Written evidence submitted by the Chartered
Institute of Taxation (CIOT) and the Low Incomes Tax Reform Group
This paper sets out comments from the CIOT
and LITRG on some aspects of the tax proposals contained in the
Chancellor's Budget statement and associated papers. It is not
a full analysis of the proposals; we would be happy to supply
fuller comments on specific aspects if that would be of assistance
to the Committee.
In terms of tax proposals, this was a quiet
Budgetand none the worse for that. There number of tax
changes in the pipeline is significant; a quieter period to help
digest them is welcome. Everything is relative, though, and HMRC
still produced 71 Budget Notes and a host of additional papers
on Budget day: as we have said before, saving up such a volume
of change for the set piece of the Budget is not really the best
way of running the tax system.
Our greatest concern with this Budget is the
prospect of significant quantities of tax legislation being rushed
through without any meaningful Parliamentary scrutiny. We have
already written to the Chancellor expressing our concerns
and asking that only measures that have been thoroughly consulted
on are taken through in a truncated Finance Bill. The need to
provide for the continuation of income tax should not be used
as an excuse to push other measures through without debate; the
process that was applied to Finance Bill 2005 is a bad precedent
that should not be repeated.
Discussions on the way this levy will run have
continued productively but major issues remain to be solved. Perhaps
the biggest issue is the UK/non-UK impact: the extent to which
overseas staff working short-term in the UK, or people working
abroad who have some UK involvement, are caught by this new tax.
Having all practical matters solved by the time returns are due
will be challenging.
We have regularly expressed concern about the
complexity of the measures being introduced to restrict pensions
tax relief. The context is a system which aims to encourage pensions
savings; which had a major and lengthy reform process culminating
in a well-formulated simplified regime in 2006; and a lot of work
to recast systems and guidance (including within HMRC).
If the need is to reduce the amount of tax relief
going to those on high incomes, surely a simple and effective
route would be to reduce significantly the annual allowance "cap".
Instead we have complex anti-forestalling rules and the lengthy
consultative document on how the seemingly simple restriction
to tax relief should operate post-2011. Questions must surely
be asked as to whether this route is efficient in terms of the
administrative burdens it places on the pensions industry, advisers,
HMRC and of course individuals.
We note that the tone of the environmental measures
announced in the Budget was clearly that incentives were being
improved. For example, BN11 points to enhanced capital allowancesyet
in the Red Book this measure is scheduled to raise £5 million
a year, rather than cost the Exchequer money. This seems odd;
some wider policy statements and directions on environmental taxation
The doubling of the Annual Investment Allowance
is clearly welcome, as is the continuation of the Business Payment
Support Service, which the Chancellor rightly hailed as a considerable
success. The HMRC document "Delivering a new relationship
with business" also deserves a welcome: there are some promising
ideas and commitments here.
The HM Treasury document "Tax framework
for business" is also a step in the right direction: it is
commendably brief and clear and contains some of the principles
we have long called for as needing to be part of a modern tax
system. We do find it disappointing that the principles will be
applied only "where possible", though it is good to
see that the Government "
will explain its reason for
not so doing".
We continue to be concerned at the pressures
on HMRC's staffing. This runs the risk of changes to systems that
promise staff savings being pushed through before they are wholly
ready (we continue to discuss our concerns over the adoption of
iXBRL filing for company accounts; the recent problems over coding
notices may also be an example).
As we have said on previous such occasions,
public sector "efficiencies" are likely to lead to a
worsening of front-line customer service. This would leave unrepresented
people on low incomes with less and less help and guidance as
the tax and benefits systems continue to grow in complexity.
Rates and allowances
The National Insurance lower earnings limit
(LEL) has increased by £2 a week in line with the 2.5% increase
in the state retirement pension. As this represents the point
when workers start to build up an entitlement to contributory
benefits, raising it at a time when many workers' pay is frozen
or even decreasing risks disenfranchising some from contributory
From 6 April 2011 people aged 60 and over will
qualify for WTC if they work at least 16 hours a week. This is
more generous than the pre-budget report announcement which said
it would be at age 65. We expressed the view it should be given
from pension age, so we welcome this change of heart.
Tax reliefs and exemptions for carers of children
The new tax exemption for carers of children
under residence orders (ROs) and special guardianship orders (SGOs),
thereby bringing their treatment in line with adopters, is an
important step forward. It is also excellent news that kinship
carers in England and Wales are to benefit from the new tax relief
for shared lives carers, along with their counterparts in Scotland;
also that payments made pursuant to ROs and SGOs will be disregarded
as income when calculating entitlement to Housing Benefit and
Council Tax Benefit.
This is an important and popular mechanism for
pensioners with very small pension pots to commute their savings
to a lump sum qualifying for 25% tax relief. It is unfortunate
that the trivial commutation limit is tied to the lifetime allowance
of £1.8 million because this means it will be frozen, along
with the lifetime allowance, for the next five years. Thus a curb
on relief intended for people with high incomes ends up harming
those at the very opposite end of the income scale.
Income tax/pension credit interaction
Pension credit guarantee increases are clearly
welcome. We do have to note that the state pension increases,
whilst tax personal allowances are frozen, will drag many more
pension credit recipients into the tax net. This increases complexity
and we hope that the Department for Work & Pensions guidance
and support on the subject will be improved.
The Chartered Institute of Taxation (CIOT) is
a charity and the leading professional body in the United Kingdom
concerned solely with taxation. The CIOT's primary purpose is
to promote education and study of the administration and practice
of taxation. One of the key aims is to achieve a better, more
efficient, tax system for all affected by ittaxpayers,
advisers and the authorities.
The CIOT's comments and recommendations on tax
issues are made solely in order to achieve its primary purpose:
it is politically neutral in its work. The CIOT will seek to draw
on its members' experience in private practice, Government, commerce
and industry and academia to argue and explain how public policy
objectives (to the extent that these are clearly stated or can
be discerned) can most effectively be achieved.
The CIOT's 15,000 members have the practising
title of "Chartered Tax Adviser".
1 See http://www.tax.org.uk/showarticle.pl?id=9124;n=221 Back
Finance Act 2005 was the result of 106 clauses and various schedules
being rushed through all their Parliamentary stages in a single
day, with only the first 13 clauses having any debate at all. Back