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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 of tax.

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.

Details

Offshore evasion

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 website.

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; and
  • 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 today, which:

  • 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

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