5 Taxation
Principles of taxation
214. In March 2011, the Committee published
a Report, Principles of Tax Policy, in which we set out
six principles with which tax policy should comply. These are:
· Basic fairness;
· Supporting growth and encouraging
competition;
· Certainty, including simplicity;
· Stability;
· Practicality; and
· Coherence.
This year the Committee has again asked
the three professional tax bodies—the Association of Certified
Chartered Accountants, the Institute of Chartered Accountants
of England and Wales, and the Chartered Institute of Taxation—to
assess how far the main tax principles contained within the Finance
Bill comply with these principles. This is the third year professional
bodies have made this assessment and their submissions are contained
in Appendices 1, 2 and 3.
215. When asked about the Government's
progress against the six principles of tax policy Patrick Stevens,
Tax Policy Director, Chartered Institute of Taxation, told us:
[…] my personal view is that
some things have improved and some things have got worse. I actually
think that they moderately cancel each other out. What has improved,
I think, is the method of making law, by which I mean there is
now a much longer and more detailed consultation process for detailed
tax law. It generally lasts for in excess of a year, where you
have a succession of consultations.[377]
He went on to explain that there were
two areas which were not improving. First, there had been an increase
in the use of retrospection in the tax system. Secondly, more
taxpayers were being taxed by statute and untaxed by guidance.[378]
He argued that this meant that new legislation was being introduced
which was too wide-ranging. As a result HMRC had to produce guidance,
which could be changed at its discretion, in order to narrow down
the application of the law. Mr Stevens explained that this gave
HMRC the "power to make their own guidance and therefore
their own law".[379]Frank
Haskew, Head of Tax Faculty, Institute of Chartered Accountants
in England and Wales, largely agreed:
To emphasise, we have a better consultation
process I think, but looking at the Treasury Committee's principles,
we do see that we still have very long, hugely lengthy, complicated
Finance Acts and, […] there is a lot of uncertainty in some
of those provisions.[380]
216. Our report on the Principles
of Tax Policysaid thatthere were substantial benefits to be
had from a tax system that was "simple, understandable
and clear".[381]
Mr Haskew explained that the Government had not achieved simplification:
I was actually in front of this
Committee a few years ago with John Whiting when it was stated
that the Government had taken out about 100 pages of tax legislation,
with the Office of Tax Simplification work, but in fact they had
added a 400-page Finance Act at the same time, so the net result
was plus 300. Since then we have had the longest Finance Act in
history last year, and we had an almost 600-page Bill put in front
of us a week ago.[382]
We consider below some of the individual
policy measures announced in the Red Book and how they performed
against the Committee's principles of tax policy.
Retrospection and anti-avoidance
217. When the Committee last reviewed
this area of the tax system in our Budget 2012 Report, we recommended
that:
[…] the Government restrict
its use of retrospective legislation to wholly exceptional
circumstances, which should be narrow and clearly-defined. The Treasury
should set these out as soon as possible for consultation, along
with an explanation of how gradual further extension of retrospection
can be prevented. Any future retrospective tax measure must
be justified against the agreed criteria: such justification
must include clear explanatory statements to Parliament by the responsible
Minister and should invite views from relevant professional bodies.[383]
218. We questioned the three professional
tax bodies on whether the Government was abiding by this recommendation.
Mr Stevens said this had not been "wholly achieved"
by the Government.[384]
Mr Haskew told us:
I think we wholly welcomed [the
Committee's recommendation] at the time. In terms of where we
are today, I think I would struggle to say that the Government
is abiding by those Treasury Committee recommendations.[385]
219. In his speech to the House, the
Chancellor said that "while the vast majority of wealthy
people pay their taxes, there is still a small minority who do
not".[386] He
announced that the Government "will now require those who
have signed up to disclosed tax avoidance schemes to pay their
taxes, like everyone else, up front".[387]
The Red Book sets out that:
Tax avoidance scheme promoters must
give HMRC information about schemes they promote under the
Disclosure of Tax Avoidance Scheme (DOTAS) rules. Anyone using
such a scheme must declare to HMRC they are using a notified
tax avoidance scheme. Following consultation, this Budget
announces that the government intends to extend the new requirement
for taxpayers to pay upfront any disputed tax associated with
schemes covered by the DOTAS rules or counteracted under
the General Anti Abuse Rule (GAAR).[388]
This policy will provide HMRC with additional
tools to retrospectively "address a legacy stock of
an estimated 65,000 avoidance cases".[389]The
requirement for taxpayers to pay upfront any disputed tax will
remove the "cashflow advantage" for the taxpayer of
holding onto the tax during the avoidance dispute. If the taxpayer
subsequently wins their case in the courts, they will be reimbursed
with interest.[390]
220. The OBR has forecast that the Government's
accelerated payments policy will raise £4 billion in tax
receipts over the forecast period to 2018-19.[391]In
its evidence to the Committee, the ICAEW said that "if past
experience is a guide, these estimates may well prove to be optimistic."[392]
On the other hand, Mr Stevens told us that he found the £4
billion figure "credible, compared to some of the other estimates
I have seen over the years on what the results of anti-avoidance
legislation will be".[393]
221. The Government'sBudget 2014:
policy costings document described how this figure is calculated.
The estimate is based on the total value of tax under dispute
by HMRC related to marketed, artificial avoidance cases which
is "around £14 billion, associated with a population
of around 65,000 taxpayers".[394]
A £2.5 billion downward adjustment is made relating to anti-avoidance
cases outside the scope of this Budget measure. A number of other
adjustments are then made, including the assumption that HMRC
has an 80 per cent win rate in anti-avoidance cases.[395]
222. In response to a request made by
this Committee, the Treasury provided additional information on
the behavioural responses:
By removing the cash-flow advantage
arising from entering into avoidance schemes, HMRC expect the
accelerated payments measure to reduce the use of such schemes
in future. The issue of behavioural responses does not apply to
the stock of outstanding avoidance cases, which account for the
majority of the yield. Rather it concerns taxpayers who would
have otherwise used avoidance schemes in the future.
[…] HMRC assume taxpayers fall
into one of three categories:
· Those who continue to
use avoidance schemes in future and will have to make accelerated
payments;
· Those who stop using
avoidance schemes altogether and become fully compliant; and
· Those who stop using
these schemes, but find alternative routes to lower their tax
bill either through tax planning or other artificial arrangements
outside the scope of accelerated payment measures.[396]
223. The Government's Budget 2014:
policy costings document identified a key area of uncertainty
surrounding this policy:
The profile of the yield from the
accelerated payments […] measure is dependent on a large
number of assumptions, some of which again concern the behavioural
response of those affected.[397]
224. The Government's accelerated payments
policy was consulted on between 24 January 2014 and 24 February
2014.[398] Mr Haskew
told the Committee that "four weeks is not a long time".[399]
Mr Courts expressed further concern by saying that it was not
just the length of the consultation which was a problem, but also
the timing because January is the "busiest time for practitioners
and also corporate reporting".[400]
225. Retrospective tax legislation
conflicts with the principles of tax policy recommended by this
Committee. In our Budget 2012 Report we recommended that the Government
restrict the use of retrospection to wholly exceptional circumstances.
Witnesses told us that the Government was not abiding by this
recommendation. Furthermore, the Red Book announced an additional
retrospective taxation policy: an extension of the requirement
for taxpayers to pay upfront any disputed tax associated with
anti-avoidance schemes. This policy will retrospectively apply
to some of the 65,000 outstanding tax avoidance cases. There may
be a case for this policy but the Government has yet to explain
what is wholly exceptional about these cases that justifies this
retrospective measure. It should do so in response to this Report.
HMRC debt recovery powers
226. In his Budget speech, the Chancellor
said that public tolerance for people who do not pay their fair
share of taxes "evaporated long ago".[401]
He announced that HMRC would be given "modern powers to collect
debts from bank accounts of people who can afford to pay but have
repeatedly refused to, like most other Western countries."[402]
The Red Book states that:
The government will modernise and
strengthen HMRC's debt collection powers to recover financial
assets from the bank accounts of debtors who owe over £1,000 of
tax or tax credit debts, have the financial means to pay, and
have been contacted multiple times by HMRC to pay. A minimum
of £5,000 will be left across debtors' accounts. This
brings the UK in line with many other tax authorities which already
have the power to recover debts directly from an individual's
account, such as France and the US.[403]
227. In his evidence to the Committee,
the Chancellor provided additional detail about the circumstances
when HMRC would access people's accounts. He said that the power
would apply to people who had been "contacted on average
nine times by the Revenue"[404]
and had exhausted all other appeals. He told us that "over
half of the people affected will have more than £20,000"[405]
in their bank accounts and a 14 day notice period would be given
before money was collected from bank accounts. He told the Committee
that this new policy was simply a modernisation of existing powers:
These are people who have exhausted
all the appeals, been given many warnings and are finally told
they have 14 days to pay up and we would send, at considerable
cost, the bailiffs round to seize their physical assets. We are
introducing a new power used across Europe and across the Western
world to say that instead of sending the bailiff round, we will
take the money direct from a bank account with money in it.[406]
228. Under HMRC's current powers, if
a taxpayer has an outstanding tax payment, HMRC can legally take
possession of goods in a process referred to as Taking Control
of Goods, sometimes known as 'distraint'. Taking Control of Goods
is an enforcement process by which HMRC can seize a taxpayer's
possessions and sell them at auction in order to settle an unpaid
tax bill.[407] This
process is usually conducted by a HMRC field officer, not a bailiff
working for a debt collection agency. A bailiff can be appointed
on behalf of HMRC by a magistrates court or a county court, after
the Taking Control of Goods enforcement action has been unsuccessful.[408]
229. HMRC has the legal power to seize
a taxpayer's possessions without a court order. However, the HMRC
field officer cannot force entry into the premises without a warrant
which has to be obtained from a Justice of the Peace.[409]
HMRC's Debt Management and Banking Manual states that these "provisions
are rarely used and such a warrant would be granted only in exceptional
circumstances, depending on the quality of the evidence".[410]
230. If HMRC is unable to recover the
outstanding tax by distraint, it can begin:
· Magistrates court proceedings;
and
· County court proceedings.[411]
Before HMRC can begin any debt recovery
proceedings, the taxpayer can appeal HMRC's decision. The taxpayer
can ask for the case to be either reviewed by HMRC and/or heard
by an independent tribunal. To do so the taxpayer must send their
appeal to HMRC in writing, within 30 days of the date of the initial
HMRC correspondence. Once the appeal is submitted to HMRC, a taxpayer
can apply to postpone paying the amount of tax under dispute.
Interest will still accrue on the postponed amount until the appeal
is resolved and any unpaid tax is paid.[412]
231. The majority of appeals will be
settled by agreement with HMRC. However, where an agreement cannot
be reached, the taxpayer can request a review of HMRC's decision
by another HMRC officer not previously involved in the original
decision. If the disagreement is still not resolved the taxpayer
can appeal to the First-tier Tribunal. The taxpayer will have
to request this appeal within 30 days of the review conclusion
letter. The tax tribunal is independent of HMRC and will listen
to both sides before reaching a decision. The tribunal can alter
the decision if it thinks it is wrong.If the tribunal rules against
the taxpayer, further appeals are only permitted if legal mistakes
have been made during the case.[413]
232. Each of the three professional
bodies who submitted evidence to the Committee raised serious
concerns about HMRC's new debt recovery powers. The Institute
of Chartered Accountants in England and Wales (ICAEW) said that
these new powers are "extremely worrying and excessive"
and "adequate safeguards are essential".[414]
The Chartered Institute of Taxation (CIOT) said:
We have strong concerns about the
announcement that HMRC will have the power to take money directly
from the bank accounts of tax debtors who owe more than £1,000
in tax or tax credits. This power is unprecedented in the UK and
the announcement contained no details of any judicial or other
safeguards that would protect taxpayers on low incomes struggling
with debt problems—apart from a stipulation that a minimum
of £5,000 would be left in debtors' accounts.[415]
233. A number of witnesses expressed
concerns that the new debt recovery powers would mean that HMRC
would be able to determine which taxpayers owed money and how
much they owed, and then enforce that decision without any independent
oversight. Mr Haskew said:
[…] we cannot have HMRC acting
as judge and jury. There must be an element of oversight, and
I think our preference is some sort of judicial oversight, possibly
by way of a tribunal.[416]
Mr Stevens agreed:
The real point is whether there
will be a necessity to go to an external court—someone outside
HMRC. That for me is the big question. If the whole thing takes
place within the tax administration it leaves more cause for anxiety
than otherwise.[417]
234. In its written evidence to the
Committee, CIOT said that without adequate safeguards or recourse
to the courts, the impact of the policy could be serious for low-income
earners:
People who owe HMRC £1,000
or just over may simply be people on low incomes or low wages
who have come into difficulties and are in debt not only to HMRC
but also to others, notably public utilities. To let HMRC raid
their bank accounts […] would be to flout the rule of law
in a manner unworthy of a public service body. It is not the same
as seizing physical goods, it is depriving the debtor of the very
means to live.[418]
235. Another concern raised by CIOT
was that this new proposed power could"undermine confidence
in the relationship between taxpayers and HMRC and actually discourage
compliant behaviour".[419]
The ICAEW explained that HMRC's new powers could create "perverse
effects" such as increasing the amount of money held outside
banks and building societies in order to avoid it being seized
by HMRC.[420]
236. Under Crown preference, which originated
in the late 19th century, liquidators were bound by statute to
give preferential status to debts due to the Inland Revenue and
HM Customs & Excise before any payment was made to other unsecured
creditors.[421]After
a consultation period, the Government decided to abolish Crown
preference with the introduction of the Enterprise Bill in March
2002. It said that "in recent years the trend in other jurisdictions
has been towards restricting or abolishing Crown or State preference"
and that this was "more equitable".[422]In
its written evidence to the Committee, the ICAEW was concerned
that the proposed new debt recovery powers for HMRC represented
a return to Crown preference. It told us that "HMRC is effectively
to become a preferential creditorunder these new rules".[423]
237. Mr Stevens told the Committee that,
regardless of the number of safeguards put in place surrounding
HMRC's ability to directly access bank accounts, the policy"does
rely on the authority having worked out how much money should
correctly be taken from it in the first place".[424]
Both the ICAEW and CIOT raised concerns about the announcement
in the Red Book that HMRC would only recover assets from the bank
accounts of debtors who had the "financial means to pay".[425]
They were concerned about how HMRC would be able to determine
who had the financial means to pay and under what criteria it
would be judged. In addition, the ICAEW questioned how up-to-date
HMRC's databases were and said that there had been "numerous
cases recently of HMRC chasing debts which are not due, including
attempting to confiscate assets".[426]
Mr Haskew gave some examples of the sorts of errors HMRC had been
making:
One of our members recently had
a letter from HMRC threatening distraint on his assets because
he had not paid a tax liability, and the letter he got said his
tax liability was nought. HMRC was chasing someone and threatening
distraint on a tax that was ostensibly due of nothing.
Another last week was an employer
who was being threatened with a collector coming round to collect
assets to cover the debt. The debt had been paid in full in January,
and this was the end of March.[427]
238. HMRC has, in the past, committed
errors on a much larger scale. For example, in 2007, HMRC lost
two computer discs containing Child Benefit data which included
the name, address, date of birth, National Insurance number and,
where relevant, bank details of 25 million people.[428]
239. The Chancellor told us that the
power for HMRC to take money from people's accounts would not
be unique to the UK. He said that "The DWP already have this
power [to take money directly from bank accounts] with child maintenance
payments".[429]
The Child Maintenance and Other Payments Act 2008, amending the
Child Support Act 1991, provided the following power to the Child
Maintenance and Enforcement Commission:
Orders for regular deductions from
accounts.
(1) If in relation to any person
it appears to the Commission—
(a) that the person has failed to
pay an amount of child support maintenance; and
(b) that the person holds an account
with a deposit-taker;
it may make an order against that
person to secure the payment of any amount due under the maintenance
calculation in question by means of regular deductions from the
account.[430]
On 1 August 2012, following the abolition
of the Child Maintenance and Enforcement Commission, these powers
were given to the Secretary of State.[431]
240. Child maintenance is not, however,
a payment from or to the state. The Department for Work and Pensions,
through the Child Maintenance Service, acts as an intermediary
between parents, rather than on its own account. As Child Maintenance
Options, a service provided by the Child Maintenance Group, which
is part of the Department for Work and Pensions, explains:
Child maintenance isn't a benefit
that separated parents can "claim" from the state. It's
paid by the other parent, and is a way of making sure both parents
contribute to their child's upkeep when they live apart. When
a family-based arrangement isn't possible, the state will get
involved—but only to collect and pass on payments.[432]
The Chancellor told us that the form
of debt recovery he proposed for HMRC is carried out in Sweden,
Denmark, Ireland, Finland and New Zealand. The Red Book tells
us that France and the US also have these powers.[433]
241. In the US, the Internal Revenue
Service (IRS) can seize "all property and rights to property"[434]
of a taxpayer who owes Federal tax.[435]
However, specific actions must be completed before the seizure
of a taxpayers assets can be recommended:
· The liability must be verified;
· Alternative collection methods
must be thoroughly considered;
· An analysis must be conducted
to show that the expenses expected to be incurred with respect
to the seizure do not exceed the fair market value of the asset
to be seized;
· There must be a determination
that the equity is sufficient to yield net proceeds from the sale
to apply to the liability.[436]
The
IRS cannot recover the outstanding tax from a person's bank account
if it would result in economic hardship for the taxpayer. Economic
hardship is defined as an individual being unable to pay their
reasonable necessary living expenses.[437]
The determination of a 'reasonable amount for basic living expenses'
will vary according to the unique circumstances of the individual
taxpayer.
242. Following the merger of HM Customs
and Excise and the Inland Revenue in April 2005, an extensive
review of HMRC's powers, deterrents and safeguards was carried
out. This review ran from 2005 to 2012 and its aim was to consider
the scope for aligning and rationalising powers to make it easier
for individuals and businesses to comply with their tax obligations
and receive the tax credits to which they are entitled.[438]
In its June 2007 consultation paper entitled Payments, Repayments
and Debt: The Developing Programme of Work, HMRC proposed
extending its powers so that bank accounts could be accessed in
order to settle outstanding tax debts, without the need for an
application to the court.[439]
The consultation response document said that this proposal "attracted
the largest number of responses, with 69 of the 95 written responses
including a comment."[440]
The most commonly raised concerns were that:
HMRC would have insufficient safeguards
for this to be implemented appropriately and that it could create
hardship. The level of HMRC error was a major point that would
need to be addressed before any such scheme could be implemented.
There was doubt over current customer service levels and that
HMRC would be unable to support the system if it were introduced.[441]
A small number of respondents suggested
that this proposal would be a "draconian measure and that
HMRC should not be given these powers under any circumstances".[442]
Following the strong opposition at the time, HMRC decided against
taking the proposal further.[443]
243. On 6 May HMRC issued a consultation
document,Direct Recovery of Debt.[444]
The closing date for the consultation is 29 July 2014. The document
discusses the processes and safeguards that HMRC proposes for
the new debt recovery powers the Chancellor announced. We have
not had time to examine the document in any detail, but it appears
to have been produced in haste.
244. The proposal to grant HMRC the
power to recover money directly from taxpayers' bank accounts
is of considerable concern to the Committee. It could develop
into a return to Crown preference by stealth. The Committee considers
a lengthy and full consultation to be essential. The greater detail
provided by the Government on 6 May will need further and extensive
examination, and the Committee will take further evidence on this.Giving
HMRC this power without some form of prior independent oversight—for
example by a new ombudsman or tribunal, or through the courts—would
bewholly unacceptable.
245. The Chancellor argues that
this measure can be justified because the Department for Work
and Pensions already has the right to take money directly from
people's bank accounts to pay child maintenance. However, the
parallel is not exact: in those cases, DWP is acting as an intermediary
between two individuals. HMRC would be acting not as an intermediary
between two individuals but rather in pursuit of its own objective
of bringing in revenue for the Exchequer.
246. This policy is highly dependent
on HMRC's ability accurately to determine which taxpayers owe
money and what amounts they owe, an ability not always demonstrated
in the past. Incorrectly collecting money will result in serious
detriment to taxpayers. The Government must consider safeguards,
in addition to those set out in the consultation document, to
ensure that HMRC cannot act erroneously with impunity. These might
include the award of damages in addition to compensation, and
disciplinary action in cases of abuse of the power.
247. The ability directly to have
access to millions of taxpayers' bank accounts raises concerns
about the risk of fraud and error, and this should also be covered
by the consultation.
248. Following the merger of HM Customs
and Excise and the Inland Revenue in April 2005, an extensive
review of HMRC's powers, deterrents and safeguards was carried
out from 2005 to 2012. The Committee believes that sufficient
time has now passed to warrant a post-implementation review of
these powers. The aim of this review should be to ensure that
all the powers HMRC has at its disposal remain relevant and are
no more than are sufficient to enable HMRC to achieve its objectives.
Savings rate of income tax
249. At present, an individual whose
only taxable income is savings income is entitled to have the
first £2,790 of income above his or her Personal Allowance
taxed at 10 per cent, rather than the 20 per cent rate at which
non-savings income would be taxed. Savings income above this £2,790
threshold is taxed at the 20 per cent basic rate, the 40 per cent
higher rate or the 45 per cent additional rate, depending on the
person's total income. For an individual with a mix of savings
and non-savings income whose earnings are less than the Personal
Allowance plus £2,790, some or all of his or her savings
income will be taxable at 10 per cent.
250. The Chancellor announced in his
Budget statement that, from April 2015, the 10 per cent rate of
savings income tax will be reduced to 0 per cent. In addition,
the band of savings income to which this rate applies will be
increased from £2,790 to £5,000. When combined with
the increase to the Personal Allowance (to £10,500), the
effect of this change is that anyone with total income of less
than £15,500 per annum will no longer pay any tax on their
savings income.
251. These changes were broadly welcomed
by those who commented on them. The Chartered Institute of Taxation
said that the announcement was "great news for prudent savers
on modest incomes."[445]The
Chairman of the Low Incomes Tax Reform Group, Anthony Thomas,
said:"This relief should help add value to people's money,
particularly for those nearing the end of their working life,
thus helping both pensioners and those entering retirement."[446]
252. There were concerns, however, that
the benefits of the change could be reduced because of the administrative
complexities of the savings rate. Those eligible to pay no tax
on their savings can fill in an R85 form (Getting your interest
without tax taken off) to instruct their bank or building
society to pay their interest gross. Those who find that they
have overpaid tax on their savings income can reclaim it by completing
an R40 form (Claim for repayment of tax deducted from savings
and investments). Before the Budget, the Building Societies
Association called on the Government to simplify this existing
system, saying:
The tax system makes it unnecessarily
difficult for savers who pay little or no income tax to register
their savings accounts to receive interest gross—each account
requires a separate R85 form. Similarly the mechanism for a saver
eligible for the 10p savings tax is complex and is neither well
known nor understood by the public. Both of these could be simplified.[447]
253. After the Budget, the Institute
for Fiscal Studies suggested that "incomplete take-up"
would be "a major challenge" for the Government in implementing
the 0 per cent rate of savings income tax.[448]
In a press release, the Low Income Tax Reform Group said:
[…] people will only complete
R85 if they know about it and understand that they are eligible.As
LITRG have noted in a report published last year, this is often
not the case. The onus is now on banks and building societies
and HMRC to ensure that the R85 system is better publicised—now
more than ever if today's changes are going to have the desired
impact on savers' pockets.[449]
254. The Committee welcomes the Government's
decision to reduce the starting rate of savings income tax to
0 per cent and to increase to £5,000 the band of savings
income to which this rate applies. There is, however, a risk that
the benefits of this measure could be eroded if those who are
eligible for the 0 per cent rate do not understand that they are
eligible or do not know which forms they need to complete. We
urge HMRC to set out a clear plan describing how it will work
and how banks and building societies will ensure that relevant
savers are aware of this change.
Annual Investment Allowance
255. The Government announced in the
Red Book that the Annual Investment Allowance (AIA) will be doubled
to £500,000 from April 2014 to December 2015,[450]
with the aim of benefiting small and medium sized firms. Andrew
Courts, Member of ACCA Global Tax Forum, told the Committee that
the AIA was "great for small businesses" but raising
the allowance from £250,000 to £500,000 would not benefit
many small and micro businesses. He said that the original £250,000
was "adequate for most small businesses".[451]
256. Similar concerns were expressed
by the Chartered Institute of Taxation:
[…] we believe that [the increase
in the AIA] will have a limited impact on small and medium-sized
enterprises (SMEs). The Chancellor said in his speech that this
measure will mean that 99.8% of businesses will receive 100% up-front
relief on their qualifying investment in plant and machinery.
We note that when the Chancellor previously announced the reduction
of the limit from £100,000 to £25,000 with effect from
April 2012, the Government indicated that the reduction would
not impact 95% of businesses. Taking the two announcements together
suggests that rather less than 5% of all businesses will benefit
from the temporary doubling.[452]
257. A number of witnesses raised concerns
about the stability and certainty of the AIA. Our report on the
Principles of Tax Policyoutlined the importance of these
principles:
Tax policy is only one of the factors
on which businesses and individuals make their decisions, but
lack of stability and clarity about the direction of travel in
tax policy will, over time, undermine the competitiveness of a
tax system and make it impossible for businesses to plan. If tax
policy is to support growth, then the direction of travel of tax
policy should be clear.[453]
The Association of Chartered Certified
Accountants (ACCA) highlighted that the AIA has been changed four
times in the last five years:[454]AIA
allowance changes
| | Table 7: AIA allowance changes
| | | |
|
|
| From April 2008 to April 2010
| From April 2010
| From April 2012
| From January 2013
| From April 2014 until December 2015
| |
| Annual Investment Allowance
| £50,000
| £100,000
| £25,000
| £250,000
| £500,000
| |
| Source: HMRC website
| |
258. Mr Stevens told the Committee that
"the constant change and moving around leads to uncertainty"[455]
and that this uncertainty "genuinely does discourage business
from doing things."[456]The
Confederation of British Industry (CBI) welcomed the extension
and enhancement of the AIA, saying that "this will provide
a shot in the arm for all businesses, but will particularly support
investment by SMEs."[457]
However, they stressed the importance of making the increase in
the allowance permanent:
[…] making the enhanced Annual
Investment Allowance permanent at a higher threshold of at least
£250,000 would provide a longer term solution to correcting
the UK's comparatively uncompetitive capital allowances regime.
Even under current plans, the Allowance
is due to be drastically reduced to £25,000 in 2016.[458]
The Chartered Institute of Taxation
(CIOT) had a similar view in that setting the AIA at a "sensible
level—such as £100,000—for the long-term would
have done far more to promote business confidence than another
temporary increase".[459]
259. The more complex a tax system is,
the harder it is to administer and the harder it is for taxpayers
to assess their own liability.[460]
Mr Steven told the Committee that the volatility in the AIA has
resulted in the most "complicated set of calculations I had
seen for quite some time".[461]
Mr Courts agreed:
Clients will see the [Annual Investment
Allowance] headline on the news and then have to ask how it relates
to them. Before we can give them a straight answer, we have to
sit down and work out their year-end, what they are going to spend,
and follow it all the way through. So when it went from £50,000
to £25,000 to £250,000, in one year they could have
three different rates of allowance and they are not going to get
just one figure. The rate of allowance that they would get would
also depend on when they purchased the item. That meant that there
was quite a lot of uncertainty during that period.[462]
260. The frequency of changes to
the annual investment allowance over the past seven years has
created uncertainty and instability for businesses and imposed
an economic cost. The Committee has previously highlighted the
importance of stability in the tax system in its 2011 Report,
Principles of Tax Policy. Wetherefore recommend that the
Treasury develop a strategy for future annual investment allowance
changes to reduce the current instability and help business planning.
377 Q496 Back
378
Q498 Back
379
Q515 Back
380
Q499 Back
381
Treasury Committee, Eighth Report of Session 2010-12, Principles of Tax Policy,
HC 753, p 28 Back
382
Q501 Back
383
Treasury Committee, Thirtieth Report of Session 2010-12, Budget 2012,
HC 1910, para 89, p 39 Back
384
Q545 Back
385
Q546 Back
386
HC Deb 19 March 2014 c792 Back
387
HC Deb 19 March 2014 c792 Back
388
HM Treasury, Budget 2014, 19 March 2014, para 1.200-1.201, p 52 Back
389
HM Treasury, Budget 2014, 19 March 2014, para 1.200-1.201, p 52 Back
390
HM Treasury, Budget 2014, 19 March 2014, para 1.200-1.201, p 52 Back
391
OBR, Economic and Fiscal Outlook, 19 March 2014, table A.1, p
181 Back
392
ICAEW, written evidence Back
393
Q524 Back
394
HM Treasury, Budget 2014: policy costings, 19 March 2014, p 36 Back
395
HM Treasury, Budget 2014: policy costings, 19 March 2014, p 36 Back
396
Letter from David Gauketo the Chairman of the Treasury Committee,
9 April 2014 Back
397
HM Treasury, Budget 2014: policy costings, 19 March 2014, para
B.9, p 67 Back
398
HMRC, Tackling marketed tax avoidance: summary of responses, March
2014, para 1.1, p 5 Back
399
Q525 Back
400
Q531 Back
401
HC Deb 19 March 2014 c792 Back
402
HC Deb 19 March 2014 c792 Back
403
HM Treasury, Budget 2014, 19 March 2014, para 1.208, p 53 Back
404
Q433 Back
405
Q435 Back
406
Q433 Back
407
HMRC, Taking Control of Goods, April 2014, p 1 Back
408
HMRC, The county court - what it means for you, April 2012 Back
409
HMRC, Taking Control of Goods, April 2014, p 1 Back
410
HMRC website, Debt Management and Banking Manual: Enforcement action:
distraint: carrying out a distraint: right of entry Back
411
HMRC website, What could happen if you don't pay HMRC Back
412
HMRC website, How to appeal against an HMRC decision - direct tax Back
413
GOV.UK, Tax tribunal: If you lose your case Back
414
ICAEW, written evidence Back
415
CIOT, written evidence Back
416
Q513 Back
417
Q510 Back
418
CIOT, written evidence Back
419
CIOT, written evidence Back
420
ICAEW, Finance Bill Briefing, April 2014 Back
421
Department for Trade and Industry, Productivity and Enterprise: Insolvency - A Second Chance,
para 2.19, p 12 Back
422
Department for Trade and Industry, Productivity and Enterprise: Insolvency - A Second Chance,
para 2.19, p 12 Back
423
ICAEW, written evidence Back
424
Q509 Back
425
HM Treasury, Budget 2014, 19 March 2014, para 1.208, p 53 Back
426
ICAEW, written evidence Back
427
Q511 Back
428
BBC, UK's families put on fraud alert, 20 November 2007 Back
429
Q434 Back
430
Child Maintenance and Other Payments Act 2008, section 22 Back
431
The Public Bodies (Child Maintenance and Enforcement Commission:
Abolition and Transfer of Functions) Order 2012, Section 34 Back
432
http://www.cmoptions.org/en/maintenance/index.asp, What is Child
Maintenance?, accessed 9/4/14 Back
433
HM Treasury, Budget 2014, 19 March 2014, para 1.208, p 53 Back
434
Rights to property include income, bank accounts and social security
payments. Back
435
Internal Revenue Service, Internal Revenue Manual, Part 5, Chapter 17, Section 3, Property and Rights to Property Back
436
Internal Revenue Service, Internal Revenue Manual, Part 5, Chapter 10, Section 1, Actions Required Prior to Seizure Back
437
Internal Revenue Service, Internal Revenue Manual, Part 5, Chapter 11, Section 2, Economic Hardship Back
438
HMRC,HM Revenue and Customs and the Taxpayer: Modernising Powers, Deterrents and Safeguards,
March 2005, p 2 Back
439
HMRC, Payments, Repayments and Debt: The Developing Programme of Work,
Consultation Document, 25 June 2007, para 5.12, p 21 Back
440
HMRC, Payments, Repayments and Debt: Responses to Consultation and Proposals,
10 January 2008, para A6.2, p 15 Back
441
HMRC, Payments, Repayments and Debt: Responses to Consultation and Proposals,
10 January 2008, para A6.2, p 15 Back
442
HMRC, Payments, Repayments and Debt: Responses to Consultation and Proposals,
10 January 2008, para A6.3, p 15 Back
443
HMRC, Payments, Repayments and Debt: The Next Stage, November
2008, para 5.41, p 27 Back
444
HMRC, Direct recovery of debts , 6 May 2014 Back
445
Chartered Institute of Taxation, written evidence Back
446
"0% rate will add value to the savings of those on modest incomes",
Low Incomes Tax Reform Group press release, 19 March 2014 Back
447
Building Societies Association, BSA calls for a Budget for savers,
Press release, 4 March 2014 Back
448
Institute for Fiscal Studies, Budget 2014: pensions and savings policies,
Carl Emmerson, 20 March 2014, Slide 4 Back
449
"0% rate will add value to the savings of those on modest incomes",
Low Incomes Tax Reform Group press release, 19 March 2014 Back
450
HM Treasury, Budget 2014, 19 March 2014, para 1.102, p 31 Back
451
Q533 Back
452
Chartered Institute of Taxation, written evidence Back
453
Treasury Committee, Eighth Report of Session 2010-12, Principles of Tax Policy,
HC 753, para 60, p 21 Back
454
ACCA, written evidence Back
455
Q534 Back
456
Q534 Back
457
CBI, written evidence Back
458
CBI, written evidence Back
459
Chartered Institute of Taxation, written evidence Back
460
Treasury Committee, Eighth Report of Session 2010-12, Principles of Tax Policy,
HC 753, p 28 Back
461
Q534 Back
462
Q535 Back
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