The new income tax marriage allowance may be short-lived

The new transferable tax allowance for married couples and civil partners may be short-lived if Labour win the general election.

Eligible couples can now register an interest online, and registered couples will be invited in stages, after 6 April, to apply for the allowance. It will not be possible to call HMRC to register an interest, but those who do not register will still be able to apply “later in 2015”. An HMRC issue briefing provides further details, and the CIOT’s Low Incomes Tax Reform Group has published some useful guidance.

From 2015/16 a married person or member or a civil partnership will be able to transfer 10% of their personal allowance to the other spouse or partner, so long as the transferee is not liable to income tax at the higher rate or the additional rate. The maximum tax saving for 2015/16 will be £212, or just under £18 a month.

“This measure recognises marriage and civil partnerships in the income tax system,” said a tax information and impact note. “Taking the tax liabilities of a couple together, it can provide a financial benefit where one spouse or civil partner has an income less than their personal allowance.”

David Cameron has said the policy is about “valuing commitment”. More than four million married couples and 15,000 civil partnerships will be eligible and the application process is simple, the government says.  But no-one is seriously suggesting that a tax saving of £4 a week is going to persuade a couple to marry, or to stay married.

The complex rules are set out in Finance Act 2014. Paul Johnson, director of the Institute for Fiscal Studies, has noted that they create an “infinite” marginal rate of tax because the full allowance is withdrawn if one partner becomes liable to higher rate tax.

“We think it is a dud of a policy,” said Labour’s shadow Treasury minister Catherine McKinnell during a Commons debate on the Finance Bill last April. The measure was “highly restrictive and very complicated”.

She noted that the measure will not benefit “married couples and civil partners on the very lowest incomes where both spouses earn below the income tax personal allowance”, nor will it benefit “couples where both spouses, possibly both basic rate taxpayers, have incomes higher than the personal allowance and therefore have no unused portion to transfer”.

The government argued that these couples had benefited from other tax measures. Financial secretary David Gauke said the purpose of the new measure was to reinforce the institution of marriage while providing support for many households that have not been able to benefit fully from changes to the personal allowance.

Tax advisers respond to public accounts committee’s call for state regulation

Tax professionals argue that a new code of conduct is unnecessary, but some experts have expressed support for a kitemark, or charter, for advisers.

In my latest article for Accountancy Age, practising tax experts discuss the existing codes of conduct and consider whether HMRC could set acceptable professional standards.

What tax planning is appropriate? The [professional code of conduct in relation to taxation, prepared by six tax and accountancy bodies] says this is ultimately a decision for the client to take “having received advice and taking into account broader commercial and ethical issues”. But a member “should not recommend” planning that he or she considers ineffective because of the new general anti-abuse rule or other tax law – which includes a host of targeted anti-avoidance rules.

Read more: PAC reignites tax ‘code of conduct’ debate.

The tax gap and Labour’s review of HMRC

Ed Miliband announced at the weekend that, if elected, Labour would open an “independent, root and branch review of the culture and practice of HMRC” in relation to tax evasion and aggressive tax avoidance.

Today the Financial Times reported that there was support for the idea of a review among tax experts who “thought HMRC had lost too many skilled people in the pursuit of efficiency”.

Miliband said: “What we are seeing is the growth of hugely complex and aggressive tax avoidance schemes, often based offshore. The sort of activity that has left the UK a £34bn hole in our nation’s finances.”

HMRC’s estimate of the total UK tax gap is £34bn. The Independent reported – correctly, if we’re using HMRC figures (emphasis added): “The use of offshore aggressive tax avoidance schemes … contributes to a £34bn gap in much-needed public funds.” Continue reading

‘Great care’ needed over umbrella arrangements and temporary workers

Some welcome changes to the taxation of employee expenses and benefits are included in the draft Finance Bill, following a review by the Office of Tax Simplification, but a more difficult issue concerning the use of umbrella companies and “salary sacrifice” was addressed in a separate consultation published on 16 December.

The government noted an increase in “the use of overarching contracts [OACs] by umbrella companies and employment agencies who seek to use such contracts to exploit the tax rules for travel and subsistence for temporary workers”.

HMRC said: “Whilst individuals engaged under an OAC by an umbrella company may be in a position to pay less tax than an identical worker engaged under traditional employment business arrangements, any financial benefit to the individual can often be offset by the administrative fees charged to them by their umbrella company. This can mean there is only marginal, or even negative financial benefit to the individual to being engaged under an OAC instead of under a traditional employment business arrangement.”

Yesterday the Chartered Institute of Taxation’s Low Incomes Tax Reform Group said in its response to the consultation that “great care” should be taken to ensure that there are no unintended consequences of a change in the legislation. Pursuing a worker rather than the employer for unpaid tax could lead to a contention that the worker has over-claimed tax credits, for example. The group suggested that workers unwittingly caught up in a “non-compliant” scheme should not be pursued for tax arrears for years prior to the proposed change.

I discuss these reforms in my latest article for Tolley’s Company Secretary’s Review.

Tax consultation deadlines

Consultation on the draft Finance Bill measures published in December closed yesterday.

You have just over a week to “have your say” on Budget 2015, if you want to make representations to the Treasury. Submissions are invited by 13 February. The Finance Bill is expected to be published very soon after the 18 March Budget.

Next week two consultations on particular aspects of UK tax will close: Continue reading

Tax is ‘fast becoming the most toxic issue’ for successful companies

Britain’s corporate tax system is “broken”, according to Patrick Hosking, financial editor of The Times (paywall). “Nothing reflects this better than a tiny heart-shaped squiggle that is starting to appear in the advertising of British blue chips.”

The squiggle is the Fair Tax Mark logo, and SSE plc is the first FTSE 100 company to use it. The company has placed advertisements over the past few months in The Times, The Mirror, The Economist and elsewhere. One recent ad says that “at SSE we believe that everyone should pay their fair share of taxes”. Continue reading