Appendix 2: Institute of
Chartered Accountants in England and Wales
Traffic light assessment
The Treasury committee has six principles
for tax policy: that it should be fair, support growth and
competitiveness, certain(i.e. legally clear, targeted and
simple), stable, practical,and coherent. We have
assessed how Budget 2014's new tax policies match up to the principles.
Detailed comments
PENSIONS REFORM
Abolishes rules mandating DC pension
holders to buy an annuity or use income drawdown, or face a 55%
tax charge on unauthorised withdrawals.
- · This transformational
reform will free individuals to take what they want, when they
want, from their pension savings.
- · Good, impartial advice
will be critical. We are concerned that the £20 million offered
in the Budget is unlikely to be sufficient to fund this. An estimated
400,000 annuities are taken out each year, so this is just £50
per annuitant.
- · Withdrawals will be taxed
at marginal rates, boosting tax receipts by £5bn over five
years.
- · Taxpayers will still
be able to access a tax-free lump sum.
- · The government needs
to clarify what will happen to those who exhaust their pension
fund too soon, and later become a burden on the state.
PERSONAL ALLOWANCE INCREASED BY £500 TO £10,500
- · Combined with the removal
of the 10% tax rate for the first £5,000 savings income,
this will remove many people from income tax and will be welcomed
particularly by pensioners.
ANNUAL INVESTMENT ALLOWANCE (AIA) DOUBLEDTO £500,000,
UNTIL END OF 2015
- · The annual investment
allowance (AIA) is increased from £250,000 to £500,000
for expenditure incurred between 1 April 2014 and 31 December
2015 - so availability is extended and the amount is doubled.
The relief is given for capital expenditure on plant and machinery,
and to integral features in buildings.
- · This will be welcome
news for businesses looking to invest, although the continued
changes to the limits, and confusing transitional rules each time
the limits are changed, make it more difficult for businesses
to plan. Businesses tell us that certainty is the most important
factor for them. ICAEW expects business investment to increase
this year to 7.1%.
ANTI-AVOIDANCE: £4BN REVENUE FORECAST, INCREASED
FUNDING FOR HMRC NON-COMPLIANCE TEAM
- · The Chancellor has recognised
that funding HMRC's compliance activities (in effect its credit-control
department) is money well spent. However, predicting increased
revenues from tax compliance activity is notoriously difficult.
The amounts actually collected have often been lower than forecast
- for example the actual receipts from the Swiss tax agreement.
- · If past experience is
a guide, these estimates may well prove to be optimistic. We would
wish to probe in detail how these figures have been calculated.
HMRC POWER TO ACCESS DEBTOR ACCOUNTS
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 proposal is of considerable
concern to many taxpayers and accountants. This power is unprecedented
in the UK. Other than a comment that a minimum of £5,000
would be left in debtors' accounts, the announcement contains
no details of any judicial or other safeguards that could protect
taxpayers. It is likely to be particularly serious for those on
low incomes struggling with debt problems.
- · HMRC has said it will
only use this new power where debtors 'have the financial means
to pay' and have been contacted multiple times. How will this
be determined, and how up-to-date are HMRC's databases? We have
seen numerous cases recently of HMRC chasing debts which are not
due, including attempting to confiscate assets.
- · These powers are extremely
worrying, and excessive. Adequate safeguards are essential. What
steps will be put in place to ensure funds that are not due are
not seized and/or hardship does not follow seizure of funds?
- · We note that Crown preference
was abolished long ago in bankruptcy proceedings, yet HMRC is
effectively to become a preferential creditor under these new
rules. We are concerned about this in principle and it could lead
to perverse effects - for example holding money in cash rather
than in a bank account?
15% STAMP DUTY LAND TAX ON £500,000 RESIDENTIAL
PROPERTIES IN CORPORATE ENTITIES
The new higher rate of SDLT will apply
to purchases by 'certain non-natural persons' of residential properties
with effect from 20 March 2014. The related annual tax on enveloped
dwellings (ATED) will also apply to these properties and is being
introduced progressively between 1 April 2015 and 1 April 2016.
- · We are concerned that
by lowering the threshold from £2 million to £500,000,
will bring many more properties will now be caught by the measure,
bringing many more taxpayers within an onerous compliance regime
. Those purchasing £2 million properties are likely to be
suitably well advised but this may not be the case further down
the scale, leading to the possibility of widespread non-compliance.
- · Lowering the threshold
will bring many more non-natural persons (NNPs) into the regime
but a large number will qualify for relief, for example because
they are let on a commercial basis. But they will still need to
file a return to claim the relief. The announcement does recognise
that the administration of ATED will need to be simplified. There
will be a consultation on how this could be achieved.
- · For those NNPs who will
not qualify for relief, the delayed and staged introduction of
the ATED charge to lower value properties will allow time to consider
exit plans.
SEED ENTERPRISE INVESTMENT SCHEME MADE PERMANENT
- · We welcome the announcement
that the Seed Enterprise Investment Scheme (SEIS) has been made
permanent. This will assist start-ups looking to finance their
growth ambitions.
- · We remain concerned at
the complexity of the scheme, which causes many investors unexpectedly
to fail to qualify.
INCREASED LIMITS FOR ISAS, ABOLITION OF DISTINCTIONS
BETWEEN CASH AND SHARE-BASED SAVINGS
- · Proposals to increase
the limits for ISAs and abolish distinctions between cash and
share-based savings will be welcomed by many, as will the announcement
of new bonds with higher interest rates.
- · Savers have been particularly
hard hit by a long period of low interest rates and poor annuity
returns, so these changes will be well received by pensioners
and savers.
ABOLISHING 10% STARTING RATE FOR SAVINGS INCOME
Anyone with total income under £15,500
pa will not pay any tax on savings income.From 6 April 2015 the
starting rate of tax for savings income (such as bank or building
society interest) will be reduced from 10% to 0% and the maximum
amount of taxable savings income that can be eligible for this
starting rate will be increased from £2,880 to £5,000.
Taken together with the new personal allowance for 2015/16 of
£10,500, this means that most savers won't be liable for
tax until their total taxable income exceeds £15,500.
- · Savings income is usually
taxed at source, with the bank or building society deducting income
tax at the basic rate of 20%. If the account holder is a non-taxpayer,
they either have to reclaim the tax overpaid, or take action so
that they receive their interest gross, by registering with their
bank or building society. The success of this measure will rely
heavily on banks promoting the gross payment option. People who
have savings income which is only partly taxable cannot be paid
gross but will have to reclaim any overpaid tax through the tax
system and will need to be made aware of the process.
- · It will be vital that
a taxpayer keeps track of the level of their income as the year
progresses, because if their income exceeds the level at which
no tax is payable, they must tell their bank.
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