Pre-Budget Report Nov 2008 - Ensuring fairness for all taxpayers
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24 November 2008
The Chancellor announced today a package of measures designed to protect the
tax system from abuse and ensure that all individuals and businesses pay the
right amount of tax.
It is particularly important in the current economic circumstances that the
Government ensures the tax system is applied consistently, robustly tackling
those who seek to reduce their tax payments in an unfair way and fraudsters
making criminal attacks on the tax system. The PBR package includes a new
anti-tobacco smuggling strategy; improvements to the avoidance scheme disclosure
regime; and the use of a number of targeted measures to ensure fairness, protect
the UK’s competitive business environment and sustain public finances.
Protecting Tax Revenues
Details
Tackling Tobacco and Alcohol Fraud and Smuggling
The Government publishes today a joint tobacco smuggling strategy, prepared
by HM Revenue and Customs and the UK Border Agency. This explains how, building
on successes to date, they will work together to tackle the evolving smuggling
threat. The Government also announces today that HM Revenue and Customs and the
UK Border Agency will publish a refreshed alcohol strategy by the time of Budget
2009. This will strengthen the current spirits fraud strategy and extend it to
cover all forms of alcohol fraud ensuring that the approach to tackling alcohol
fraud and smuggling keeps pace with developments in this area.
Further improvements to avoidance scheme disclosure regime
The Government today announces further amendments to the disclosure regime,
introduced at Budget 2004. HMRC is simplifying and improving the procedure by
which users of disclosed schemes report the Scheme Reference Number (SRN) back
to HMRC. This will clarify how and when users are to report SRNs and will
improve identification of users of these avoidance schemes, enhancing the
Government’s ability to respond to avoidance swiftly and in a targeted fashion.
Details of the measure are set out in PBR Note 22.
Leasing: anti-avoidance
The Government announced on 13 November that it would take action, effective
from that date, to prevent a loss of tax:
- on transactions involving the leasing of plant or machinery under long
funding leases;
- on the sale of a company that is an intermediate lessor of plant or
machinery; and
- on rents payable on long funding leases of films.
Details of the measures are set out in PBR Notes 11/12/13. Draft legislation
and draft explanatory notes are contained in Technical Notes published on 13
November 2008 and today on HMRC’s website.
Further consultation on principles-based approach to tackling avoidance in
the area of financial products
The Government is today publishing consultation documents, including draft
legislation, on principles-based legislation to counter avoidance involving
disguised interest and transfers of income streams, with the intention, if
appropriate, of introducing legislation in Finance Bill 2009. This follows
consultation and subsequent work with stakeholders on proposals introduced in
the 2007 Pre-Budget Report. The principles-based approach is intended to tackle
this kind of avoidance in a simpler and clearer way than through frequent
legislative fixes.
Real Estate Investment Trusts (UK-REITs) - Companies that are not property
investment companies and UK-REITs
The Government considers UK-REITs, launched in January 2007 and designed to
provide a new tax regime for property investment companies, to have been a
marked success. However, contrary to the Government's objectives, some
businesses that are not property investment companies (they do not have high
enough income coming from the rental of property to third party tenants) have
developed corporate structures that would allow them to participate in the UK-REITs
regime. The Government will legislate in Finance Bill 2009 to prevent this.
The Government will issue draft legislation for consultation in the New Year
to ensure that it does not create any unintended consequences for existing UK-REITs.
The Government is also willing to have discussions to consider whether other
parts of the tax code create any unnecessary barriers to becoming a UK-REIT.
Income shifting
The Government firmly believes it is unfair to allow a minority of
individuals to benefit financially from shifting part of their income to someone
else who is subject to a lower rate of tax - known as income shifting. The
Government has consulted on this issue, but given the current economic
challenges is deferring action on income shifting and will not bring forward
legislation at Finance Bill 2009. The Government will instead keep this issue
under review.
VAT anti-forestalling
To prevent the creation of artificial arrangements to avoid the return of the
VAT rate to 17.5 per cent, anti-forestalling legislation will be presented to
Parliament as part of Finance Bill 2009. The Financial Secretary to the Treasury
will make a written statement to Parliament on 25 November, announcing the
intention to bring anti-forestalling legislation before Parliament in Finance
Bill 2009. The anti-forestalling legislation will apply from 25 November for
the specific circumstances set out in the statement.
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