By BILL BLEVINS
Bill Blevins is Managing Director of Blevins Franks. He has specialised in expatriate investment and tax planning for over 35 years. He has written books and gives lectures on this subject in Southern Europe and the UK.
UK PRIME Minister, Gordon Brown, has been accused of doing a U-turn after around 70 MPs rebelled against the abolition of the 10p rate on income tax, which would penalise those on low incomes.
The rebels opposed axing the tax rate and wanted compensation for those who would be worse off by it. Chancellor of the Exchequer, Alistair Darling, had said that he could not rewrite the Budget but that he would review taxation of the low paid. To head off the effects of the revolt, Brown since backed down and promised that low paid workers affected would be compensated. The compensation package would be unveiled in the autumn and backdated to April 1.
Former minister, Frank Field, spearheaded the drive for a compensation package and was unhappy with talk of possible counter measures in the future. “The talk about bringing forward a package this year or maybe next year just will not do” he had said. “Unlike any other disquiet there has been on the backbenches, this is an issue which strikes at the core value that every Labour MP brings into politics – that is, that we are here to protect the poorest.”
Field had tabled an amendment to the Finance Bill demanding compensation but withdrew it after Brown’s promise of compensation.
The decision to discard the tax was announced in 2007’s Budget, but legislation only took effect from April 6, 2008. Brown, the Chancellor at the time, dropped the basic rate of tax by 2p to 20p and announced that it would be paid for by getting rid of the 10 per cent band.
Over five million people on low incomes would have been worse off. The main losers would have been couples without children and below the age of 65 earning less than 18,500 pounds sterling. Brown had defended the move by arguing that the amount available in tax credits would make up for the extra burden for those on low incomes. However, fewer people were taking advantage of the tax credits.
Non-domicile tax changes attacked
The protests continue over reforms to the way non-domiciles are taxed in the UK. Pressure from banking and business lobbyists has caused the Treasury to cave in over granting a tax exemption for investment management services to non-domiciles resident in the UK.
The Confederation of British Industry, the British Bankers’ Association (BBA) and the London Investment Banking Association are concerned that unless proposals to tax non-doms on funds brought into the UK to pay for financial services were amended, the UK could lose a third of its private banking and investment management business. The lobbyists had warned that the non-dom tax reforms could result in banks moving their entire overseas business offshore.
In response, the Treasury wrote to the BBA, saying that it was never the Government’s intention to drive wealth management business offshore and would be ‘looking urgently’ at making necessary amendments to the Finance Bill.
There was also concern at how the new non-dom tax rules would impact low and middle income earners. In its report on the 2008 Budget, the Treasury Select Committee cautioned that “…there has been insufficient consideration of the possible impact of tax changes announced in the Budget on the middle and lower income groups of non-domiciled taxpayers. Due to the complex nature of the policies on domicile and residence, and the distinction between how liability is incurred for the annual 30,000 pounds sterling charge and the loss of personal tax allowances, the Committee is concerned that the new policies will create a group of non-domiciled taxpayers who would be unwittingly in breach of the new law”.
New tax penalty regime
There are new penalties designed to make the tax system simpler and more consistent. In its Brief 19/08 HM Revenue & Customs (HMRC) states that the legislation aims to help those who try to comply, and come down hard on those who don’t. The clear messages for taxpayers are:
If they take reasonable care when completing their returns they will not be penalised
If they do not take reasonable care, errors will be penalised and the penalties will be higher if the error is deliberate
Disclosing errors to HMRC early will substantially reduce any penalty due
A penalty for inaccuracy can be charged when two conditions have been satisfied:
1. The document given to HMRC must contain an inaccuracy that leads to:
– an understatement of the person’s liability to tax
– a false or inflated statement of a loss by the person
– a false or inflated claim to repayment of tax
2. The inaccuracy must be careless, deliberate or deliberate and concealed.
A penalty can also be charged when a return has not been submitted. If HMRC then issues an assessment which is too low and a person does not take reasonable steps to notify an under-assessment within 30 days of the date of the assessment, the person can be penalised.
There can be a substantial reduction in the level of penalty charged for unprompted disclosure of errors. A disclosure is unprompted if it is made at a time when the person making it has no reason to believe that HMRC has discovered, or is about to discover, the error.
Further reductions can be given based on the quality of the disclosure. The more a person tells, helps or gives access to HMRC, the more the penalty may be reduced.
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