MPs to vote on Office of Tax Simplification appointments

Senior appointments to the Office of Tax Simplification are to be put to a vote of members of Parliament, the UK government announced as it rejected a proposal to give the cross-party House of Commons Treasury Committee a power of veto.

During a Finance Bill debate on September 6, MPs considered an amendment, proposed by Labour MPs, that would have prevented the chancellor from appointing the OTS chair or tax director without the committee’s consent …

Financial Secretary to the Treasury Jane Ellison told the debate that the government will ensure that the Treasury Committee can hold hearings with future OTS chair candidates before their appointments are formalized, and that appointments are put to a vote in the House of Commons.

Read more: My news story for Tax Notes 8 September (paywall) published by Tax Analysts.

 

UK paves the way for public country-by-country reporting but stresses multilateral approach

Tax transparency campaigners have welcomed the UK government’s decision to accept a Finance Bill amendment that will enable HM Treasury to make regulations requiring large multinationals to publish country-by-country reports of their profits and taxes. The government, however, stressed that it intends to seek international agreement on a reporting model before using the new power.

Customers and taxpayers expect big companies to “play fair by them and by the country in which they operate,” Labour member of Parliament Caroline Flint said during a House of Commons debate on September 5. “It sometimes seems as though we are trying to catch jelly.”

Read more: My news story at Tax Notes 7 September (paywall) published by Tax Analysts.

UK lawmakers to debate public country-by-country reporting as tax expert urges caution

Members of the U.K. Parliament have been urged not to risk “confrontation” with U.S. lawmakers by breaking ranks on public country-by-country (CbC) reporting, as they prepare to debate for a second time a finance bill amendment that would pave the way for mandatory public CbC reporting by large multinationals.

MPs defeated a similar amendment in June by just 22 votes. Labour MP Caroline Flint’s revised amendment, set to be debated on September 5 or 6, has the support of a cross-party group of 60 MPs.

Then-Financial Secretary to the Treasury David Gauke told Flint during the June 28 debate that the government shared her aims of increasing transparency and clamping down on avoidance. The government had “led the way in calling at an international level for public CbC reports,” he said. But Gauke argued that the amendment was technically flawed and that there would be “disadvantages for the U.K.” if Parliament acted unilaterally.

Read more: My news story for Tax Notes, 3 September (paywall) published by Tax Analysts.

Chancellor strengthens tax simplification team ahead of independence debate

Leading tax commentators have welcomed the appointment of three new non-executive directors to the board of the UK’s Office of Tax Simplification (OTS). The appointments were announced as MPs were set to debate a finance bill amendment intended to ensure that the OTS is seen to be independent of the government.

OTS Chair Angela Knight said the new directors’ skills and experience will increase the office’s ability to provide “excellent advice on how to take forward the strategy and simplify the tax system for business and for individuals”.

Read more: My news story for Tax Notes 29 August (paywall) published by Tax Analysts.

UK tax practitioners question 15% corporation tax target

After Chancellor of the Exchequer George Osborne said that he wants to set a target rate of less than 15 percent, tax practitioners suggested that further reductions in the U.K.’s corporation tax rate are not a top priority for businesses and may not have the desired effect.

Osborne is planning to “slash corporation tax” in order to woo businesses deterred from investing in a post-Brexit Britain, the Financial Times said in a July 3 report, noting that the move could alienate voters.

The Confederation of British Industry welcomed the announcement. “The chancellor is right to be considering moves that support economic growth and send out the signal that the U.K. is open for business at this critical time,” said CBI chief economist Rain Newton-Smith.

Read more: My news story for Tax Notes, 6 July (paywall) published by Tax Analysts. Stephanie Johnston contributed to this story.

Does the UK need even more corporation tax cuts?

George Osborne has told the Financial Times that he wants to set the lowest corporation tax rate of any major economy, announcing “a target of 15%”. The current rate is 20%. The paper reported that:

[Osborne] said Britain should “get on with it” to prove to investors that the country was still “open for business”.

The FT added that before the EU referendum the chancellor had “threatened to make £30bn of tax rises or spending cuts” in a post-Brexit emergency Budget:

He is now striking a more cautious note, awaiting official forecasts before announcing any new measures in the Autumn Statement.

The FT also noted that the move could alienate some voters, and Labour’s shadow chancellor John McDonnell has tabled an urgent question for today, 4 July, on the corporation tax proposal. Continue reading Does the UK need even more corporation tax cuts?

UK lawmakers approve corporation tax cut

The UK’s low corporation tax rate attracts jobs and investment, and it would be a grave mistake to cancel a further cut to 17 percent planned for 2020, Financial Secretary to the Treasury David Gauke warned members of Parliament before they approved the cut by a vote of 308 to 255.

A Committee of the Whole House completed its consideration of the finance bill June 28 after several hours of debate. MPs defeated by just 22 votes an amendment implementing public country-by-country reporting, and defeated by 37 votes a new clause on tax transparency moved by Margaret Hodge, Labour MP and former chair of the House of Commons Public Accounts Committee.

Read more: My news story for Tax Notes, 30 June (paywall) published by Tax Analysts.

Cross-party amendment to Finance Bill seeks public country by country reporting

A cross-party group of members of Parliament has called on the U.K. government to back an amendment to the 2016 Finance Bill to require multinationals to publish country-by-country reports of their profits and taxes.

Caroline Flint, a Labour MP and member of the House of Commons Public Accounts Committee, secured support for the amendment from 11 colleagues on the 15-person committee as well as two former PAC chairs, Conservative MP David Davis and Labour MP Margaret Hodge. Six of the amendment’s 14 backers are Conservative MPs.

While Flint said that the tide of public opinion is moving toward openness, some tax experts have cast doubt on the value of public disclosure, arguing that it is the task of tax authorities to ensure that multinationals pay the right amount of tax.

Read more: My news story for Tax Notes (paywall) published by Tax Analysts.

 

Finance Bill delay adds uncertainty

As the EU referendum concentrates minds, let’s spare a thought for the current Finance Bill. The annual cycle of tax legislation has been interrupted to make way for the Brexit debate.

There are some complex and contentious measures that have hardly begun their passage through parliament.

By the first week of June in 2014 a public bill committee of MPs had already sat nine times to consider that year’s Finance Bill, and royal assent followed in July.

Last year’s first Finance Bill was unusual. The Bill that became Finance Act 2015, running to 127 sections and 21 schedules, was rushed through parliament in just a few days because of the general election. Following the election there was a second Bill, which became Finance (No2) Act 2015.

This year’s Finance Bill (179 clauses, 25 schedules and 570 pages) passed its second reading on 11 April, when a carry-over motion was agreed to enable the Bill to be considered in the new parliamentary session that began in mid-May. Continue reading Finance Bill delay adds uncertainty

A tax compliance update

I’ve written an issue of Tolley’s Tax Digest to be published in June 2016. Topics include:

  • making tax digital and “simplifying” payment arrangements;
  • tax evasion, avoidance and non-payment – the latest measures and consultations;
  • Office of Tax Simplification – a consultation and reviews on income tax and NICs, and small company taxation; and
  • self-assessment – summarising recent measures including “simple assessment” and new information requirements and penalties.

See also published work.

What is your income tax rate? It should be a straightforward question, but it isn’t

MPs will debate the new Finance Bill on 11 April. Some of the most difficult measures to understand concern matters that should perhaps be the most straightforward – such as personal income tax rates.

Wherever you stand on “tax simplification”, the complexity in this area is hard to justify.

For tax year 2015/16 there were three main rates of income tax:

Basic rate 20%

Higher rate 40%

Additional rate 45%

In addition, there was a 0% starting rate for savings.

Dividends were taxed at one or more of the following rates (subject to a tax credit):

Dividend ordinary rate 10%

Dividend upper rate 32.5%

Dividend additional rate 37.5%

For tax year 2016/17 there is a new savings allowance (as well as the starting rate for savings) and a new dividend allowance.

But neither of these is really an allowance. For savings, there is effectively a new 0% band of either £1,000 or £500 or nil – depending on your tax rate. For dividends, there is a new 0% band of £5,000, and dividends in excess of that are taxed (and there is no tax credit) at:

Dividend ordinary rate 7.5%

Dividend upper rate 32.5%

Dividend additional rate 38.1%

The changes necessary to bring in the new dividend tax regime, and deal with the interaction between the various rates and bands, occupy seven pages of the Bill.

I haven’t considered here the potentially different Scottish and Welsh rates of income tax, nor national insurance contributions, nor the issue of marginal tax rates (and marginal deduction rates for those receiving tax credits or other benefits). Some of the marginal rates are very high, creating cliff-edges and perverse incentives at various levels of income.

What does this have to do with the Panama Papers? Nothing – but if you’re interested you can follow me on Twitter where I’m keeping an eye on developments, and I may say something on the blog soon.

The marriage allowance and why becoming a higher rate taxpayer could become ‘very expensive’

When I was one of those people who thought Labour might win last year’s general election I suggested that the new income tax ”marriage allowance” might be short-lived. “We think it is a dud of a policy,” Labour’s shadow Treasury minister had said.

The government said more than four million married couples and 15,000 civil partnerships would be eligible for the allowance, introduced from April 2015. The maximum benefit is just over £4 a week.

But in a parliamentary written answer on 2 February the government said only 332,301 couples had successfully claimed the allowance by 28 January, prompting another shadow minister to call the policy a “complete and utter flop”.

HMRC calls it the “marriage allowance” but the legislation[1] calls it (more accurately, but it’s a bit of a mouthful) a “transferable tax allowance for married couples and civil partners”. It is not available to higher rate taxpayers.

For example, H works full-time and is a basic rate taxpayer, and W works part-time and has an income below the personal allowance. H is entitled to a tax reduction of £212 (20% of £1,060) for 2015/16 if W elects “for a reduced personal allowance”.

HMRC points out that W can transfer “no more and no less than £1,060” of her personal allowance.

What happens if H gets a pay rise and becomes a higher rate taxpayer? As Paul Johnson of the IFS told a Lords committee on the draft Finance Bill last month, he would lose the benefit of the allowance immediately, so “you are facing several hundred per cent tax at the point at which you move from the basic to higher rate”.

An IFS briefing note had said in the run-up to the election:

“Indeed, some can be worse off after a pay rise, or better off after a pay cut, because the transferred allowance is withdrawn in ‘cliff-edge’ fashion – that is, income tax liability jumps by more than £200 per year when taxable income crosses the higher-rate threshold. The removal of this cliff edge would be a welcome side effect of abolishing the transferable personal allowance.”

Johnson was giving evidence to peers discussing the new personal savings allowance and the new regime for taxation of dividends. These changes, to be introduced in Finance Bill 2016, are raising some serious concerns.

We will have “all sorts of additional marginal rates layered on top of each other,” he said, adding that “becoming a higher rate taxpayer is going to become a very expensive part of your life”.

[1] Income Tax Act 2007 sections 55A-55E