (HMRC) of their intention to use the NDO have until 12 March to settle the monies owed and incur a limited penalty of 10% of their unpaid tax.

HMRC has confirmed that once the scheme closes, people who are found to have undisclosed offshore assets will be subject to a full tax investigation. Penalties will range from a minimum of 30% to up to 100%, and in the most serious cases criminal prosecution.

Dave Hartnett, HMRC’s Permanent Secretary for Tax, said: ‘Taxpayers with offshore investments who have notified us of their intention to disclose have done the right thing, saving themselves 90% of the potential penalties for failing to disclose.

‘They now need to follow through by making their disclosure online and paying in full all the taxes they owe.’

We can help you with all your tax and financial planning needs. Please contact us for further assistance.

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Revenue to 'name and shame' tax evaders

Individuals and companies who deliberately fail to pay taxes of more than £25,000 are to be named and shamed with effect from 1 April, HM Treasury has confirmed.

The plans were first announced in the 2009 Budget, and will allow HM Revenue & Customs (HMRC) to publish the names, addresses and details of tax evaders on its website.

As well as being publicly identified, tax evaders will have to pay the tax, interest on the overdue amount, and penalties of up to 100%.

Stephen Timms, Financial Secretary to the Treasury, said, 'We are only targeting deliberate tax evaders. So if you know that you have not paid the right tax, and you want to avoid being named, contact HMRC right away to set things straight'.

We can help with all aspects of tax planning, including ensuring that you pay the right amount of tax. Please contact us for assistance.

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Thousands of firms facing ‘higher VAT bills’

More than 57,000 small businesses are facing higher bills under the flat rate VAT scheme, prompting calls for the Government to conduct an ‘immediate review’ of the tax.

In its Budget submission to the Chancellor, the Federation of Small Businesses (FSB) has revealed that HM Revenue and Customs (HMRC) ‘covertly’ increased the flat rate VAT charge on 48% of business sectors.

Flat rate VAT is charged to small firms with a turnover of less than £150,000 and aims to minimise the red tape around administering VAT. It provides a slightly lower rate which varies dependent on the sector the business operates in.

When the standard rate of VAT reverted to 17.5%, HMRC ‘recalculated’ the sector rates under the scheme. However, the FSB claims that this has left nearly half of enterprises paying more VAT than the pre-decrease level.

Among those hardest hit by the changes are corner shops, children's clothing stores and firms providing social services.

The FSB is now urging the Government to use the 2010 Budget Report to put flat rates back to their 2008 levels.

John Wright, FSB national chairman, said: ‘The FSB believes that this is a stealth tax, which will affect a firm’s overall profitability, deliberately directed at small businesses during the recession. The FSB believes there needs to be more openness in how these rates are calculated and when they rise.’

Other key requests in the group’s submission include: a complete freeze on national insurance contribution rises; an increase in the level at which businesses must register to pay VAT; and an abolishment of the 1% rise in corporation tax planned for 2011.

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