The recent decision in the case of R (on the application of Prudential Plc and another) v Special Commissioner of Income Tax and another shows that the issue of legal professional privilege ("LPP") in relation to documents regarding advice given to a client on tax matters underlines the unsatisfactory and anomalous current state of the law.
As matters stand, documents are protected from disclosure to HMRC where they are created in relation to tax advice given by a solicitor or barrister but not where the advice is given by a tax adviser or accountant. It is surely absurd that a client can ensure that he obtains the benefit of LPP where he instructs his solicitor to obtain advice from a non-solicitor tax adviser on his behalf but not if he goes to the tax adviser directly. Big Brother HMRC is exploiting this particular loophole rather regularly now - even though we all know how much they are against exploiting loopholes when the boot is on the other foot.
Neither am I terribly impressed that the accountancy bodies seem to be looking to have LPP extended just to them so that they can compete with the lawyers. Surely it is the nature of the advice, not the status of the adviser, which should determine whether documents are protected? A client's right to privacy and confidentiality of communication should be an inalienable right, not one which depends on an irrelevancy such as the professional status of the adviser with whom he is communicating.
Monday 18 October 2010
Wednesday 11 August 2010
It's official - HMRC really are bad sports.
The England team are unlikely to get the best of receptions when they come onto the pitch at Wembley tonight but there is another team which is proving just as unpopular - HMRC!
HMRC approaches each game it is involved in as if it is not just the strongest team in the league but is also the referee - and one who changes the rules to suit himself whenever he sees play that he considers "unfair". However, unlike Sepp Blatter's FIFA, who deliberately cover their eyes like the proverbial wise monkey so they see no evil, this particular game does have an off-pitch official in the form of the Courts.
HMRC's opposition this time was Portsmouth FC, or rather their administrators. HMRC complained that the proposed Corporate Voluntary Arrangement ("CVA") to deal with the Club's debts was unfair to them, partly because it failed to take into account £13 million of tax it claimed it was owed in relation to payments for image rights. However, this was a rather dubious appeal for a penalty on HMRC's part as it had previously lost a case before the Tax Tribunal which ruled that no tax was due on such payments. Fortunately, even though HMRC hoped they could pull the wool over the referee's eyes on this occasion, the Court saw through this dirty tackle & awarded a free kick to Portsmouth. The CVA will now go ahead as originally planned.
This news came on the same day that it was reported that HMRC was also being blamed by Professional Golf Association Tour officials for the increasing difficulties they face in encouraging foreign players to compete in European Tour events. This is a consequence of HMRC's success in a case it brought against the tennis player André Agassi in 2006, following which it is now able to impose UK tax not just on prize money but on sponsorship & endorsements connected with UK sporting events. PGA officials are reported to be particularly worried about the effects this may have on the forthcoming Ryder Cup which is being held in Wales this year.
We already have a tax system which encourages the UK's most successful sportsmen to base themselves abroad and if it also discourages big name foreign sportsmen from coming here to xompete, maybe it is time for a major rethink. Many of our sporting heroes may be selfish, spoiled prima donnas but there is no doubt that their activities in this country generate wealth, jobs and international prestige for the UK. It would be a shame if the shortsightedness of our greedy taxmen spoiled that.
HMRC approaches each game it is involved in as if it is not just the strongest team in the league but is also the referee - and one who changes the rules to suit himself whenever he sees play that he considers "unfair". However, unlike Sepp Blatter's FIFA, who deliberately cover their eyes like the proverbial wise monkey so they see no evil, this particular game does have an off-pitch official in the form of the Courts.
HMRC's opposition this time was Portsmouth FC, or rather their administrators. HMRC complained that the proposed Corporate Voluntary Arrangement ("CVA") to deal with the Club's debts was unfair to them, partly because it failed to take into account £13 million of tax it claimed it was owed in relation to payments for image rights. However, this was a rather dubious appeal for a penalty on HMRC's part as it had previously lost a case before the Tax Tribunal which ruled that no tax was due on such payments. Fortunately, even though HMRC hoped they could pull the wool over the referee's eyes on this occasion, the Court saw through this dirty tackle & awarded a free kick to Portsmouth. The CVA will now go ahead as originally planned.
This news came on the same day that it was reported that HMRC was also being blamed by Professional Golf Association Tour officials for the increasing difficulties they face in encouraging foreign players to compete in European Tour events. This is a consequence of HMRC's success in a case it brought against the tennis player André Agassi in 2006, following which it is now able to impose UK tax not just on prize money but on sponsorship & endorsements connected with UK sporting events. PGA officials are reported to be particularly worried about the effects this may have on the forthcoming Ryder Cup which is being held in Wales this year.
We already have a tax system which encourages the UK's most successful sportsmen to base themselves abroad and if it also discourages big name foreign sportsmen from coming here to xompete, maybe it is time for a major rethink. Many of our sporting heroes may be selfish, spoiled prima donnas but there is no doubt that their activities in this country generate wealth, jobs and international prestige for the UK. It would be a shame if the shortsightedness of our greedy taxmen spoiled that.
Tuesday 22 June 2010
A masochist's delight
Today's Budget was expected to be a painful affair and indeed it was a masochist's delight. There was precious little carrot but lots and lots of stick.
As expected, VAT is to rise to 20% from 4 January 2011 - as mentioned in my last Budget blog, this should actually stimulate spending on luxury items in the short term.
For large companies, the reductions in corporation tax, although welcome, will undoubtedly be partly offset by the reduced rates of capital allowances. The tax rate may decrease but the taxable base will increase. I wonder whether and how the relatively certain knowledge of lower rates of corporation tax in the future will affect actual investment on the one hand and accounting on the other. Making a provision in one year even if one only has to release it in the next could be worth significant sums of tax for larger companies.
Many smaller companies may be more concerned with how they are going to stay in business and make profits rather than how those profits will be taxed when made. Those investing in plant and machinery for future production will be "incentivised" to do so early in order to avoid the effects of the reduction in the Annual Investment Allowance in 2012, again stimulating spending on fixed assets in the short term by making it more expensive to do so in the long term.
Buried in the Press Releases are announcements of the legislation amending the Enterprise Management Initiative and Venture Capital Trusts scheme to ensure that they qualify as approved State Aid under EU rules. There are some similarly-motivated changes to Consortium Relief. The fact is that it is no longer possible for the UK to single out UK companies for support of this kind. In times like this, one wonders whether that can be considered a good thing.
The increase in the CGT rate from 18% to 28% is swingeing. The fact is that most taxable capital gains are made by higher-rate taxpayers and trustees - or by basic rate taxpayers who for one year only are turned into higher-rate taxpayers by the receipt of a capital gain - so the tax take will be increased substantially. There will be issues arising for deceased estates because the higher rate applies to personal representatives as well - there may be some traps for the unwary here. Since there is no longer any indexation allowance for individuals and trustees and inflationary gains are therefore taxable once more, the effective rate of tax is extraordinarily high. What fairness there once was in the CGT system now seems to have flown out of the window. Note, however, the Government's contrasting generosity in increasing the entrepreneur's relief lifetime limit to £5 million.
There is an interesting Press Release, the contents of which are, in effect, that if MP's were subject to the same rules as everybody else regarding their subsistence and travelling expenses, they might have to pay some tax and this will never do. Therefore the said payments will be tax-exempt. Unlike many of the other Budget proposals, I would suggest that this is unlikely to meet with much opposition in Committee or in the Finance Bill debates.
As expected, VAT is to rise to 20% from 4 January 2011 - as mentioned in my last Budget blog, this should actually stimulate spending on luxury items in the short term.
For large companies, the reductions in corporation tax, although welcome, will undoubtedly be partly offset by the reduced rates of capital allowances. The tax rate may decrease but the taxable base will increase. I wonder whether and how the relatively certain knowledge of lower rates of corporation tax in the future will affect actual investment on the one hand and accounting on the other. Making a provision in one year even if one only has to release it in the next could be worth significant sums of tax for larger companies.
Many smaller companies may be more concerned with how they are going to stay in business and make profits rather than how those profits will be taxed when made. Those investing in plant and machinery for future production will be "incentivised" to do so early in order to avoid the effects of the reduction in the Annual Investment Allowance in 2012, again stimulating spending on fixed assets in the short term by making it more expensive to do so in the long term.
Buried in the Press Releases are announcements of the legislation amending the Enterprise Management Initiative and Venture Capital Trusts scheme to ensure that they qualify as approved State Aid under EU rules. There are some similarly-motivated changes to Consortium Relief. The fact is that it is no longer possible for the UK to single out UK companies for support of this kind. In times like this, one wonders whether that can be considered a good thing.
The increase in the CGT rate from 18% to 28% is swingeing. The fact is that most taxable capital gains are made by higher-rate taxpayers and trustees - or by basic rate taxpayers who for one year only are turned into higher-rate taxpayers by the receipt of a capital gain - so the tax take will be increased substantially. There will be issues arising for deceased estates because the higher rate applies to personal representatives as well - there may be some traps for the unwary here. Since there is no longer any indexation allowance for individuals and trustees and inflationary gains are therefore taxable once more, the effective rate of tax is extraordinarily high. What fairness there once was in the CGT system now seems to have flown out of the window. Note, however, the Government's contrasting generosity in increasing the entrepreneur's relief lifetime limit to £5 million.
There is an interesting Press Release, the contents of which are, in effect, that if MP's were subject to the same rules as everybody else regarding their subsistence and travelling expenses, they might have to pay some tax and this will never do. Therefore the said payments will be tax-exempt. Unlike many of the other Budget proposals, I would suggest that this is unlikely to meet with much opposition in Committee or in the Finance Bill debates.
Thursday 6 May 2010
Polling day at last
Polling day is finally here and from the tax adviser's and taxpayer's perspective, today is not so much the end as the beginning. It looks likely that the results of the poll will not directly decide who goes on to govern us; that will be a matter of feverish negotiation behind the scenes.
Whoever forms a government, there is no doubt that taxes will have to rise substantially in due course; the 1% NIC rise and the 50% top rate of income tax will barely make a dent in the deficit. VAT seems the most likely area to be targeted and the announcement of a significant increase in the standard rate at some future specified date would probably have the perverse effect of stimulating the economy temporarily. I do not think that forecasts of a UK standard rate of 20% in the next couple of years are at all unrealistic or alarmist. We can expect evasion and large scale avoidance to be targeted by all parties, although one wonders how this would be done if there are civil service cut-backs, as appears likely, especially if the Conservatives are in power. Pension fund exemptions and reliefs are also likely to to be whittled away even further. Council tax may rise as central funding diminishes and local authorities resist making cuts. There may be additions to the range of "green" taxes and rises in duty on alcohol, tobacco and hydrocarbon fuel seem inevitable.
In the end, the taxpayer is set to suffer a considerable amount of pain, whichever party is in power. My forecast for the eventual outcome is a Conservative minority government. In my view, the Liberal Democrats will only support one of the other parties if they agree to proportional representation and that will almost certainly mean that we will never have a majority Government again and I doubt that that is something that either Labour or the Conservatives can tolerate.
Whoever forms a government, there is no doubt that taxes will have to rise substantially in due course; the 1% NIC rise and the 50% top rate of income tax will barely make a dent in the deficit. VAT seems the most likely area to be targeted and the announcement of a significant increase in the standard rate at some future specified date would probably have the perverse effect of stimulating the economy temporarily. I do not think that forecasts of a UK standard rate of 20% in the next couple of years are at all unrealistic or alarmist. We can expect evasion and large scale avoidance to be targeted by all parties, although one wonders how this would be done if there are civil service cut-backs, as appears likely, especially if the Conservatives are in power. Pension fund exemptions and reliefs are also likely to to be whittled away even further. Council tax may rise as central funding diminishes and local authorities resist making cuts. There may be additions to the range of "green" taxes and rises in duty on alcohol, tobacco and hydrocarbon fuel seem inevitable.
In the end, the taxpayer is set to suffer a considerable amount of pain, whichever party is in power. My forecast for the eventual outcome is a Conservative minority government. In my view, the Liberal Democrats will only support one of the other parties if they agree to proportional representation and that will almost certainly mean that we will never have a majority Government again and I doubt that that is something that either Labour or the Conservatives can tolerate.
Wednesday 24 March 2010
Some thoughts on the Budget
Rarely has the task of delivering a Budget been such an inconvenience to a Chancellor. Mr Darling had precious little to crow about and very little room for manoeuvre. This was a political Budget, with all the major fiscal and economic decisions made or incapable of being made so close to the looming Election. The Chancellor's speech was pedestrian and dull until mention was made of a new tax information exchange agreement with Belize. Laughter and cheering ensued at this point; I wonder why? Mr Cameron's reply was impressive. Most telling was his criticism of Labour for introducing measures which his party had initially proposed and which ministers had derided. If the Government still has any fresh ideas about how to lift the country out of recession, they were by no means obvious from this Budget.
Most of the tax changes mentioned in the Press Releases are either unsurprising or largely insignificant. The following caught my eye:
SDLT
For first time buyers, there is a temporary incentive to buy; incentives have not been common in recent budgets. However, there is a return to usual form for the buyer of £1 million+ properties - a disincentive to delay their purchases in the face of a swingeing increase in SDLT from 2011 onwards.
Offshore penalties
The keys to sophisticated offshore tax evasion are secrecy and non-disclosure. The fact that HMRC has been prepared to pay for information which has been obtained criminally is a strong indication of its determination to tackle this issue. The introduction of a higher tariff of penalties for offshore evasion structures which use tax havens with which the UK does not have tax information exchange agreements is clearly part of the overall effort to stamp out this kind of evasion but what will it actually achieve? Offshore structures are used frequently for investment and trading by non-UK residents and for legitimate tax avoidance. This fact often serves to give a veneer of legitimacy to structures which are frankly nothing more than heavily disguised evasion. Will the tax havens which have information exchange agreements be more or less likely to be used by legitimate avoiders or illegitimate evaders? A recurring problem with HMRC is their frequent inability to differentiate between the two groups.
Disclosure of avoidance schemes
HMRC are clearly still not happy with the scope of the DOTAS regulations and will be increasing penalties for non-compliance as well as revising and extending the “hallmarks” that identify the type of scheme covered by them. What constitutes avoidance is often a nebulous concept; HMRC moves the goalposts but is frustrated when the imaginative avoider still manages to put the ball in the net. HMRC's view of what constitutes unacceptable avoidance is much wider than the tax profession's. At the risk of torturing an analogy to death, one could say that they have recently begun to ask the referees, in the shape of the Courts, to disallow past goals on the basis that the goalposts were not actually where everybody thought HMRC had said they had put them. Thankfully, the Courts are there to provide a measure of sanity, but not before HMRC have rattled sabres, run up huge costs and cowed the vast majority into silent compliance.
Overall, this was a dull and uneventful Budget. But without doubt, it marked the beginning of an election campaign which promises to be neither dull nor uneventful.
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