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Finance Bill

The Paymaster General (Dawn Primarolo): This Government are determined to ensure that all employers and employees pay the proper amount of tax and NICs on the rewards of employment, however those rewards are delivered. Despite the efforts of successive Governments of all persuasions over several years, we continue to be presented with ever more complex and contrived attempts to avoid paying tax and NICs on rewards from employment, particularly in relation to bonuses in the City.

In the most recent year for which we have figures, well-rewarded individuals receiving bonuses of at least £1.5 billion in total sought to avoid paying their fair share of tax and NICs.
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The disclosure rules in Finance Act 2004 have revealed that this kind of avoidance is still rife. Without prompt and decisive action we think there could be up to £2 billion paid this year in bonuses on which the amount of tax and NICs properly due is at risk, as a result of increasing ingenuity and inventiveness of the tax avoidance industry.

We cannot allow avoidance on this scale to continue. It is only right that everyone who should pay tax and NICs, does pay and that they pay their fair share when it is due. The overwhelming majority of employers and employees do pay their fair share. But for too long some employers and employees with the benefit of sophisticated tax advice have sought to avoid their responsibilities and to pass more of a burden onto the rest of us.

Early attempts at avoidance in this area took the form of paying bonuses and salaries in gold bullion, diamonds and fine wines. When these routes were closed, employers started to pay bonuses through shares and share options to reduce the amount of NICs they had to pay, avoid their obligation to operate PAYE, and reduce employees' tax bills. When, in 1998, assets readily convertible into cash were brought within PAYE, and NICs, avoidance schemes moved on to more complex arrangements.

Despite extensive reforms to the tax legislation in 2003, employers and their advisers are continuing to devise and operate ever more contrived avoidance schemes. One such example of which Inland Revenue has learnt involves payment of a bonus to an employee in the form of dividends on shares in a specially constructed company. This avoids tax at 40 per cent. and employer and employee NICs.

The Inland Revenue will be challenging such arrangements in the courts where it is appropriate to do so. We cannot however await the outcome in the courts before taking action. We intend that from today both tax and NICs legislation should achieve our objective of subjecting the rewards of employment to the proper amount of tax and NICs, however the rewards are delivered. Taxpayers who contribute their fair share
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have a right to expect that others will also do so.We also want to make it plain that to the extent that legislation may still not achieve our objective in the face of continuing avoidance, we will ensure it does.

To that end we will be including legislation in FB 05, effective from today, to close down the avoidance schemes we know about. A technical note explaining what we intend to do in FB 05 will be published today. We will also ensure that NICs is charged on these schemes with effect from today.

However, experience has taught us that we are not always able to anticipate the ingenuity and inventiveness of the avoidance industry. Nor should we have to. Our objective is clear and the time has come to close this activity down permanently.

I am therefore giving notice of our intention to deal with any arrangements that emerge in future designed to frustrate our intention that employers and employees should pay the proper amount of tax and NICs on the rewards of employment. Where we become aware of arrangements which attempt to frustrate this intention we will introduce legislation to close them down, where necessary from today.

This action will not affect employers and employees who organise their affairs in a straightforward and ordinary way—the vast majority. In particular, genuine employee share schemes and share option plans will not be affected. We continue to believe these make an important contribution to the Government's productivity agenda.


National Non-Domestic Rates (2005–06)

The Minister for Local and Regional Government (Mr. Nick Raynsford): I have today presented the provisional local government finance settlement for 2005–06. Included in the announcement was the distributable amount of national non-domestic rates in England for 2005–06 to be redistributed to local authorities, which will be £18.000 billion.
Calculation of Distributable Amount for 2005–06
£ million
1. Income from local lists
Multiplier (p)43.043.744.445.641.5
Gross rate yield in respect of current year16,95217,19517,32217,88019,468
(i) Reliefs
(a) Net Transitional Relief-493-182-119-980
(b) Empty or partly occupied properties-1,049-1,144-1,228-1,244-1,355
(c) Charitable-583-602-616-636-692
(d) Rural shops and post offices-5-6-6-6-7
(e) Community amateur sports clubs-4-5
(f) Former agricultural premises000-1-1
(g) Discretionary-43-42-39-38-41
Net rate yield in respect of current year after reliefs 14,77715,22015,31515,85317,368
(ii) Collection costs and other reductions to contributions
(a) Costs of collection-84-84-84-84-84
(b) Losses on collection-95-106-88-114-124
(c) City of London offset-7-7-700
Total contribution in respect of current year14,59215,02415,13615,65517,160
(iii) Prior year adjustments
(a) Interest on repayments-70-59-78-40-31
(b) Repayments-270-479-774-448-345
Net rate yield from local lists14,25214,48514,28415,16716,784
2. Income from Central list
Net central list yield1,0481,0441,0291,0371,114
3. Income from the former Crown list
Contributions in lieu of rates128101010
Total yield15,31215,53715,32316,21417,908
4. Exchequer Contributions
Exchequer contribution towards transitional relief26241111590
Total NNDR pool payments (= 1+2+3+4)15,57415,57815,43416,27317,908
5. Adjustments
Surplus brought forward-305133-915-1,081193
Combined total15,27015,71114,51915,19318,100
Distributable amount15,13616,62615,60015,000
Surplus carried forward133-915-1,081193

Notes to the table:
The above calculation involves estimating several figures that are inherently difficult to forecast accurately, such as the gross rate yield and the prior year adjustments. The resulting figure of £18.100 billion has therefore been rounded to £18.000 billion exactly to avoid spurious accuracy.
For 2001–02, 2002–03 and 2003–04, the amounts shown are generally those reported on the outturn (NNDR3) returns, with those for 2003–04 being regarded as provisional in advance of the receipt of audited returns. For 2004–05, the amounts shown are the provisional outturn for the year based upon authorities' provisional contributions to the non-domestic rating pool, as reported on NNDR1 returns. For 2005–06 figures, the estimates are based on:
1. Item 1: The gross rate yield represents the estimated effective total rateable value of non-domestic hereditaments on local rating lists multiplied by the small business non-domestic rating multiplier of 41.5p. The supplement of 0.7p that is also applied to businesses paying for the new small business rate relief is not included, and neither is the small business rate relief included within the reliefs at item l(i). This reflects the fact that the income from the supplement is intended to equal the cost of the relief nationally, resulting in a zero net effect upon the Distributable Amount.
2. Item 1(i)(a): The cost of the transitional reliefs in 2004–05 is estimated to be zero, to reflect the fact the scheme is designed to be self-financing, through phasing in reductions to rate bills.
3. Item 1(i)(b): The empty property relief adjustments include voids and partially occupied hereditaments. The 2005–06 figure includes an allowance to reflect the increase in the gross rate yield.
4. Item 1(i)(c): Charitable rate relief. The 2005–06 figure includes an allowance to reflect the increase in the gross rate yield.
5. Item 1(i)(d): Rural Shops and Post Office relief. Figures include mandatory relief for general stores and post offices under the Local Government and Rating Act 1997. The 2005–06 figure includes an allowance to reflect the increase in the gross rate yield.
6. Item 1(i)(e): Community Amateur Sports Clubs (CASCs). This is mandatory rate relief for sports clubs registered with the Inland Revenue as Community Amateur Sports Clubs under Section 64 of the Local Government Act 2003, which came into effect on 1 April 2004. The 2005–06 figure includes an allowance to reflect the increase in the gross rate yield.
7. Item 1(i)(f): Discretionary relief granted to charities, non-profit making organisations and for other reasons including discretionary relief for village shops and post offices under the Local Government and Rating Act 1997. The 2005–06 figure includes an allowance to reflect the increase in the gross rate yield.
8. Item 1(ii)(a) and (b): The allowances for the costs and losses incurred by authorities in collecting non-domestic rates from ratepayers.
9. Item 1(ii)(c): City Offset—the amount which the City of London is not required to pay into the non-domestic rating pool. It has been set to zero for 2004–05 onwards.
10. Item 1(iii): Net adjustment in respect of appeals and other amendments to the rating list affecting liability for previous years rates settled in that year: comprising repayments and associated interest payments.
11. Item 2: the rateable value of non-domestic hereditaments on the central rating list multiplied by the multiplier, less the net effect of transitional arrangements, and adjusted for appeals and other changes in respect of previous years.
12. Item 3: Almost all properties previously included in the Crown List are included in the local list figures at item 1.
13. Item 4: the contribution from central government to offset the amount of the Secretary of State's estimate of income foregone as a result of transitional arrangements is assumed to be zero for 2005–06, given the self-financing nature of the transitional relief scheme.

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