Examination of Witnesses (Questions 240-259)
MR DAVE
RAMSDEN, MR
MIKE WILLIAMS,
MR EDWARD
TROUP, MS
SARAH MULLEN,
MR CHRIS
MARTIN AND
MR SIMON
GALLAGHER
18 MARCH 2008
Q240 Jim Cousins: Let us not talk
about 2010; let us talk about people right now who are facing
rises in their food costs, rises in their energy costs, and now
a combination of tax changes which will lead to a cut in their
standard of living, and this is an economy now which needs more
spending power in the hands of low income people, surely, not
less?
Mr Williams: Again, if we look
forward—
Q241 Chairman: I think we have gone
over this point quite a bit, so try and give us a final answer
on it.
Mr Williams: I think the key answer
is that, as a result of changes made in the personal tax and benefit
measures introduced since 1997, by April 2010 (but many of the
changes have already been introduced) a single earner family on
male average earnings with two children will be at least £265
a year better off as compared to 1997. A single earner family
on half male average earnings, again with two children, will be
at least £4,200 a year better off as compared to 1997.
Q242 Mr Breed: We seem to be moving
to more of a principles-based taxation regime in some aspects
rather than just rules-based. Is it part of those principles to
increase more retrospectivity and give less time for people to
make changes to their own personal arrangements in order to fit
in with your tax rules because you are giving them so little time
to undertake that but at the same time you are increasing retrospectivity?
Mr Ramsden: I think that in the
interests of trying to give the Committee as much information
as we can, if the Chairman is okay with it, I will pass over to
Mr Troup to answer that question.
Mr Troup: I think there are two
separate points there. There is principle-based legislation and
retrospection. There is consultation currently going on on some
principle-based anti-avoidance legislation, which has been generally
welcomed, although we have put off the introduction of that until
next year to make sure—
Q243 Mr Breed: And will that increase
retrospectivity?
Mr Troup: No; that will just be
a new set of rules replacing some existing rules and dealing with
some loopholes. The retrospection point is slightly more complex
because there is both difficulty in defining what you mean by
retrospection and also different circumstances in which it can
be applied. We did in 2004 announce that in relation to particular
kinds of avoidance of tax and national insurance on City bonuses
if necessary the Government would legislate retrospectively back
to the date of the announcement in December 2004 to stop any further
avoidance schemes in that area. That was generally welcomed by
the professions and was used on one occasion. Elsewhere there
has been retrospection and there is a retrospective measure in
this year's Budget to correct what was a defect of drafting in
the tax law rewrite. That sort of retrospection again I think
has been generally welcomed, and on occasions, and I think you
raised it with the experts yesterday, with regard to the anti-avoidance
measure on double tax treaties we do go retrospectively where
it has been perfectly clear what the intention of the law was
and there have been attempts to abuse it. That was a fully retrospective
measure and has stopped some extremely egregious avoidance. The
other point to be made in relation to retrospection is the extent
to which announcing a measure might be perceived as retrospection
because it can apply to activities which are already in the course
of taking place.
Q244 Mr Breed: There is indication
here from Mr Whiting's notes to us that a measure, BN66, has been
introduced which will have a retrospective effect back to 1987.
This is in his view unacceptable and I think will be unacceptable
to most of us.
Mr Troup: That was the anti-avoidance
measure which I referred to. It related to the Isle of Man double
tax treaty. In 1987, under the previous administration, the meaning
of that treaty was clarified retrospectively at that time to make
it clear that individuals in the UK who operated through partnerships
in the Isle of Man but generated income in the UK could not avoid
tax.
Q245 Mr Breed: But the thrust of
what he is saying is correct, is it?
Mr Troup: It is correct because
what happened was that, following the introduction of the disclosure
rules in 2004, it was disclosed that a number of individuals,
particularly in the property industry, had been taking a different
interpretation from that which had been announced in 1987 and
were continuing, without any active presence in the Isle of Man
and only having income in the UK, to be claiming that 99% of their
income was effectively covered by the Isle of Man double tax treaty.
The action that has been announced here is retrospective. It confirms
what was set out quite clearly in 1987 and what was intended by
the Isle of Man treaty when it was entered into. I do not think
that members of the Committee would have any difficulty in agreeing
that the particular circumstances it applied to were out-and-out
tax avoidance.
Q246 Mr Breed: Just finally on the
other aspect about people's ability to have some time to order
their affairs, particularly in respect of capital gains tax, is
this going to be another feature of principles, giving people
virtually no time to make the proper, normal adjustments?
Mr Troup: This is an entirely
separate point from the question of principle-based legislation.
Mr Williams will talk if necessary on any further details of the
capital gains tax changes but those changes were announced in
October with further changes announced in January.
Q247 Mr Breed: For some people they
are going to have to order their affairs within weeks, not months.
Mr Troup: For implementation with
effect from the tax year beginning on 6 April this year.
Mr Breed: Yes, weeks. Thank you.
Q248 Mr Dunne: Mr Williams, for how
many years are taxpayers' affairs able to be opened by the Revenue
and Customs retrospectively?
Mr Williams: I am not sure what
you mean by "retrospectively", Mr Dunne. In the normal
circumstances you can go back six years.
Q249 Mr Dunne: How do you envisage
policing the new entrepreneur lifetime relief under the capital
gains tax regime?
Mr Williams: The million pounds?
Q250 Mr Dunne: Yes.
Mr Williams: The million pounds
will be policed by having people who have used any part of the
million pounds keep a running tally of how much of the million
pounds they have used. If you have had, say, a £200,000 slice
then you need to keep a record that shows you had a million and
you have now deducted £200,000 for a particular year.
Q251 Mr Dunne: And you will have
power to go back beyond six years to check whether that has been
done properly?
Mr Williams: There will not be
the need, I think, to go back because the £200,000 will be
the figure agreed when the tax return for the particular year
is agreed between the taxpayer and HMRC. Let us assume that figure
is £200,000. That then takes £200,000 out of the million.
If we then assume that there is another—
Q252 Mr Dunne: Who has responsibility
for maintaining the records? You or the taxpayer?
Mr Williams: The reality in that
situation is that both will keep records, the taxpayer and HMRC,
for the relatively small number of taxpayers who actually will
claim the entrepreneur relief.
Q253 Mr Dunne: So in effect you are
extending the requirement to keep records beyond six years?
Mr Williams: What I am saying
to people who take advantage of the entrepreneur's relief is that
if they do so and they do not use up the full million pounds the
first time they use it then they will have to keep a tab of how
much of the million pounds they have used.
Q254 Mr Dunne: What assumptions have
been made about the behavioural changes in consumption levels
in relation to the changes to alcoholic duties?
Mr Troup: HMRC publish the elasticities
which they use with our forecasts. The forecasts that are published
in the Budget assume a decline of 1.5% in consumption next year,
2.5% the year after and 3.5% the following year in aggregate.
Q255 Mr Dunne: What proportion of
motorists will be affected by the changes to vehicle excise duty?
Mr Troup: How do you mean?
Q256 Mr Dunne: How many motorists
will be affected, or how many vehicles will be affected if that
is easier?
Mr Martin: All motorists will
be affected because all the VED rates have changed. Do you mean
how many gain?
Q257 Mr Dunne: Indeed. What proportion
are net gainers because there are some reductions? Sorry—what
proportion would be paying more is what I am trying to say.
Mr Martin: Half of new car buyers
from 2009 will be better off and nearly 70% of new car buyers
will be no worse off.
Q258 Mr Dunne: So you are saying
that only 30% of new car buyers will be worse off?
Mr Martin: Yes.
Q259 Mr Dunne: On page 187, table
C6 suggests that council tax increases for next year will be 5%
above this year. On what basis has that assessment been made?
It seems to be higher than the published average of around 4.5%.
Ms Mullen: Did you say that you
thought that it implied that tax rate rises were—
Mr Ramsden: The growth rate.
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