Budget 2010 - Treasury Contents

Written evidence submitted by the Chartered Institute of Taxation (CIOT) and the Low Incomes Tax Reform Group (LITRG)

  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 Budget—and 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[1] 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.[2]


  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 allowances—yet 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 are overdue.


  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 benefits entitlement.

  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.

Trivial commutation

  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.

March 2010


  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 it—taxpayers, 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

2   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

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