Memorandum by the Association of Chartered
Certified Accountants (ACCA)
The topics on which the Sub-Committee has chosen
to focus its inquiry this year, bearing in mind its remit of considering
technical issues of tax administration, clarification and simplification,
rather than rates or incidence of tax, are:
CAPITAL GAINS
TAX AND
THE ENTREPRENEURS'
RELIEF: CLAUSES
6 AND 7, SCHEDULES
2 AND 3
In general we are highly supportive of tax simplification
and clearly the Capital Gains Tax changes are simplification but
with one eye on increasing tax revenues. In addition to this we
need to keep in mind that there are two distinct and separate
systems of Capital Gains Tax which not long ago amounted to a
unified, single regime. We, of course, are talking about the two
parallel systems for Income Tax and Corporation Tax. We do not,
however, consider it appropriate to merge the two regimes if there
would as a result be such a broad swathe of losers as has happened
under the Income Tax Capital Gains Tax changes.
The primary concern we have is that the changes
to Capital Gains Tax was announced with no consultation, hence
required a subsequent rethink of the proposals. The same is true
for the second topic of our meeting, on Residence and Domicile.
In changing the Capital Gains Tax rules so abruptly the expectations
that individuals had, for long-term tax obligations, were suddenly
changed and the "allowances" they had built up over
time in the form of indexation and taper relief were removed.
In addition, the message the changes sent out
were also, perhaps, inappropriate and certainly contrary to what
the Government message was previously, in that it seemed to signal
that business activity was no longer held in such high esteem.
While the change of heart in introducing the entrepreneurs' relief
may go some way to offering reassurance to small businesses it
only happened after significant business pressure.
The entrepreneurs' relief is welcome as a means
by which to redress the tax expectations of businesses, and it
goes some way in redressing the perception they may have had from
the initial proposals of not being considered as important as
they were under the previous Capital Gains Tax rules. However,
the down side is that it has already re-introduced complexity
to the original simplification proposals.
RESIDENCE & DOMICILE:
CLAUSE 22, CLAUSE
23 AND SCHEDULE
7
Comment on Clauses 22 and 23 of the Finance Bill
2008 (as at 21.4.08)
Clause 22 changes the proposals on day
counting for residence purposes. Instead of including both the
dates of arrival and departure, clause 22 now only includes days
when the taxpayer is present at midnight.
This substantially "frees up" the
position in relation to transit passengers, so that it will now
be possible for passengers to change airports or other terminals
and to switch modes of transport without being regarded as resident
for a day.
This is generally helpful (although the drafting
could be better).
Clause 23 makes a few relatively useful
changes in relation to the remittance basis as follows:
The annual de minimus amount which
will be dealt with on remittance basis without election has been
increased to £2,000. How will this be audited.
The much narrower definition of a
relevant person given in Schedule 7 part 1 by the new section
809L now only refers to an individual's partner, child or grandchild
under 18 and certain trusts and close companies. This takes remittances
by other relatives outside the scope of the remittance provisions.
The remittance basis charge of £30,000
is set out in section 809H. There is a change in the way that
this is dealt with in that it will be treated as tax paid on nominated
income and gains not remitted to the UK in that year. This is
available for credit if the nominated income or gains is remitted
in a later year, although the ordering rules apply in such a way
that the nominated amount cannot be treated as remitted whilst
other untaxed income and gains remain unremitted. Perhaps there
should be a change in the ordering rules.
The general identification rules should
also be given more thought in relation to mixed funds. It is worth
noting that section 809M provides that the identification should
be carried out on a just and reasonable basis, but it should also
be noted that the provisions in the bill are not final and will
be subject to Government amendment. As things stand the overall
effect is to treat taxable income as remitted sooner than previously.
Anti-Avoidance Measures
I do not think we can reasonably complain about
the ending of source ceasing, but the abolition of the cash only
rule may well lead to substantial time consuming arguments over
value and whilst the exemption from charge on assets held at 11
March 2008 looks reasonable at first sight, it is probably going
to lead to a good deal of work and confusion in practice.
One point which is unhelpful and in my view
unreasonable is the denial of personal allowances and various
other reliefs to a non domiciliary who opts for the remittance
basis in respect of overseas income, but who has substantial UK
income and gains on which UK tax is paid.
Clause 28, Clause 29 and schedule 11
Encouraging enterprise: Clause 28, Clause 29
and schedule 11, taking into account three documents published
on Budget Day by HM Treasury and HM Revenue & Customs:
Enterprise: unlocking the UK's talent;
The Enterprise Investment Scheme:
a consultative document; and
A Study on the Impact of the Enterprise
Investment Scheme (EIS) and Venture Capital Trusts (VCTs) on Company
Performance (HMRC Research Report 44).
Encouraging enterprise: Response re Budget 2008
Taking into account three documents published
by HMT and HMRC:
— Enterprise: unlocking the UK's talent.
— The Enterprise Investment Scheme:
a consultative document.
— A Study on the Impact of the Enterprise
Investment Scheme (EIS) and Venture Capital Trusts (VCTs) on Company
Performance, HMRC Research Report 44.
Enterprise: unlocking the UK's talent
This is a modest document that, in our opinion,
reflects the Government's observed disenchantment with small businesses
and offers nothing substantive to ameliorate the impact of tax
increases introduced for SMEs eg abolition of the CGT taper, raising
the small company's rate of Corporation Tax and the attack on
income shifting. As such, the purpose of the document is political,
ie to provide a platform for reassuring announcements whilst leaving
government policy, as evidenced by behaviour, largely unchanged.
Topics included are summarized below under "five enablers
of enterprise" (their classification):
Culture
— Government policy will have three
main streams of activity:
— Reduce the stigma of bankruptcy by
offering discretion to waive advertisements in the local press.
— Inspiring young people around enterprise
(eg through football clubs).
— A high level media campaign around
women's enterprise.
Knowledge and skills
— £30 million to extend enterprise
education from secondary schools into primary and tertiary education.
— Peter Jones' National Enterprise
Academy (NEA) as a first in a planned network.
— Enterprise among women, Regional
Development Agencies (RDAs) to pilot Women's Business Centres
(WBC).
— A Leadership and Management Programme
with the RDAs.
Access to Finance
— Small Firms Loan Guarantee scheme
strengthened by: a 20% uplift in lender allocations for one year;
and extension to the eligibility for businesses with growth that
are more than five years old.
— Supporting Community Development
Finance Institutions.
— Improvements to the operation of
Community Investment Tax Relief.
Regulation
— Consultation on introducing regulatory
budgets for Departments (to exclude HMRC).
— HMRC to extend tax simplification
by increasing a range of income tax self-assessment thresholds
for reporting and payment arrangements for the smallest businesses.
Innovation
— Since 2000 R&D tax credits have
delivered more than £2.3 billion through 30,000 claims.
— Budget 2007 announced increased rates
of relief, from April 2008, from 150% to 175% for SMEs and from
125% to 130% for large companies.
— Under the SBRI programme Government
must purchase at least 2.5% of their R&D from SMEs. In 2006-07
this figure was 6%, mainly accounted for by MoD.
— New Technology Strategy Board (TSB)
created in 2007. TSB funds innovation through Collaborative R&D
programmes, Knowledge Transfer Partnerships, Knowledge Transfer
Networks and Innovation Platforms. During 2008-11, the TSB will
invest over £720 million in innovation.
Consultation on the Enterprise Investment Scheme
(EIS)/Venture Capital Trusts (VCTs)
According to the Budget Report, since inception,
the Enterprise Investment Scheme (EIS) has raised over £6.1
billion, invested in over 14,000 small, high-risk companies, while
Venture Capital Trusts (VCTs) have invested over £3.2 billion
in over 1,500 companies.
There have been two evaluation studies:
1. Study of the Impact of the Enterprise
Investment Scheme (EIS) and Venture Capital Trusts (VCTs) on company
performance, HMRC Research report 44, 2008.
2. Research into the Enterprise Investment
Scheme and Venture Capital Trusts, A report prepared for Inland
Revenue by PACEC, 2003.
Both report positive outcomes, but the former
notes that the added value of the schemes is currently small and
that they should be judged over a longer period of time for the
true effects to be known.
ACCA support the continuation of the schemes,
especially as it has recently become even more difficult to obtain
conventional bank finance.
29 April 2008
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