August 2013 News
Crackdown on pension ‘liberators’
Pension liberation schemes offer investors access to their pension funds before the age of 55 and although they may inadvertently trigger a 70% tax charge they have been aggressively sold in recent years. Moe HMRC is to de-register up to 500 scheme providers according to the Financial Conduct Authority. When a scheme is de-registered, the administrator will be liable to a tax charge of 40% of the total sums and assets held immediately before deregistration.
£2.5bn VAT bill
HMRC has managed to reduce the amount of VAT owed by UK businesses to the Treasury from £2.7bn last year, to £2.5bn this year.
HMRC doubled its use of distraint in the recovery of VAT between March 2012 and 2013, using the powers 4,746 times. It more than doubled its spend on external debt collectors to almost £13m. VAT payments are often late because companies have to pay it before receiving payment for goods or services provided to clients. Many businesses, for example, are required to pay their VAT bills quarterly for the amounts charged on their invoices – rather than the amounts they have received – over that period.
Patent box scheme lures multinationals
The ‘patent box scheme’, introduced in the 2011 Budget, ensures that profits generated through British-based intellectual property are taxed at a lower rate of 10%, instead of the typical corporation tax level, which currently stands at 23%. GlaxoSmithKlinem the pharmaceutical company, recently decided to relocate 150 overseas research projects to the UK in order to take advantage of the scheme.
Multinationals continue to dominate tax news
The long running saga over how much tax Google, Starbucks, Amazon and other multinationals pay has continued to dominate the news. During the last month:
- David Gauke, the Exchequer Secretary, has promised MPs that the government will act to close loopholes that allow multinationals to shift their profits out of the UK into lower-tax jursidictions. Companies such as Google, Amazon and Starbucks have been attacked both in public and before the Public Accounts Committee over their UK tax affairs.
- Starbucks has announced that it will voluntarily pay £10m more corporation tax this year but that it will also close down unprofitable outlets. It is expected that 1000 jobs will be lost.
- The Public Accounts Committee has demanded a full investigation of Google, which it believes is actually evading UK tax by playing down the function of its UK office.
HMRC to lose 5% of budget
George Osborne, the Chancellor of the Exchequer has announced that HMRC will see its resource budget cut by 5% – some £166m – in 2015/16. The cut was described as ‘disappointing’ by ICAEW chief executive Michael Izza. ‘These could have significant implications on collecting money from tax payers as well as adding additional burdens to businesses, who already find interacting with HMRC a struggle,’
Tobin tax put on hold
The launch of a pan-European financial transaction (FTT) tax have been delayed for up to six months because talks between a European Commission-sponsored working group have stalled. The FTT (aka the Tobin tax) was initially designed as a sweeping 0.01% levy on shares, bonds and derivatives across the whole EU, with the hope that it would prevent speculative trading and prompt the financial sector to pay back some of what it received from governments during the financial crisis. The UK government is against the tax.
HMRC claim serious fraud victory
From 1 April 2012 to 31 March 2013, there were 2,888 suspected cases of serious tax evasion, a 16% drop from in the previous year and a 36% drop on its peak of 40,506 in 2010-11. Serious tax evasion is defined as being £50,000 or more.
G8 tax proposals
At the G8 summit in County Fermanagh, Northern Ireland a ten-point agreement was announced on fighting tax evasion. It included detailed plans for tax authorities around the world to automatically exchange information; the prevention of cross-border profit-shifting; and the identification of the beneficial owners of companies. Other suggestions included helping developing nations to collect their taxes, having extractive companies report payments to all governments and a call for governments to “roll back” protectionism in favour of boosting jobs.
However, no tangible action has been agreed. See Offshore News for comment.
Prior to G8 summit the UK’s overseas territories and Crown dependencies agreed to various new restrictions. Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar, Anguilla, Montserrat, the Turks and Caicos Islands, Jersey, Guernsey and the Isle of Man agreed to sign up to the Multilateral Convention on Mutual Assistance in Tax Matters, led by the OECD. Additionally, they agreed to draw up plans on the beneficial ownership of companies, detailing businesses’ true owners. The Crown dependencies warned, however, that a register of true owners may not work as it does not include trusts. The register – to be held by Companies House – will initially only be accessible to government authorities such as HM Revenue & Customs, although a consultation could be held in the future over making the information public. In May, it was announced all the UK’s overseas territories are now signed up to automatic information-sharing deals, with a pilot currently underway. The deal sees the UK, along with other countries involved in the pilot, automatically provided with much greater levels of information about bank accounts held by their taxpayers in those jurisdictions, including names, addresses, dates of birth, account numbers, account balances and details of payments made into those accounts. The new agreement, however, would go further and bring them in line with OECD standards.
G8 should get its own house in order
After signing the agreement Jersey and the Isle of Man rejected suggestions they facilitate tax avoidance and evasion. Both claim recent international pressure put on them is politically motivated, adding they are more open about their tax systems than they are given credit for.
Despite the continuing pressure, leaders of perceived tax havens are suggesting G8 leaders should get their own houses in order. ‘Politicians love scapegoats,’ said the Isle of Man’s chief minister Allan Bell. ‘And the G8 agenda is being politically driven because there’s always someone else to point a finger at.’ He added that the US in particular is practicing double standards in its rhetoric about tax avoidance and evasion.
‘We just want a level playing field when it comes to tax transparency. It’s totally selfish from the USA because they want to track down their own tax evaders overseas, without looking at Delaware,’ he said.
Banks to be named and shamed
HMRC has announced plans to name and shame banks if they are discovered to be providing assistance for tax avoidance schemes.
There is increased pressure on banks over their involvement in legal tax planning on their own account or for their clients. Last year, Barclays closed its controversial tax planning unit in a bid to repair its battered reputation following a succession of scandals including rigging the Libor rate at which banks lend to each other. It was later reported that the bank’s tax planning unit generated £1bn annually between 2007 and 2010.
Tax evasion hotline receives 300 calls a day
HMRC’s tax evasion hotline received 72,000 calls last year. In many cases, the calls can lead to unnecessary investigations. A case in point is 2006/07, when HMRC recouped just £2.6m from calls made to the hotline, rather than the £32.5m originally hoped for. Typically, the calls relate to small-scale cases such as tradesmen being paid cash-in-hand, rather than more elaborate, offshore activities.
Employee benefits trust closed down
HMRC has challenged £9m made in tax deductions made by companies owned by tax adviser John Dryburgh – Scotts Atlantic Management and Scotts Film Management – paid into employee benefits trusts.
The payments came out of profits earned by selling tax avoidance film schemes. The scheme involved trying to extract profits from companies while at the same time securing corporation tax deductions. Employers paid money into an employee benefit trust and claimed corporation tax deductions. The trust gave undervalued shares in a new company, causing a loss to the employer.