Written evidence submitted by the Chartered
Institute of Taxation
1. The Chartered Institute of Taxation (CIOT)
is pleased to submit comments to the Treasury Committee inquiry
into Budget 2011. Our comments are necessarily selective and do
not constitute a full analysis of the Chancellor's announcements.
2. We have not commented specifically on matters
relating to the unrepresented and tax credits. These are dealt
with by our Low Income Tax Reform Group (LITRG), whose submission
has our support.
PERSONAL TAX
3. The CIOT has always been in favour of integrating
income tax/PAYE and NICs. Thus, we welcome the announcement of
studies into a combination: we think there is considerable scope
for administrative savings in streamlining the two levies. Cost
questions, international obligations and the acknowledged issue
of pensions and savings income may well preclude a full merger.
We do think the contributory principle should be within scope
of the review, given moves towards a flat state pension.
4. On personal allowances, we observe that there
are many questions being raised about the future of the higher,
age allowances. It would be helpful if announcements about the
level of the main personal allowance were accompanied by announcements
about the age allowance, both figures and strategy.
5. We submitted a paper recently, putting the
case for an increase in Authorised Mileage Allowance Payments
(AMAPs). We were very pleased to see our call answered so quickly
with an increase from 40p to 45p, though our suggestion was that
a rate of 50p a mile was needed in most cases. The extensions
for volunteer drivers are very welcome and will help the voluntary
sector. They have been concerned about creating taxable payments
just to reimburse their volunteer drivers with their full driving
costs. We would suggest, going forward, that the rates should
be kept under review, as are HMRC's Advisory Fuel Rates.
6. The Employer-Supported Childcare proposals
still seem to place a heavy burden on employers due to the unnecessary
complexity of computations, the potential penalties if employers
get it wrong and impact on employer/employee relations.
RESIDENCE AND
DOMICILE
7. The announcement of consultations over a statutory
residence test (SRT) for the UK, with a plan to introduce the
test in FA 2012, is very welcome. The current position, where
residence is determined through a combination of old case law
and HMRC practice, is not suited to the needs of 21st century
business with mobile entrepreneurs and employees. The UK needs
a modern system that can give certainty, especially in view of
the interaction with the planned Scottish income tax rate. Abolishing
the need for "ordinary residence" should be an objective
of this work; reviewing the domicile law would also be sensible.
8. A good deal of work has been put in by the
professional tax bodies to develop ideas for a SRT. This indicates
that a workable test is possible, which will balance the needs
of individuals, business and HMRC. There has been positive engagement
with HM Treasury and HMRC, and the CIOT looks forward to working
further with them on this subject.
9. We note the proposals for changes to the FA
2008 rules on the remittance basis for non-domiciled taxpayers.
There is a real need to simplify these rules, which are over complex
and create problems in practice. Our preference would be to have
a radical overhaul of them, but we welcome the recognition of
the need to improve their operation. The proposed investment exemption
has its attractions, not least in encouraging non-domiciles to
bring funds to the UK and spend them, but may end up as over complex.
BUSINESS TAXES
10. The further reductions in the main rate of
corporation tax are clearly welcome. Almost of more significance
are the moves on confirming the conclusion to the long-running
discussions on CFC reforms. This is much needed: it is all part
of bringing certainty to the UK's business tax system. The government
is rightly aiming to make the UK's corporate tax system as internationally
competitive as possible - but it needs to bear in mind that the
most important aspects of the system are that it is stable, consistent
and delivers certainty.
11. The possibility of Northern Ireland being
able to set its own corporation tax rate is interesting. We have
already contributed to the initial debate on this idea and see
it as a "challenging opportunity" - the challenge being
to implement it in a way that creates minimal extra burdens on
business. Our involvement in the "Calman" proposals
in Scotland, now in the Scotland Bill 2011, make us think that
any review of possible devolution of corporation tax rate setting
to Northern Ireland must consider Scotland and Wales at the same
time.
12. The increase in the rate of research and
development allowance for smaller businesses is useful. The most
important feature of this relief for small businesses is its facility
to generate a tax repayment: we are concerned that it seems that
the rate of repayment is being reduced, to meet EU requirements,
so the real net benefit is questionable. The removal of the restriction
on repayment relief by reference to PAYE/NICs is welcome.
13. The extension of the short life asset timescale
puzzles us. It seems to us that the additional administration
implied by the extension to an eight-year timescale will rather
negate the benefits, which are in any event modest (this seems
to be recognised in the TIIN). If the target for this change is
thought to be smaller businesses, we would have thought that an
increase in the £25,000 limit for the Annual Investment Allowance
(AIA) scheduled to apply from April 2012 would be preferable.
Alternatively, allowing purchases to be spread over two years
for AIA purposes would be a better way to help. Larger businesses
- who may be better able to deal with the admin requirements -
are in any event being helped by reducing the main tax rate.
INVESTMENT INCENTIVES
14. The extensions to Enterprise Investment Relief
and Venture Capital Trusts are not before time. Changes in recent
years have meant that the relief has become focused on too small
a range of business. The increase in the gross asset level back
to £15 million and number of employees to 250 are sensible
and realistic and open up many more businesses to the possibility
of raising capital through these routes. In many ways, these extensions
are more important than the increase in the rate of income tax
relief. There is scope to simplify the definitions and operation
of these reliefs.
15. The proposed changes to the REITs rules are
very positive and have been widely welcomed.
16. The doubling of the lifetime amount eligible
for entrepreneurs relief (a small point, but it really should
be rechristened entrepreneurs rate) is welcome, but it
is disappointing that none of the complexities inherent in the
relief were addressed. The 5% qualification threshold is a constraint
for widely-held family businesses and an additional complexity;
ideally it would be abolished (the requirement for the shareholder
to work for the business should suffice) or at least be reduced.
CHARITIES AND
CHARITABLE GIVING
17. The changes to the gift aid rules proposed
in the Budget are welcome. The first stage, relaxing the maximum
benefits for substantial donors is helpful and realistic. The
proposal to allow charities to claim gift aid relief on small
donations up to a total of £5,000 is very constructive and
goes part way to answering the calls we and other bodies have
made for a simpler system for small charities. The move to online
filing and gift aid database will also help but online filing
must not be made compulsory. In the wake of the report authored
by the CIOT's chief executive, we are working on ways of supporting
members who can help small charities with gift aid procedures.
18. The new inheritance tax charity relief and
the possible gifts of art relief are interesting ideas but will
clearly need discussion and careful design to avoid their becoming
over complex.
INDIRECT TAX
19. We welcome the three Budget changes that
will have the effect of better aligning UK VAT law with EU VAT
law. However, there remain other UK provisions that are not compliant
with EU legislation: this whole area needs to be under continuing
review.
ANTI AVOIDANCE
20. The proposed revisions to the draft legislation
on disguised remuneration do answer some of the concerns we expressed
on the initial draft but we think more needs to be done to make
sure the rules operate properly. Employers still face spending
considerable time and costs in navigating through lengthy and
complicated new legislation. The proposals are moving to taxing
the form (involvement of a third party) rather than the substance
(reward or loan in connection with the employment) of the arrangement;
they override the existing benefits-in-kind code and could potentially
impact in mainstream situations involving, eg share plans, pension
schemes, relocation assistance, earn-outs and international assignees.
We welcome the intention of excluding, where possible, third
party arrangements that do not constitute tax avoidance,
eg arrangements involving group companies. However, we remain
concerned that if discretion is left to HMRC to decide what arrangements
are the right side of the line and which are not then the position
will always be uncertain and subject to a change of HMRC view;
many employers will want clearance from HMRC that they are not
caught inadvertently in the new rules.
21. We support the concepts in the Tackling
Tax Avoidance paper. A strategic approach is sensible and
the prospect of a rolling series of reviews of important areas
is sensible. The aim should not just be one of tightening up:
the need is to streamline the rules and make them easier to understand
and more certain for all concerned.
22. We are pleased to note that the new Protocol
on unscheduled announcement of changes to tax law explicitly recognises
that retrospective changes to tax legislation will be wholly exceptional.
This recognizes concerns we and other bodies have expressed. It
is good to see that the Forum for Tax Professionals (FTP) will
be monitoring the operation of the Protocol and recommending changes
where appropriate.
23. Taking forward the work on "deliberate
wrongdoing" as dealing with "dishonest tax agents"
is a better focus and has our support.
24. As a final point in this section, we would
urge the Government not to lose sight of evasion and other criminal
activity, which can have a far greater impact on Exchequer revenues
than avoidance.
TAX ADMINISTRATION
25. We note the comments about modernising the
administration of personal tax to "make it more transparent
and accessible to taxpayers". This sounds a sensible move
and we look forward to participating in the consultation.
26. We welcome the "customer" cost
reduction announcement to include eradicating HMRC errors, etc
in the targets, though of course these errors should not have
occurred in the first place.
27. We are concerned about the accelerated digital
developments such as "One-click" and full VAT mandation:
these do not seem to be taking all users with them, as LITRG's
submission makes clear.
28. The proposals in the Tax Policy Making document
and its follow up have our strong support in general. Exposing
a large proportion of the draft Finance Bill legislation in December
was constructive, although it has created inevitable additional
burdens on all sides in the first year of operation of the new
procedures. We also welcome the commitment to publish for consultation
draft clauses on anti-avoidance provisions: this helps all sides
ensure they are properly targeted and does not preclude their
immediate application - but announcements need to be clear on
the range of the new measure (eg the comment about EIS restrictions
on companies with feed-in tariffs "or similar subsidies"
is unhelpful).
29. We think the new Tax Information and Impact
Notes are a welcome improvement on the previous Impact Assessments.
March 2011
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