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Newsletter - August 2007In this edition:
HMRC threatens to close 'loophole' following Arctic Systems decision With the Law Lords finally ruling in favour of Geoff and Diana Jones in the long running Arctic Systems case on Wednesday 25 July, husband-and-wife businesses might have breathed a sigh of relief. However, just hours after the ruling, Exchequer Secretary to the Treasury Angela Eagle announced the Government's intention to introduce legislation to close what it considers to be a tax ‘loophole' and end this form of ‘income splitting'. Mrs Eagle said: “Some individuals use non-commercial arrangements to divert income (which would, in the absence of those arrangements have flowed to them) to others. That minimises their tax liability, and results in an unfair outcome. It is the Government's view that individuals involved in these arrangements should pay tax on what is, in substance, their own income and that the legislation should clearly provide for this. The Government will therefore bring forward proposals for changes to legislation to ensure this is the case.” So it seems likely that following a period of due consultation, new legislation could make arrangements like the Arctic Systems structure a thing of the past. We will stay abreast of the legislation and, as your accountants, we can advise you on all your tax planning needs, including the most appropriate structure for your business. Contact us for advice on your particular circumstances. Pensions Bill 2007 receives Royal Assent The Pensions Bill has now received Royal Assent, paving the way for the introduction of a series of reforms to the UK pensions system. The Government published a package of reform proposals in May 2006, with the aim of meeting five key tests: promoting personal responsibility; simplicity; sustainability; fairness; and affordability. The new Pensions Act 2007 will include the following changes:
Work and Pensions Secretary Peter Hain said, 'This Act will deliver the most important reforms to the state pension system in generations'. Home Information Packs launched The Government's controversial Home Information Packs (HIPs) have been officially launched. All sellers in England and Wales whose property has four or more bedrooms must provide a pack, which contains title deeds, local searches and a new energy-performance certificate giving information on making the home more environmentally-friendly. The 1 August start date follows a two-month delay and a considerable watering down of the required HIP content. The packs were originally intended to be compulsory for all houses put up for sale in England and Wales from 1 June. They are designed to speed up the home-buying process by giving people more information on a property before they put in an offer. However, HIPs have been dogged by controversy, with critics claiming that they add to the cost of selling a home while bringing little benefit to the consumer. A typical HIP cost will be between £400 and £700, and homeowners will be fined £200 if they fail to use the packs. There is also a predicted shortage of qualified inspectors able to carry out the energy performance assessments. Trevor Kent, a former president of the National Association of Estate Agents, claimed the implementation of the packs would cause "chaos". However, a spokesman for the Department of Communities & Local Government said: "Trading standards are clear that resources have been made available to meet the statutory duty to enforce HIPs. The Government gave significant additional funding through the local government settlement to help do that." Pre-Budget Report to take place in October The new Chancellor of the Exchequer, Alistair Darling, will hold his first Pre-Budget Report in October, alongside the Comprehensive Spending Review. Mr Darling made the announcement during his first speech as Chancellor, at the London Business School. 'I can confirm today that the conclusion of the Review and the Pre-Budget Report will be announced in the House of Commons together in October', said Mr Darling. The Chancellor also highlighted the business tax regime as a key priority, pledging to ensure that 'the UK 's business tax rates and regime remain competitive', and to 'continue to simplify the tax system further wherever we can'. The Pre-Budget Report was first introduced by Gordon Brown in 1997, and has traditionally been held in November or December. The announcement follows recent speculation regarding a possible early date. MPs lend support to supplementary business rates A committee of MPs has given its backing to plans to allow local authorities to impose supplementary local business rates of up to 10%. According to the Communities and Local Government Committee, giving councils the power to vary business rates will help them to become more financially empowered. Phyllis Starkey, Chair of the committee said, 'If the Government gets the framework right, local authorities will be able to take forward these proposals in a manner closely tailored to the specific needs and individual circumstances of the areas they represent'. The committee has emphasised that the recommended safeguards should 'alleviate many of the concerns' of businesses. However, business groups have reacted angrily to the news, with the British Chambers of Commerce (BCC) arguing that expecting businesses to pay more tax without voting on the issue is 'completely unacceptable'. The BCC warned that businesses could pay an extra £1.5bn under the proposals. Meanwhile, the Federation of Small Business has called for the plans to be dropped immediately.
Revenue to target 100,000 offshore account holders HM Revenue & Customs (HMRC) is to target 100,000 taxpayers who hold undeclared offshore accounts, following the closure of its offshore 'tax amnesty' on 22 June. Under the terms of the amnesty, taxpayers who disclosed their accounts by the deadline were told that their penalties would be capped at 10% of the maximum. Once HMRC had been notified, taxpayers were then given until 26 November to submit their figures and make their payments. According to the latest reports, HMRC is now sending out 3,500 enquiry letters a week to those taxpayers who have not made use of the amnesty. HMRC has said that it will target all those who failed to make a disclosure, and that over time it plans to pursue all of the 400,000 account details which it obtained from a number of high street banks.
Business group calls for action on small business issues The Institute of Directors (IoD) has released a new report which highlights the key issues facing small and medium-sized enterprises (SMEs) in the UK. The report, entitled 'The SME Glass Ceiling – Growth Obstacles in 2007, identifies the top five concerns of SME owners, as follows:
The IoD has laid out 14 'urgent steps' which it says the Government needs to take in order to engage with the issues affecting SMEs, including:
Miles Templeman, Director General of the IoD, said, 'While figures for start-ups in business are broadly favourable, this report demonstrates some clear obstacles to growth, which need tackling before they become endemic'. Business fraud 'sees 42% increase' Business fraud is a growing problem in the UK, with firms being hit to the tune of £538m in the first half of this year, according to a new report. The study suggests that business fraud in the first half of 2007 has risen 42% on 2006. VAT fraud was highlighted as a particular problem in the report, with carousel fraud proving particularly lucrative. Meanwhile, the report argues, the punishments for fraud are not severe enough, with those fraudsters who are convicted serving between two and five years, even when the sums of money involved rose to many millions of pounds. According to the report, less than 15% of fraud cases result in a prosecution, and the larger the fraud, the less likely there is to be a prosecution. Pensions go back into the black The UK pensions ‘black hole’ could finally be closed, according to actuarial group Lane Clark & Peacock. For the first time in five years, the pension funds of the UK's top 100 companies are back in the black, having moved from a £36bn deficit to a £12bn surplus over the past year. The change has been attributed to improved stockmarket performance and to an increase in the amount of cash that top firms are paying into their pension funds. However, a spokesman for Lane Clark & Peacock warned that UK pension schemes were “not out of the woods.” With so much pension scheme money invested in shares, a stock market tumble could soon put the funds back in the red. But even more serious is the effect of increased life expectancy. Each additional year of life expectancy is believed to add some £12bn to pension scheme costs – leading the group to describe the overall funding position of schemes as "fragile".
HM Revenue & Customs (HMRC) has published revised guidance on the VAT treatment of computers made available by employers for use in their employees' homes. This follows the withdrawal of the tax exemption which allowed employers to loan computers equipment to their employees tax-free. The 2006 Budget saw the scrapping of the Home Computing Initiative (HCI) and the direct tax exemption, which had sought to encourage employers to lend computer equipment to their employees. Following a review of the VAT position, HMRC has withdrawn its policy of allowing full VAT recovery without any adjustment for private use, in circumstances where there is any business use, with effect from 13 August 2007. Businesses must now consider why the computer is being provided to the employee, in order to determine the level of VAT that can be claimed. Businesses will only be able to claim full VAT recovery without the requirement to account for VAT on private use where the provision of a computer is necessary for the employee to carry out the duties of the employment. Where a business cannot demonstrate that it is necessary to provide the computer for the purposes of the employment, only a portion of the VAT will be recoverable as input tax. Businesses which are currently providing computers under an HCI agreement can continue recovering VAT in full until the agreement has expired. HIPs extended to three-bedroom houses The Government has announced that it will be extending its Home Information Pack (HIP) scheme to cover three-bedroom houses with effect from next month. Under the scheme, all householders in England and Wales with three or more bedrooms will have to provide the information packs when they want to sell their homes. HIPs cost around £400, and include the following documents:
HIPS were introduced for four-bedroom homes on 1 August 2007, and will be extended to three-bedroom houses on 10 September. The scheme has been subject to criticism by some experts, with some expressing concerns that there would not be enough energy assessors available to produce the certificates. A similar scheme is set to take effect in Scotland in 2008. Same-day banking system 'suffers delays' Plans to introduce a system of same-day transfers for transactions made by telephone and via the internet have been subject to a delay. Telephone and internet payments currently take three days to clear, but the new system will enable payments to reach an account in just a few hours. The system was due to come into effect in November, but has now been postponed until May 2008. The plans followed criticism from the Office of Fair Trading over the length of time that it takes the banks to process electronic payments, as a result of which they make around £30m in interest each year. Paul Smee from the Association of Payment Clearing Services (Apacs), said, 'The UK banking industry is disappointed that we won't be able to deliver the new faster payments system as quickly as we had planned. But there is no room for error when launching a system which forms part of the UK's economic structure'. Apacs emphasised that plans to speed up the final cheque clearance process will not be affected by the delay, meaning that from November cheques will receive final clearance after six days and can only be rejected after this point in cases of suspected fraud. |
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