2011 March » Tax Research UK

The great tax heist is worse than we dared fear – 5.75% tax rate for big business

Budget, Conservatives Comments Off

Mar 232011

The budget has announced that:

New rules will include a finance company partial exemption that, in broad terms, results in an effective UK tax rate of one quarter of the main rate on profits derived from overseas group financing arrangements (equivalent to 5.75 per cent by 2014). This will be preceded by interim improvements to the current CFC rules in Finance Bill 2011 for accounting periods beginning on or after 1 January 2011 to make the rules easier to operate ahead of full reform;

Let’s be clear what this means.

First it means large companies can shift large amounts of their profit offshore and pay just 5.75% on them. This is a massive tax cut for big bsuiness.

Second, note this encourages multinational corporations to move functions and emplyment out of the UK – not bring them to the UK. Which is in itself amazing.

Third, this is a massive boost for tax havens.

Fourth, the opportunities for avoidance will, no doubt be legion.

I can only presume Osborne intended to kiss large parts of big business corporation tax revenues goodbye. Because that is what he will be doing.

And let’s also be clear what this also means – if you’re big enough this says you can hold this government to ransom and demand one of the lowest tax rates we have ever seen on anything.

So much for standing up for the UK.

So much for supporting small business who will pay much, much ore.

So much for ‘we’re all in this together’.

It’s none of these. It’s one rule for the rich…..

Channel Islands’ VAT abuse – good news but not good enough

Budget, Conservatives, Guernsey, Jersey, VAT Comments Off

Mar 232011

The Budget says:

The Government will reduce the Low Value Consignment Relief (LVCR) threshold from £18 to £15 from November 2011. In addition, the Government will explore options with the European Commission to limit the scope of the relief so that it can no longer be exploited for a purpose it was not intended for. The Government will also revisit the level of the LVCR in Budget 2012, if discussions with the European Commission do not produce a workable solution to the problem of exploitation of the relief.

That’s good news.

But it’s not good enough. This allows vast amounts of abuse to continue – on almost all music for example.

Unless the government is intent on stopping the round tripping of goods in the next year then this is token gesturism.

I sincerely hope that is not true.

The budget – an overall summary – an admission of Osborne’s failure

Budget, Conservatives, Economics Comments Off

Mar 232011

This was a tedious budget marked by repetition after repetition of the little that Osborne had to say – much of which will add enormously to the complexity of tax law.

But the most important point is the simplest – that this was an admission of failure. Growth forecasts are down. Unemployment and inflation are already up. And a man who set his stall on clearing the deficit has now admitted that there will be £29bn left at the end of the parliament. What an extraordinary admission that his policies aren’t working.

And it will get much worse. This is just the beginning of the disaster he’s unfolding.

What are the worst things Osborne can do today?

Budget, Conservatives Comments Off

Mar 232011

I’ve said what I’d like from the budget. But what are the things I fear from it?

Sicking to Plan A is, of course, the worst thing George Osborne can do. Cutting the public sector when there is no chance o a private sector recovery – in no small part precisely because he’s cutting the public sector – is the recipe for economic disaster for this country – and rising unemployment, borrowing and inflation matched by lower growth are the proof of it.

Next, his plan to privatise everything is a disaster. It opens up all government services to competition – competition the private sector can always win because it cherry picks and will never budget for training and investment. There will be no level playing field. The destruction of much that we value will inevitably follow whilst the public services and tax revenues of this country will be looted for offshore gain.

After that he will, of course, confirm h=commitment to destroying the NHS.

I strongly suspect he will announce Northern Ireland will be allowed a new 10% corporation tax rate – something that I am not at all sure would be legal. It will also cost the people of Northern Ireland dear in grants that are essential to their well being – but which will be foregone to make a tax haven within the United Kingdom. As indication of his real priorities this might be totemic.

Big business will, of course, get its tax cuts and they may be speeded up. And he will confirm that he is letting them move as much of their profit offshore as they want (given that after Vodafone HMRC has basically thrown in the towel in arguing with them). The new rules on controlled foreign companies will be one of the biggest tax cuts ever announced in the UK – simply by removing so much income from tax.

He may well announce plans to merge tax and national insurance – but don’t buy the simplicity line. That’s not what this is about. This can’t be done without harming pensioners – who don’t pay national insurance now. And the plan is, of course, to cut tax rates. The aim is to ensure that private medical insurance and reduced pensions become the norm. This is the backdoor route to destroying the welfare state – and delivering US style health care provision which costs twice as much as the UK and leaves 25% unprovided for. And nothing will be simplified as there will have to be a new payroll tax to replace NI – one tax in, one tax out then.

It’s rumoured he’ll help new home buyers. But subsidies just increase land prices. An empty property tax would force property onto the market and push prices down, whilst releasing what are in effect brown field sites for renovation. That’s good news all round – except for those who hold such property for speculation. So why won’t he do it?

And for small business there will be enterprise zones – which have only ever been used by tax avoiders and never by real entrepreneurs. At best they merely relocate what will happen anyway. At worst they provide a marketing opportunity for those selling tax avoidance.

Anything else? I’ll welcome an increase in the personal allowance. But for those on the margin VAT increases and benefit cuts will have reclaimed it all already – £120 a year saved is nothing compared to the costs he’s imposing.

This is a budget by a desperate man – desperate to get his destruction of UK public services in place before he’s driven from office by the failure of his economic policies. We’ll all pay the price for that.

What I also want for the Budget

Budget, Conservatives, Country-by-country, Tax avoidance, Tax evasion 2 Responses »

Mar 232011

I wrote yesterday about what I wanted for budget day.

Let’s add some more:

1) The end to Channel Islands’ VAT abuse

2) Reform to the domicile rule

3) £2 billion dedicated a year to closing the tax gap – with a yield of up to £20 bn and 30,000 jobs

4) 25% of all pension contributions to be invested in employment creating investment in the UK as a condition of tax relief

5) The adoption of Caroline Lucas’ Tax and Financial Transparency Bill as government policy – meaning we would have country-by-country reporting in the UK and that all bank accounts of all limited comanies would have to be notified to HMRC – meaning those who are trading would be known so they could not avoid their liabilities;

6) A general anti-avidance principle

7) An investment income surcharge to stop national insurance avoidance – so much simpler than merging it with income tax

50% tax at £100,000 of income – proceeds used to raise personal allowance at basic rate AND take people out of NIC on low income

9) A restriction on tax allowances available to all with income over £100,000 to a maximum of £5,000 a year – so that the poorest in this country don’t subsidies the savings of the richest as they do at present. Reallocate revenue raised as for (8)

10) Require beneficial ownership of all companies in UK on public record and that all directors prove their identities to Companies House

11) Create a public register of trusts

12) Demand (11) and (12) of the Crown Dependencies and all British Overseas Territories

13) Full UK support for the extension of the EU Savings Tax Directive, Common Consolidated Corporate Tax Base and full country-by-country reporting.

14) An empty property tax

15) Reform to the residence rules.

And now I’ve got a train to catch so I’ll stop there.

What do I realistically expect?:

a) Local authority bonds

b) Reform to Channel Islands’ VAT rules

c) Reform to domicile rule

d) Mention of tax residence

e) Mention of a General anti-avoidance provision

And of the rest that would make so much change? Not a hope, I fear.

Which is how we know George Osborne is not serious about tackling the deficit, making sure we’re all in this together or tackling tax abuse.

(Sorry for absence of links to all ideas – but all can be found by searching this site)

It’s the Tories who borrow – habitually

Conservatives, Economics, Labour Comments Off

Mar 232011

From the Guardian this morning – the story of deficits since 1979:

Note that Thatcher ran surpluses for fewer years than Labour.

And inflation adjusted Major’s were bigger than Labour’s until 2008.

And that Labour’s were solely due to the failure of the banks.

Which Labour was solving.

But now we learn Osborne’s policies will result in an increase in the deficit. Which looks like a return to Tory form to me. When they have the choice they borrow. It’s not clear that’s true of Labour.

So let’s cut the spin out and see this as the reality, shall we?

What I want for Budget day

Budget Comments Off

Mar 232011

I wrote this blog for Public Finance today:

It’s Budget day tomorrow, and we’re all allowed a wish, aren’t we? Most want the chancellor to lay off booze, fags, income tax, or something as personal as that. I want something quite different.

Since 2003 I have been arguing that the UK needs a revived local authority bond market. Now is the time for Osborne to deliver.

The Conservatives claim they’re fans of localism. And they say they want to devolve more decision-making to communities. At the same time they want people to save more.

But the public has an implicit mistrust of stock markets which carry no guarantees – and offer a pot luck chance of returns. In fact, at present, many savers have some disquiet about banks offering returns that are profoundly unattractive whilst charging the earth to borrowers.

Economically what this country needs is a massive injection of money into local infrastructure to get employment going again and to lay the foundations for growth when the recovery happens. Some green initiatives would help no end too.

All this add up to one thing – and the answer is local authority bonds. They’re local. They encourage accountability. They are low risk but offer better returns than gilts and any bank. And they encourage local growth.

What’s more , if sold in sufficiently small blocks, they can be wrapped inside pension funds and Individual Savings Accounts (and this must be actively encouraged). Plus, they encourage saving with an explicit social return in the places where people live.

They’ll also help create jobs – which is what people want. And they’re cheaper than the Private Finance Initiative. And they break the stranglehold of the banks on infrastructure spending. Most important of all, they create a demand for local democracy.

All of which means that I want you to grant me just one wish George. Give me local authority bonds. Tomorrow.

The uninformed are always with us. They’re called the British Chamber of Commerce today

Economics Comments Off

Mar 222011

Recording ever government borrowing figures for February were announced today.

According to the BBC:

The British Chambers of Commerce said it was “important that the government perseveres with its tough approach”.

However, it did offer a cautious warning.

“Such measures will not suffice on their own,” said David Kern, BCC chief economist. “The strategy will only succeed if the austerity measures are backed by effective policies that enable businesses to create jobs and deliver growth.”

I wonder if the BCC realise just how crass that comment is? They’re asking the government to carry on with its cuts that are sucking money out of the economy at a record rate. And at the same time they’re saying the government must deliver growth in demand and new jobs.

The BCC can have cuts or growth, but not both.

Surely they realise that by now?

And if not, shouldn’t they take a course in economics? Not neoliberal economics – but the economics of Keynes that got us out of recession in the 30s and are the only thing that could do so again now.

WPP to quit Jersey? And come back to the UK? A double whammy!

Corporation Tax, Jersey 3 Responses »

Mar 222011

Financial Director reports:

THE TREASURY is reported this morning to have been in talks with advertising and maketing giant WPP about returning its tax base to the UK.

The Daily Telegraph claims that disucussions have been under way for six months and centre on a reformed ‘controlled foreign companies’ (CFC) regime that would make it more attractive for WPP to be back in Britain.

Two things: first leaving the UK is not all its cracked up to be.

Second, moving to Jersey is a bad move. The promise of zero tax has not held up. With the EU saying Jersey’s zero / ten regime is illegal moving back to the UK looks all the more attractive, no doubt. An uncertain tax future was hardly the promise WPP were looking for.

Which proves two things. First those leaving made a big mistake, and second Jersey is incapable of delivering on its promises. A double whammy!