2011 September | McBrides

hmrc closes the ‘tax gap’
September 28, 2011 by Shirley1
The difference between the amount of tax that should in theory be collected by HMRC and what actually is collected – known as the ‘tax gap’ – has fallen by £4 billion.

The amount of tax that went uncollected in 2009-10 was estimated to be £35bn, HMRC has said. That represents 7.9% of all tax, compared with 8.1% the previous year, and is the lowest gap since 2004-05. According to HMRC, this is at “the lower end of the range of countries who publish their tax gaps.”

The annual amounts of tax lost to deliberate evasion are relatively small. Of the £14.5bn of direct taxes (income tax, national insurance and capital gains tax) not collected, £1.3bn was attributed to “ghosts”, who are people who fail to declare their taxable income, while some £1.8bn was attributed to moonlighters who fail to declare income from a second job.

£5.8bn of lost income tax was due to inaccurate self-assessment returns, but VAT is the tax with the biggest shortfall. An estimated £11.4bn – nearly 14% – of VAT went uncollected in 2009-10. That meant 13.8% of the total amount of VAT due was not collected in 2009-10.

Exchequer Secretary, David Gauke MP said: “Although these numbers show continued progress by HMRC in reducing the tax gap, there is no room for complacency. Just in the last few weeks we have challenged offshore tax evaders, closed tax avoidance loopholes and created a new HMRC unit to ensure that the wealthier members of society pay their way. We will continue to take action to prevent a minority of rule breakers dodging their responsibility to pay the right tax at the right time.”

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warning of ‘soar’ in fake hmrc phishing emails
by Shirley1
HM Revenue and Customs (HMRC) has reported a 300% rise in fraudulent ‘phishing’ emails over the past year, with over 24,000 scam emails reported to HMRC in August alone.

The emails provide a click-through link to a cloned replica of the HMRC website. The recipient is then asked to provide their credit or debit card details, which enable criminals to not only empty victims’ bank accounts, but also to sell their personal details on to other organised criminal gangs. Around 100 such websites are being shut down with the help of HMRC every month.

The scam email often begins with a sentence such as “we have reviewed your tax return and our calculations of your last year’s accounts a tax refund of XXXX is due.”

But in reality HMRC only ever contact customers who are due a tax refund in writing by post, not by email, telephone calls or through external companies, and the department has stated that legitimate tax rebate forms (P800s) will contain a payment order and will never ask for credit or debit card details.

HMRC has issued the following advice:
- Check the advice published at www.hmrc.gov.uk/security/index.htm to see if the email you have received is listed
- Forward suspicious emails to HMRC at phishing@hmrc.gsi.gov.uk and then delete it from your computer/mail account
- Do not click on websites, links contained in suspicious emails or open attachments.
If you have reason to believe that you have been the victim of an email scam, report the matter to your bank/card issuer as soon as possible. If in doubt, you can check with HMRC at http://www.hmrc.gov.uk/security/fraud-attempts.htm
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‘urgent action’ needed to boost creative industries skills gap
by Shirley1
The Confederation of British Industry (CBI) is calling for urgent action to be taken to boost the UK creative industries sector.

A report from the business group suggests that while the sector will be a key driver of economic recovery, it risks being held back by a lack of relevant skills.

The sector will employ an estimated 1.3 million workers by 2013, and the CBI is calling for a number of changes to be implemented in schools and colleges, which include: ensuring that all young people continue to study maths after the age of 16; introducing an automatic opt-in to a triple science GCSE for the most able pupils; the introduction of higher level computer courses; and including a creative or technical subject within the specification of the English Baccalaureate.

Commenting on the report, CBI Director for Education & Skills, Susan Anderson, said, ‘First and foremost we must ensure that all young people leave school with a strong grasp of the basics. Solid maths and science ability is particularly vital’.

‘As well as getting the basics right at a school level, we want to see greater collaboration between universities and companies so that courses keep up-to-date with the realities and needs of today’s creative industries market.’

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hmrc issues reminder on new Self Assessment penalties
September 21, 2011 by Shirley1
HM Revenue & Customs has issued a reminder about the new Self Assessment penalties for late returns and late payments, which come into effect this autumn and apply to returns for 2010/11, and all future financial years.

The new penalties for late Self Assessment returns are:
- an initial £100 fixed penalty, which will now apply even if there is no tax to pay, or if the tax due is paid on time;
- after 3 months, additional daily penalties of £10 per day, up to a maximum of £900;
- after 6 months, a further penalty of 5% of the tax due or £300, whichever is greater; and
- after 12 months, another 5% or £300 charge, whichever is greater. In serious cases, the penalty after 12 months can be up to 100% of the tax due.
New penalties for paying late are 5% of the tax unpaid at 30 days, at 6 months, and at 12 months.

Interest will also be charged on top of these penalties. The tax return deadlines remain unchanged – 31 October for paper and 31 January for online returns. The deadline for paying any tax due also remains the same at 31 January.

Just over 10 million Self Assessment returns or notices to file have been sent out by HMRC for the 2010/11 tax year.

More information on the new penalties is available from the HMRC website at www.hmrc.gov.uk/sa/deadlines-penalties.htm
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ifs calls for radical overhaul of the uk tax system
by Shirley1
The Institute for Fiscal Studies (IFS) – a leading financial think tank – has published a review which calls for radical reform of the UK tax system, including abolishing fuel duty and stamp duty, expanding VAT and fully integrating National Insurance and income tax.

The Mirrlees Review, conducted over five years and published in two volumes, is described by the IFS as “the deepest and most far reaching analysis of the UK tax system in more than 30 years”.

It claims that even though the tax system means that the Government takes £4 in every £10 earned in the economy, poor tax design “contributes to an inefficient housing market, distortionary taxation of financial services, excessive reliance on debt finance, employment levels lower than they need be and distorted and inefficient savings and investment decisions”.

The Review aims to offer a “blueprint” for long-term reform. Proposals include:
- Replacing fuel duty with a comprehensive system of congestion charging on the roads
- Integrating income tax and National Insurance, since the latter “no longer serves any purpose as a separate social insurance contribution.”
- Simplifying the VAT system but also expanding it to include financial services and “nearly all spending”, with the money raised spent on cutting income taxes
- Introducing an Allowance for Corporate Equity into corporation tax to ensure equal treatment of equity- and debt-financed investments and that only profits above the normal return to capital invested are taxed”
- Abolishing stamp duty, which the Review describes as “among the most inefficient and damaging of all taxes.”
- Replacing council tax with a ‘Housing Services Tax’, with payments based on up-to-date house values
- Reforming environmental taxes so that charges on carbon emissions are applied consistently
- Making nearly all savings tax-free if they are “risk-free”.
There are also proposals on work incentives and the benefits system, with the Review in favour of the Government’s aim of replacing most of the current multiplicity of benefits with a Universal Credit.

The Treasury has responded by saying that it would need to look carefully at any costing of tax reform, which had not been addressed in the Mirrlees Review, while some of the suggested reforms were already underway, such as merging NI and income tax.

Other commenters have observed that in the current economic climate there will be little political will to take on such large-scale reform projects.

But Sir James Mirrlees, the Nobel Prize-winning economist who led the review said: “[The tax system] could raise as much revenue and achieve as much redistribution as it currently does in far less costly ways. There is no getting away from the political difficulty associated with some of the proposed changes. But there is also no getting away from the enduring costs of failure to reform.”
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new guidance on minimum wage for work experience staff
by Shirley1
The Government has issued new guidance for businesses who offer work experience, placements and internships, designed to clarify when someone is entitled to the National Minimum Wage (NMW).

The key message is that entitlement to the NMW does not depend on a job title but on whether the arrangement they have with an organisation makes them a worker for NMW purposes. Where an individual is a worker – and no exemption applies – then they must be paid at least the NMW.

Employment Relations Minister Edward Davey said: “Internships and work experience of all forms offer an excellent opportunity in helping to bridge the gap between education and the workplace. And for businesses it allows them access to a wide talent pool of some of our best and brightest who didn’t take the traditional route into a job.

“Fairness though is absolutely paramount with all placements. When a worker is entitled to the minimum wage, they should be paid it and we will continue to enforce the law. Today’s publication will help clarify this for employers and will also make sure that all interns and those on work experience placements have a better understanding of their entitlement to the minimum wage.”

The guidance includes a new worker checklist for employers and case studies. Full details can be found at www.businesslink.gov.uk/nmw

The main rate of the NMW is currently £5.93 an hour, but is set to increase to £6.08 on 1 October 2011. Also from that date, the rate for 18-20 year olds will increase by 6p to £4.98 an hour; for 16-17 year olds it will increase by 4p to £3.68 an hour; and the rate for apprentices will increase by 10p to £2.60 an hour.

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autumn statement date is announced
September 14, 2011 by Shirley1
The Chancellor George Osborne will make his Autumn Statement on 29 November, the Treasury has announced.

The Statement will follow the latest economic forecasts from the Office for Budget Responsibility (OBR).

It is seen as a replacement for the Pre-Budget Report, which was first introduced by Gordon Brown to outline the Government’s tax plans.

Osborne will instead use his Statement to provide an update on the UK economy and respond to the updated growth figures from the OBR.

Speaking at a dinner earlier this week, the Chancellor conceded that his short-term hopes for the economy have been revised down, but he insisted that the Government would continue with its deficit reduction plan.

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icb report calls for major reform of banking structure
by Shirley1
The Independent Commission on Banking (ICB), backed by the Government and led by Sir John Vickers, has concluded that banks should ring-fence their retail banking divisions from their riskier ‘casino’ investment banking operations, to protect customer savings and prevent future taxpayer-funded bailouts.

The ICB has published its highly anticipated final report early, following a leak. It says that “separation would allow better-targeted policies towards banks in difficulty, and would minimise the need for support from the taxpayer.”

That report estimates that up to a third of UK banks’ balance sheets would be included inside the ring fence, and that it would cost banks up to £7bn a year between now and the proposed deadline in 2019 to bring about the changes. That would be a price worth paying, the ICB claims, if it will prevent a repeat of the bank failures that led to the £500bn government bailout in 2008.

The Coalition government now has the power to act upon or ignore the recommendations from the ICB, with rumours of a split between Chancellor George Osborne, who favours a more cautious approach and does not wish to include the proposals in the current Financial Services Bill, and Liberal Democrat ministers including Business Secretary Vince Cable, who wish to see the reforms implemented rapidly.

The British Bankers’ Association warned that reforms would need to be “carefully analysed and compared with those agreed internationally”, adding that “it is vital that the full impact any further reforms will have on the economy, the recovery and banks’ ability to support their customers in the UK is understood.” Some economists have warned the changes could harm the UK’s economic growth as the banks are likely to increase the cost of lending to offset implementing the reforms and some may consider leaving the UK.

However, the initial response from the Treasury to Vickers’ report has been positive. An official statement said the Chancellor considered the report to be both impressive and an “important step towards a new banking system” and that such a system would “support lending to businesses and families, support the economy and jobs, but doesn’t cost the taxpayer billions of pounds when it goes wrong.”

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50p tax rate “may not raise any extra revenue” claims
by Shirley1
The Institute for Fiscal Studies (IFS) has found that the 50p tax rate for Britain’s highest earners may not raise any extra revenue for the Treasury and could actually reduce it, according to a report by the Sunday Times, as wealthy Britons either move abroad or take advantage of permissible tax avoidance schemes to escape the rate.

The IFS – the UK’s leading independent authority on tax - is due to reveal its findings about the effectiveness of the 50p tax rate this week, but a leak to the Sunday Times suggests that the report will increase pressure on the Chancellor to scrap the controversial rate.

Paul Johnson, director of the IFS, said: “There are all sorts of ways people can reduce their taxable income, for example by putting money into their pension. Our best estimate is the revenue-maximising rate may be a little less than 50p. A 50p rate could reduce revenue.” The IFS will suggest that 40% is in fact the highest rate that can be introduced without a reduction in overall tax revenues.

The Treasury has already revised downwards its predictions of the amount that could be raised from the 50% rate from £7 billion a year to about £2.4 billion, with some experts suggesting that even this much lower figure is optimistic.

The Coalition is believed to be split on the issue, with Conservatives ideologically opposed but Liberal Democrats more likely to be in favour of higher top rates of tax. Deputy Prime Minister Nick Clegg wants the 50% top rate of tax be retained unless alternative measures, such as a 1% “mansion tax” on homes worth more than £2m, are introduced to ensure the rich contribute a “fair share”.

Chancellor George Osborne has asked HM Revenue & Customs to report on the impact of the 50p rate by next year. If it shows poor tax yields, it could pave the way for an abolition of the rate in 2013.

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recession fuels decline in pension contributions
by Shirley1
The number of people saving into a pension scheme has dropped by almost a half during the past two decades, new figures have shown.

According to the Office for National Statistics (ONS), the number of people paying into a private sector pension scheme fell from 6.3 million in 1991 to 3.2 million in 2009.

There was a particularly sharp decline in pension saving during recent years, as the recession squeezed the budgets of households throughout the UK.

The ONS found that total contributions to all personal pension plans fell from £20.9 billion in 2007/08 to £18.7 billion in 2009/10 – a fall of around 10%.

The findings have led to fresh warnings over the pensions crisis, with some experts suggesting that Britons are falling into a ‘vicious spiral’ of reducing their savings when the need to prepare for retirement is becoming increasingly important.

Lord McFall of Alcuith, the former chairman of the Commons Treasury Select Committee and chairman of the Workplace Retirement Income Commission (WRIC), said: ‘At a time when people need to save more for a decent retirement they are reducing their commitments.

‘This is a vicious spiral which needs to be addressed by the Government and the regulators. They must ensure that we have promote a culture of saving in the UK.’

However Michelle Mitchell, from the charity Age UK, said the forthcoming reforms to the pensions regime would help to curb the decline in pension saving.

‘The roll-out of automatic enrolment into a workplace pension, starting next year will help as most employees will have the right to a pension contribution from their employer,’ she said.

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