Pre-Budget Report Nov 2009 - Protecting tax revenues
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Issued 09 December 2009
Protecting tax revenues
Today the Chancellor announces a series of measures to protect the tax system
from abuse and ensure that all individuals and businesses pay their fair share
The UK has been at the forefront of international efforts to clamp down on
tax havens and offshore evasion. The UK Presidency of the G20 has delivered a
step change in improving tax transparency, opening up tax havens so that evaders
have nowhere to hide.
This PBR includes measures to tackle avoidance, including enhancements to
strengthen the disclosure regime, and new penalties and powers to combat
offshore evasion. The total package of measures to protect tax revenues raises
£165 million by 2011-12 and protects around £5 billion of tax receipts per year
from erosion by tax evasion and avoidance.
The Pre-Budget Report announces robust measures to tackle offshore tax
evasion. Legislation will be brought forward to ensure that those who fail to
declare offshore tax liabilities will face the tough penalties attracted by
deliberate tax evasion. There will also be a new requirement to notify HMRC when
opening offshore bank accounts in certain jurisdictions, supported by a separate
penalty regime. Evading tax offshore could therefore result in combined
penalties of up to 200 per cent of the unpaid tax.
HMRC is gaining access to data from over 300 financial institutions on UK
taxpayers with offshore accounts. The 'New Disclosure Opportunity' gives those
with undeclared offshore assets a final opportunity to come forward to pay tax,
interest and a reduced penalty. The deadline for notifications is 4th January
2010. This is the last chance for offshore tax evaders - if they do not come
forward now, they can expect much tougher penalties in the future.
Code of Practice on taxation for Banks
The Chancellor announced on 16th March that HM Revenue & Customs (HMRC) would
publish a Code of Practice to encourage banks to comply with the spirit as well
as the letter of the law. After a period of consultation the Government will
today introduce the Code, which it expects all banks operating in the UK to
adopt. The Code asks banks to have governance around tax, integrated into
business decision-making and open and transparent relationships with HMRC.
A response document and Impact Assessment have been published today on HMRC’s
Consultation on the disclosure regime
The Government today announces it is publishing a document seeking views on
the implementation of measures intended to strengthen and enhance the Disclosure
of Tax Avoidance Schemes (DOTAS) regime. The measures include enhanced penalties
for failure to disclose a scheme, a requirement for promoters to provide lists
of clients to whom they have issued scheme reference numbers, and new
“hallmarks” (descriptions of schemes required to be disclosed).
Closing down inheritance tax avoidance schemes
The Government today announces, with immediate effect, the closure of two
artificial schemes designed to avoid inheritance tax charges on relevant
property trusts. First, where a person transfers property into a trust in which
they retain a future interest they will be charged inheritance tax if they
become entitled to an actual interest under the trust. Second, where a person
purchases an interest in a trust that interest will be treated as part of their
estate for inheritance tax purposes. Draft legislation is published today.
The Government announces it is also examining wider solutions to the problem
of trusts being used to avoid inheritance tax charges.
Closing an IPT avoidance scheme
The Government today announces, with immediate effect, a measure to close
down an Insurance Premium Tax (IPT) avoidance scheme. The measure prevents
avoidance of IPT through 'administration fees' being artificially carved out of
taxable insurance premiums. Draft legislation is published for comment.
Avoidance using Index-Linked Gilts
The Government today announces, with immediate effect, a measure aimed at
companies or groups of companies that undertake artificial structured finance
transactions using index-linked gilt-edged securities (ILGs) to create a tax
loss without being exposed to any economic risk. This measure will ensure the
inflationary return of the ILG is not tax-free where the company or group,
internationally hedges its exposure to that gain. Draft legislation is published
today for comment.
Finance leasing avoidance
The Government today announces, with immediate effect, that it is countering
two types of artificial avoidance involving the leasing of plant or machinery.
It will ensure that:
- lessor companies are unable to generate tax losses using arrangements
intended to result in tax relief in excess of the value of the taxable income;
- companies and other businesses are prevented from turning a tax-timing
advantage into a permanent advantage by ceasing to be within the charge to tax
following the sale of the right to income from a lease of plant or machinery.
Draft legislation is published for comment.
Sale of lessor companies avoidance
The Government today announces, with immediate effect, that it is acting to
prevent companies artificially using consortium arrangements to seek to
undermine the effectiveness of Schedule 10 Finance Act 2006, the “Sale of Lessor
Companies Legislation”. Draft legislation is published for comment.
Preventing avoidance of SDRT
The Government announces a measure to prevent the potential avoidance of
Stamp Taxes on Shares where UK shares - intended for non-EU markets - are
deliberately routed through EU clearance services or depositary banks. The
measure will allow markets in UK shares that are held abroad to continue to
function smoothly whilst guarding against attempts to avoid tax. Draft
legislation will be published shortly.
Apportionment rules for life insurance companies
Following Written Ministerial Statements to Parliament on 15 July and
subsequent informal consultation, the Government today publishes legislation to
stop an avoidance scheme by changing the current apportionment rules for life
insurance companies so that amounts representing deferred profits are always
taxed at the appropriate effective tax rate whenever they accrue and emerge.
Draft legislation is published for comment.
Capital Allowances Transfers
Following a Written Ministerial Statement on 21 July, the Government today
publishes draft legislation for comment to counter avoidance schemes involving
capital allowances on plant and machinery. The legislation will prevent tax
avoidance through the transfer of an entitlement to benefit from capital
allowances on plant or machinery, used for the purpose of a trade, where the tax
written down value of the plant or machinery exceeds its balance sheet value.
The Government also announces additions to the legislation, effective from
- ensure it also applies to postponed allowances;
- ensure that sales by non-corporate shareholders are within the scope of
the rules; and
- prevent artificial reductions to the tax written down value.
Overhedging and underhedging
The Government today announces that following consultation draft legislation
has been published, to be effective from 1 April 2010, to prevent UK groups from
passing on all of the volatility risk from certain overhedging and underhedging
transactions to the Exchequer. Draft legislation is published for comment.
Hidden Economy Advisory Group
Today the Government announces the formation of a Hidden Economy Advisory
Group to consider what actions HMRC can take to increase the number of people
that make the transition from the hidden to the formal economy.
The Pre-Budget Report in 1999 commissioned a report into the hidden economy
by Lord Grabiner QC, which reported at Budget 2000. In the intervening ten
years, there have been significant institutional, policy and socio-economic
changes that have impacted upon the hidden economy. There is thus an opportunity
once again to utilise external expertise in considering these issues.
Restricting the tax exemption for workplace canteens
The Government today announces that it will legislate to restrict the tax
exemption for workplace canteens. This will only affect employees and employers
who use the exemption in conjunction with salary sacrifice or flexible benefit
arrangements. Such arrangements are intended to allow some employees to purchase
canteen meals out of gross pay and hence obtain a significant tax advantage over
the majority of employees who purchase meals using their net pay. The
legislation will not affect general canteen subsidies that are available to all
employees, for example where the employer provides a subsidy that is reflected
in lower canteen prices. The legislation will take effect from 6 April 2011.
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Article Published/Sorted/Amended on Scopulus 2009-12-10 13:15:04 in Tax Articles