The taxpayer was unable to pay tax on time because of cashflow difficulties – partly caused by HMRC changing the taxpayer’s status – under the Construction Industry Scheme. The tribunal sided with the taxpayer against HMRC’s written guidance resulting in fines being cancelled.

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Update: 14 April: George Osborne: 50p tax rate could be scrapped by 2013

George Osborne is hoping to scrap the 50p top rate of tax in his Budget in 2013, on the back of evidence that new higher rate does not make money for the Exchequer.
The Chancellor has insisted that the rate is only temporary and he wants to offer traditional Tory supporters tax cuts well before the next election. A review is about to begin into the how much the new rate – brought in by Labour but endorsed by the Coalition – brings in. But it is understood that 2013 has been pencilled in as the best-case scenario for the tax to be lowered.
In his Budget last month Mr Osborne said that high personal tax rates “crush enterprise, undermine aspiration and often undermine tax revenues as people avoid them.” He would not be drawn on when he intends to bring the rate back down.
After three years of straightened economic times and little to cheer Tory voters, Mr Osborne will, by 2013, be desperate to break free from the deficit reduction straight-jacket that has limited any moves they could make to cut taxes.
Some economists and senior Tories are adamant that dropping the rate would raise more cash for Exchequer coffers.
Lord Lawson, who as Conservative chancellor, in 1988 cut the rate to 40p, has said that the high rate is counter-productive.
After Mr Osborne’s Budget announcement about the review the Chancellor said: “I hope it will be a signal that he will bring it down next year. The 50p rate does not being in any revenue at all.”
Last night the Treasury insisted that their position had not changed and that any future moves on 50p tax would be determined by the new review and only announced in a future Budget.
Alistair Darling announced in his Budget two years ago that the rate was to rise to 50p for those earning more than £150,000 a year.
The new rate came into force in April last year. It affected the 300,000 highest earners in the UK, out of the 29 million people who pay income tax. The aim was to raise an extra £2.4bn a year.
But Mr Darling’s move, sanctioned by Gordon Brown, gave rise to accusations that Labour was targeting the rich as an electioneering device before the general election.
Labour strategists hoped that David Cameron and Mr Osborne would have opposed the rise in the top rate – a rate that was an almost a sacred Thatcherite tax rate.
But careful to avoid charges that the Tories had not changed in their long years in opposition, the party backed the rise. Traditional supporters were furious, but Mr Osborne had calculated that he could not fall into Labour’s trap.
However, since he entered the Treasury as Chancellor, he has made clear that he sees the 50p rate as temporary and he will try and do everything to reverse it when the conditions allow – hence his very strong signal in the Budget.
Labour meanwhile have themselves struggled with the issue in Opposition. In the early weeks of Ed Miliband’s leadership there was a split between Alan Johnson, the then shadow chancellor, and the Labour leader about the 50p rate.
Mr Johnson indicated he would like to see a time when it could be reduced, but was slapped down by Mr Miliband who has said he will not reverse it.

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Update: 14 April: Tax return fines to rise steeply, HMRC says

People who send in their tax returns late will now have to pay much higher penalties than before,

Previously, filing the returns after the annual 31 January deadline would lead to a £100 fine. Now, extra fines will ratchet up at a rate of £10 per day, leading to penalties of hundreds of pounds. HM Revenue & Customs (HMRC) said the new penalties were aimed at a "hard-core" of taxpayers who regularly failed to submit their paperwork on time.

Another big change to the penalty regime is that the fines will no longer be cancelled if the taxpayer owes no money to HMRC, because there was no extra tax to pay or because it had been paid. "There are always a small number of people who have avoided filing or paying on time," said an HMRC spokesman. "HMRC spends a lot of time pursing late returns and getting involved in unnecessary appeals work. "The old £100 penalty was not much of a deterrent and these new penalties, which increase over time, will get people to submit returns as soon as possible," the spokesman added.

'No get out of jail'

The updated rules are being targeted at a minority of the 9.2 million people in the self-assessment tax system. They all have to send in paper returns by 31 October each year, or online by 31 January. HMRC estimates that about 5% of these taxpayers have problems assembling the necessary information and filing in the forms on time. But it estimates that another 5% do not care because, under the old regime, they knew that they would escape any fine because they had no tax to pay. "There is no longer a 'get out of jail free' card," said the HMRC spokesman.

The fines

Under the new system, which will apply to tax returns starting with the 2010-11 tax year, there will still be an initial £100 fine for filing after 31 January. For the next three months the fines will be £10 per day, up to a maximum of £900. For delays between three months and six months the further fine will be a flat £300 or 5% of the tax due, whichever is higher. And for returns filed between six months and 12 months late there will be another flat charge of of £300 or 5% of the tax due (again, whichever is higher) and in some "serious" cases the taxpayer may be fined 100% of the tax instead. Someone who failed to submit their return for 12 months would end up being fined at least £1,600.

'Discretion needed'

There is no change to the additional scale of interest and penalties for paying the tax late. Chas Roy-Chowdhury of the ACCA accountancy body acknowledged there were some people who never filed on time. "The new system is much tougher and the penalties just rack up," he said. Taxpayers can still argue that they had a reasonable excuse for not meeting the filing deadline, which would potentially lead them to escape their fines. Mr Roy-Chowdhury argued that the Revenue should be prepared to be lenient in some cases. "Where people have good reasons, perhaps because the information has come in late from overseas, the HMRC needs to use some discretion in applying the new penalties," he said re a regulatory impact assessment and consultation with stakeholders before the necessary regulations are passed by Parliament.

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Update: 29 March: A guide to the 2011 Budget

Corporation Tax Changes:

The commitment to encourage large business to the UK was one of the themes of this years budget. There are two important announcements for CT; an additional rate change and regional CT rates.

Corporation Tax Rates

The Chancellor had already announced planned CT reductions but made an additional cut in the main rate. There will be an additional 1% cut in the main rate of Corporation Tax (CT) on top of the four annual reductions announced in the June 2010 Budget, giving a main rate of 26% for 2011 which will drop to 23% in 2014.

Finance (No. 2) Act 2010 had said the main rate of CT for non-ring fenced profits would drop from 28% to 27% for the Financial Year beginning April 2011. As a result of the announcement, the main rate from 1 April 2011 will now be 26% which will be followed by three further 1% cuts to a CT rate of 23% for the Financial Year beginning April 2014.

The small profits rate of CT will drop from 21% to 20% with effect from 1 April 211 as previously announced.

* Assumed.

Corporate Tax Reform

The following further announcements have been made in Budget 2011:

1.  Research and Development (R&D) tax credits

The Chancellor has announced that additional deduction for spending on research and development for companies that are SMEs will be increased from 75% to 100% from 1 April 2011. The effective rate of relief for expenditure will therefore be increased from 175% to 200%.

There will also be a further increase of 25% to the deduction for SMEs with effect from 1 April 2012, giving a total deduction of 225%.

The rate of vaccine research relief for SMEs will also be reduced to 20% from 1 April 2011 and from 1 April 2012 SMEs will no longer be able to claim vaccines research relief. These measures allow for the above increases in the deductions, while remaining within State aid intensity thresholds. 

The above changes are subject to State aid approval.

The Budget announcement does not propose to change the rate of relief under the Large Company Scheme.

Subject to further consultation, the following further changes will be made to simplify R&D tax relief:

• Abolition of PAYE/NICs cap on the amount of payable tax credit that can be claimed;
• Abolition of the £10,000 minimum expenditure condition; and
• Changes to the rules governing relief for work done by subcontractors under the Large Company Scheme.

The Government will publish a response to the consultation in May 2011.

2.  Taxation of foreign branches

As announced in the June 2010 Budget, the Government is reforming the taxation of foreign branches.  Legislation will be introduced in Finance Bill 2011 to exempt the profits of foreign branches of UK resident companies from Corporation Tax.

Companies will be able to make an irrevocable election for all its foreign branches, located anywhere in the world, to be exempt from CT on their profits. Exempt profits will include any capital gains attributable to the foreign branch and taxable under the relevant treaty. No relief will be available for foreign branch losses.

The new opt-in exemption will be available for accounting periods beginning on or after the date the Finance Bill 2011 receives Royal Assent.

3.  Controlled Foreign Company (CFC) Rules

The package of interim improvements to the current CFC rules will apply for accounting periods beginning on or after 1 January 2011. The aim is to make the existing rules easier to operate and more competitive ahead of full reform in 2012.

The new CFC rules will be introduced in 2012.  These will include a finance company partial exemption that will result in an effective UK tax rate of one quarter of the main rate on profits derived from overseas financing arrangements. This will be equivalent to 5.75% by 2014.

A consultation document with details of the new CFC rules will be published in May 2011.

4.  Patents

The Government has confirmed that it will introduce a 10% reduced rate of corporation tax on profits arising from patents, with effect from 1 April 2013.

A consultation document will be published in May 2011, with legislation to be introduced in Finance Bill 2012.

Encouraging Business Growth – The Enterprise Investment Scheme

The reluctance of the banks to lend to business has led the Government to identify the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) scheme as being a potentially valuable existing tax relief which, with a few refinements, could help businesses to access finance.

For more detailed guidance on the prevailing EIS scheme requirements prior to the Budget, please click here.

The changes to the EIS and VCT schemes announced in the Budget 2011are as follows:

From 6 April 2011:

The rate of income tax relief for shares subscribed for under the EIS scheme will be increased from 20% to 30%.  This relief is given as a “tax reducer”.

From 6 April 2012:

Qualifying conditions for companies:

There are proposed revisions to the limits for qualifying companies eligible to participate in the EIS scheme.  The changes are summarised below:

The annual maximum amount that an individual investor may invest under the scheme will be increased from £500,000 to £1,000,000 from 6 April 2012.

Capital Gains Tax – Entrepreneurs’ Relief

The lifetime limit for entrepreneurs’ relief will increase from £5,000,000 to £10,000,000 with effect from 6 April 2011.  Gains which are eligible for the entrepreneurs’ rate are taxable at 10%, rather than the normal CGT rates of 18% and/or 28%.  The lifetime limit has changed several times since the introduction of entrepreneurs’ relief in 2008 and the lifetime limits since inception are as follows:

For further details on Entrepreneurs’ Relief, click here.

Enterprise Zones and Business Rates

The Chancellor announced 21 new enterprise zones in the Budget to attract business to certain disadvantaged areas.  The Government will offer up to 100% discount on their business rates for up to five years for businesses located in enterprise zones.

The 100% business rate discount applicable for a business that moves into an enterprise zone during this Parliament is worth up to £275,000 over five years, so the regime will be attractive to small businesses.

Other advantages for the 21 new enterprise zones are welcomed and include simplified planning processes, superfast broadband and the potential for enhanced capital allowances.

Although the capital allowances regime has not yet been formally announced, when enterprise zones were with us in the 80s and 90s, they attracted 100% capital allowances for expenditure on a commercial building within a designated enterprise zone.

So far, the Chancellor has announced that there will be enterprise zones in the following areas:

• Leeds, Sheffield, Liverpool, Greater Manchester, The West of England, The north-east of England Tees Valley, Nottinghamshire, Black Country, Derbyshire.
  
  

Boris Johnson, the Mayor of London, said he had been asked to select a suitable area in the capital and had chosen 125 hectares of land in the historic Royal Docks, in the borough of Newham.

Local authorities have been invited to tender for the remaining zones.

Extension of Small Business Rate Relief (SBRR) Holiday

The SBRR holiday will be extended by one year from 1 October 2011.

Merger of Income Tax and National Insurance

The Chancellor announced that he would be commencing consultation with business and the professions with a view to merging Income Tax and National Insurance contributions into one combined tax.

This would be particularly welcome, particularly as there are a number of areas in tax legislation where disparity exists between the treatment of certain items for income tax and NIC purposes and the costs of getting the treatment wrong can be punitive.

Mr Osborne described this as a “huge task” that would take “a number of years to complete” but this could potentially be a very significant and worthwhile streamlining of our tax system.

Fuel Duty

The main fuel duty rates has been be cut by 1p per litre from 6pm on 23 March 2011.  An earlier proposed fuel duty rise will now be delayed until 1 January 2012, when it will increase by 3.02 pence per litre.

The Government has also announced it will abolish the fuel duty escalator and replace it with a fair fuel stabiliser.

Approved Mileage Allowance Payments

Approved Mileage Allowance Payments will increase from 40p per mile to 45p per mile from 6 April 2011.

If an employee uses their own vehicle for business mileage and the cost is claimed from the employer, the Approved Mileage Allowance Payments (AMAPs) rate can be used.  Where an employer pays less than the approved rate, the employee can claim tax relief for the shortfall using Mileage Allowance Relief (MAR).

From 6 April 2011, the rate for cars and vans will increase from 40p to 45p per mile for the first 10,000 business miles per year.  When business mileage exceeds 10,000 miles, any additional miles will be at the existing rate of 25p per mile.

Currently, there is also an allowance for passenger payments for employees at a rate of 5p per passenger per mile.  This will not change, but will be extended to include volunteers as well employees

Deregulation

The discussion in recent weeks has focussed on cutting red tape. Employment law, primarily the recording of procedures has been one of the main areas of concern. It is good to see the changes for micro business, as employment legislation is a bugbear for all small businesses.

Micro businesses moratorium on new legislation

The Budget has introduced a moratorium exempting micro and genuine start-up businesses from new domestic regulation for three years from 1 April 2011.

Micro businesses are defined as those with less than 10 employees, while genuine start-ups will be businesses starting their trade on or after 1 April 2011 and not having carried out a similar business in the previous six months or not resulting from the transfer of the same activities carried out by another business or resulting from the taking over of an existing business.

Drop costly new regulations

 The Government is scrapping proposals for specific regulations which would have cost businesses over £350 million a year, including: not extending the right to request time to train to businesses with less than 250 employees; not bringing forward the Equality Act dual discrimination rules and repealing the right to request flexible working to parents with children under 17.

Review of Health and Safety

The Government will implement the proposals from Lord Young’s review of Health and Safety, including new assessment tools, the registration of Health and Safety consultants, combined inspection programmes and taking action to constrain ‘no-win, no-fee’ legal services.

Review to reduce the stock of regulation 

The Government will also launch a public thematic review to reduce the stock of regulation, with the presumption that all regulations identified as burdensome would be removed unless good reasons are given for them to stay.

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Update: 29 November: Tax planning for 2011: EIS and VCT investments

If you are a 50% taxpayer, the next few months mark an important time to consider how your 2009/2010 personal tax liabilities can be reduced and the best way to invest any additional funds. One attractive option can be to invest in a high growth business through either the Enterprise Investment Scheme (EIS) or a Venture Capital Trust (VCT) - both schemes are designed to help smaller, higher risk unquoted trading companies to raise capital. As tax advisers, we are not authorised to provide investment advice concerning different schemes, this should be undertaken with a qualified investment advisor. However, we can explain the tax position concerning these initiatives.

Venture Capital Trusts and Enterprise Investment Schemes are both high risk investments due to the small size of the companies involved. Statistics show that at least one in ten start-up companies will not survive - hence the tax breaks for investors are attractive - with the aim of securing inward investment. So whilst a tax break will provide investors with an immediate effective return on their investment, they should always bear in mind that they may get back less than originally invested; and they could lose their net investment entirely.

However, not all investments are equally risky and there are an, albeit limited, number of opportunities offering guaranteed levels of return. The aim of these investments is that the investor receives ‘growth’ up front in the form of income tax relief on the investment, and will, at the end of the investment term, receive back their entire investment but with little, if any, growth. Demand for these ‘safer investments’ is usually high and they tend to be snapped up quickly.

EIS or VCT?
The difference between an EIS and VCT is that if you are making an EIS investment you will be investing in one small, unlisted trading company, whereas VCTs are designed to encourage investment indirectly, through the VCT, in a range of small, unlisted trading companies. The tax relief available to each has slightly different aspects as outlined below.

The tax basics of an EIS

· Income tax relief - provided the investment is held for at least three years, income tax relief is available at the rate of 20% for a minimum subscription of £500 and a maximum subscription of £500,000 per annum.

· Capital gains tax-free growth – no capital gains tax is payable on disposal of shares once they have been held for at least three years, provided the initial income tax relief was given on investment, as above, and has not been withdrawn.

· Loss relief – if EIS shares are disposed of at a loss, this loss can be offset against the investor’s capital gains or income in the year of disposal or the previous year.

· Capital gains tax deferral relief – tax on gains realised on the disposal of any other assets within three years before the EIS investment and 12 months after it, can be deferred by reinvestment into the EIS investment. This relief is unlimited – i.e. it is not restricted to £500,000 per annum.

· Inheritance tax exemption – EIS investments are generally exempt from inheritance tax once they have been held for two years.

EIS can be a particularly tax efficient investment for higher rate taxpayers, because it is possible to defer payment of capital gains tax arising on other disposals when the initial investment is made into an EIS. This may be an attractive option in the current climate given the recent increase in the rate of capital gains tax to 28%. For instance, if you owned an investment property and decided to sell, any gains could be re-invested in an EIS. Only when you dispose of the EIS shares does the capital gains tax become payable, based on the rates of capital gains tax applying at that time. These may differ from current rates, and the gain may of course become chargeable at a time when you are no longer a higher rate taxpayer. There is also the attraction of the offset of losses arising on EIS investments against income at rates of up to 50%.

The example below illustrates how EIS investments are tax efficient:
Mrs Peters is a 50% taxpayer and has a well-diversified investment portfolio already. She made a £50,000 profit this tax year selling some shares and has already used up her CGT allowance of £10,100. She is due to pay CGT on her gains on her 2009/2010 tax return. Instead, she opts to invest the full £50,000 into an EIS which defers the payment of her CGT until she sells her shares in the EIS. In addition, she will receive immediate income tax relief of 10,000 (£50,000 x 20%) against her earned income. She understands this is a higher risk investment and plans to keep these shares for three years, as this will enable her to retain the income tax relief and any increase in the value of the shares will also then be exempt from capital gains tax.

And VCTs?
Broadly, VCTs operate according to similar principles as EIS but the investment is spread across a group of companies, all of which must conform to HMRC’s acceptance criteria. The tax relief available differs slightly as VCT investments qualify for income tax relief at the rate of 30% on subscriptions of up to a maximum of £200,000 per annum. The shares must be held for five years and provided the relevant criteria are met, any increase in value will be free from capital gains tax. As with an EIS, if the minimum holding period is not satisfied, the reliefs are withdrawn.

Both VCT and EIS investments are typically of interest to individuals of a ‘high net worth’ looking for a tax efficient investment options. As indicated at the start of this article, they are risky and may result in the initial investment capital being lost.

Although this article has outlined the tax reliefs available, it is important to seek expert advice from a financial adviser before making an investment in a VCT or an EIS.

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Update: 25 November: Companies House aims for mandatory efiling by 2013

Companies House has announced that as part of its vision to become a “fully electronic registry”, most of its services will be online only by March 2013.

“We hope to mandate electronic submission for all incorporations and for filings of annual returns, accounts and the main company changes for the standard company types and corporate entities,” Companies House said. “This would represent over 98% of the entities on the public register and over 92% of all transactions.”

Electronic filing and registration may not be mandatory for smaller entities initially, but electronic services will be developed for them, it added. However the HMRC-style march to universal online filing will first require a regulatory impact assessment and consultation with stakeholders before the necessary regulations are passed by Parliament.

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Update: 24 November: Expert guide: Directors’ appointments, registrations and removals

The Companies Act 2006 streamlined the procedures enabling the appointment, resignation and removal of directors set out in previous Companies Acts and Table A provisions. Statute now just requires every company to have at least one director (a public limited company needing at least two), that director has to be an actual human being and not another company and not be under the age of 16. (ss154-157 Companies Act 2006 (CA 2006).

Appointment
Initial directors are appointed by the ‘subscribers to the memorandum’ as named on the Companies House form IN01 (Application to Register a Company). The articles of association will determine the method of appointment of subsequent directors and should be the first place you look to affirm correct procedure.

The two methods specifically given in Article 17 of the new model articles (the default articles for private companies registered after 1 October 2009) are appointment by:

1. the members at a general meeting via an ordinary resolution or

2. the board of directors.

Companies registered before 1 October 2007 that retain the original Table A articles need to have directors appointment by members at a general meeting. Article 78 does allow appointment by directors but that appointee only holds office until confirmed by the members at the next AGM. For this reason alone it might be advisable for companies still using the old Table A to review and adopt the new model articles by passing a special resolution, although there is no legal requirement to do so.

Revised Table A provisions (for companies registered between 1 October 2007 and 30 September 2009) align with the new model articles.

Otherwise there is no restriction as to whom is appointed so long as that person is not:

· a beneficed clergyman

· a convict

· is insane

· a discharged bankrupt,

· been convicted of wrongful or fraudulent trading, or

· has been previously disqualified from being a director in the UK or abroad. In the UK disqualification is under the Company Directors Disqualification Act 1986 and their name being placed on the Disqualified Directors Register. If they have and the company still wants them as a director then the Courts permission is needed.

The new model articles require the person to be “willing to act” as director but s167 (2b) CA 2006 goes further demanding “consent by that person, to act in that capacity” be sent to Companies House. As one AccountingWEB.co.uk member found recently, that can a bit difficult when the Appointment form (AP01) is submitted online under ‘PROOF’ (see below). Companies House may be willing to accept declarations of personal characteristics such as eye colour to indicate “willingness”  but until a court case is brought it would be prudent for a prospective director to sign an agreement in addition to any service agreement.

Resignation
Again the company’s articles determine the method of resignation; Table A and the model articles both stipulate that the board should receive “notification”. It does not state that the notification needs to be in writing, but this would support the entry made in the register of directors (and of members if shares are then sold or transferred).

The newer articles have removed the old Table A ruling should a director should be dismissed for not attending meetings for six months. If this sanction needs to be retained and the model articles are used, they will need to be amended to include it. The resignation is effective immediately the company is advised unless there is a provision in the director's service contract requiring a period of notice, or the articles themselves stipulate a notice period.

“Retirement by rotation” did not feature in the Companies Act 1985, nor is it found in the Companies Act  2006 or even the new model articles, but the arrangement remains in place for companies following the Table A provisions. The rotation rule was originally included to ensure that members were not stuck with the directors selected by the original subscribers and is one more reason why companies formed before 1 October 2009 should consider the newer model articles.

Removal
The Companies Acts draftsmen paid close attention to the removal of directors before the expiration of their period of office not only under s168 CA 2006 (by ordinary resolution at a general meeting with Special Notice of at least 28 days) but in both the model articles and the previously used Table A.

The ability to remove a director by ordinary resolution cannot be excluded by the articles, but could possibly be avoided by inserting a provision known as a "Bushell v Faith clause"  which enhances the voting rights of the director being removed (assuming the director is also a shareholder).

Notification to Companies House
Companies House records are just copies of records kept by a limited company that are legally available to view by the public. Following any event (appointment/resignation/removal) the requirement is for the company's register of directors to be updated first and then an appointment notified to Companies House on form AP01 and a termination on form TM1.

It is not indicated on either form, but the Companies House Guidance Procedure 3 ‘Life of a company Part 2’ states that the form must be submitted by the company (not the leaving director) within 14 days of the event. This therefore begs the question, what happens if the 14 days deadline is missed? A query to Companies House confirmed that one member remains in place at any one time, there will be no come-back. If, however, the company has only one director and that director resigns (or dies) and form AR01 is not submitted within the 14 days then Companies House will move to have the company struck off.

Should PROOF be used?
The ‘PROOF’ (PROtected Online Filing) scheme is a valuable anti-fraud service administered by Companies House that intends to protect companies by only accepting specific forms online (including those relating to directors) rather than being sent by old fashioned post. However, the scheme is not compulsory and the company can opt out and revert back in again at the click of a mouse.

The company’s authentication code is supposed to suffice for security but this could be known by a number of people in the company. Companies House will accept paper versions of the specific forms from companies within the scheme, but only when accompanied by a paper-consent form (PR3). Unfortunately this form has no space for a signature, so scheme once again falls down on security. 

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Update: 10 September Tax 'nightmare' could get worse for 40 million on PAYE

Good news about tax rebates for up to 10m people, following widespread bungling of the Pay As You Earn (PAYE) system, could be overshadowed by new bureaucratic burdens for four times as many taxpayers, accountants claim. Systemic faults in the central calculation of PAYE liabilities may cause HM Revenenue & Customs (HMRC) to require everyone to complete an annual self assessment return – not just the 9m high earners and self employed who currently do so.

Chas Roy-Chowdhury, head of tax at the Association of Certified Chartered Accountants (ACCA), said: “The remedy may actually be to send everyone a tax return, as happens in Australia and the United States of America. This option may not be very palatable in the United Kingdom but then, unless HMRC’s new computer architecture can sort out this mess, that may be the only choice. “It has been known for a number of years that the PAYE coding system had not been working effectively. Those with a series of jobs, more than one job at a time and tax credits have not always been properly accounted for – especially as many were not in self-assessment or had been taken out of self assessment by HMRC.

“Unfortunately most people now have some interaction with the tax authorities but it is the twilight zone for many to get a tax demand land on their doormat. The last thing we want is a full self assessment return to be completed by everyone and yet a one-page simple return may be the only choice we have to prevent such a nightmare scenario happening for ordinary people again.” The last time I wrote about widespread PAYE errors on August 14, HMRC denied any knowledge of the numbers. Accountants UHY Hacker Young calculated that HMRC collected £238m too much tax because of PAYE errors last year – an increase of 148 per cent on £98m overcharging the year before. The accountants based their figures on official data from the National Audit Office and HMRC’s 2009-2010 annual report.

But HMRC said it did not recognise these figures, adding: “Over and underpayments have long been a feature of the PAYE system which is based on a model of employment which no longer reflects the contemporary job market. “We don’t regard this as acceptable, so last year we introduced a new computer system.” At which point, I could not resist pointing out that Patrick Hutber, former City Editor of The Sunday Telegraph, would have observed: “Improvement means deterioration.” Rob Durrant-Walker, of UHY Hacker Young, said: “Even though HMRC’s new system should lead to more accurate codes in future that can cope with increased job mobility, these figures are quite shocking.” “Pensioners are particularly vulnerable to PAYE errors as they often have multiple sources of income.

We have dealt with large numbers of pensioners on modest incomes who are owed money by HMRC due to processing errors. “HMRC has all the information it needs in its records, so really has no excuse for getting it wrong. HMRC is increasingly transferring more work between offices, so taxpayers are increasingly uncertain which offices handle their tax affairs. Sorting out the mess caused by these errors can be incredibly time-consuming.”

You can say that again. Britain’s tax system is now reckoned to be the most complicated in the world – apart, perhaps, from India’s. For example, since 1997, when Gordon Brown became Chancellor, the size of Tolley’s Tax Guide – the authoritative users’ manual for our fiscal statutes – more than doubled from 4,998 pages to 11,520 pages. No wonder a survey by the Chartered Institute of Taxation (CIOT) found that even most MPs – who, remember, created these rules –are unable to complete their own tax returns without professional help.

A simple way to measure George Osborne’s success or failure as Chancellor will be to see how quickly he can cut Tolley’s down to size by simplifying our tax system. Here and now, it seems that blind faith in HMRC’s calculation of your PAYE code is correct could prove an expensive mistake; so it is worth taking the trouble to check it. Worse still, if the official response to the PAYE scandal is to make us all complete self-assessment returns, it really will feel like a case of the taxman saying: “Heads we win; tails you lose.”

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Update: 10 September PAYE error backlog: Fasten your seatbelts

The scale of HMRC’s difficulties in introducing a new system to manage PAYE codes has emerged in an appendix to the department’s 2009-10 accounts.

A report prepared by the Comptroller and Auditor General to accompany the annual HMRC accounts (2.7MB PDF) devotes several pages to the problem, and estimates that if 18.2m unresolved “open” cases are taken into account, a net figure of £1.6bn in repayments may still be outstanding going back to 2007-08 and preceding tax years.

There has been some controversy in recent weeks over the decision not to publish a full annual report for HMRC. In the government’s view, dropping the annual accounts would save money and was not necessary because many of the targets on which they reported related to initiatives that were no longer relevant. The CIOT’s John Whiting, Grant Thornton’s Mike Warburton and PKF’s John Cassidy all complained to The Observer about important information for departmental transparency and for tax advisers that would no longer be available.

As in previous years, the NAO has qualified its audit report with regard to Tax Credit errors and fraud. In 2009/10 the department paid a net £27.3bn in Child and Working Tax Credits, and estimates that error and fraud resulted in incorrect payments of up to £2.27bn, 8.3% of the total.

But for long term students of HMRC’s IT disasters, the Auditor General’s report gives an insight into the problems that continue to plague the department’s computing infrastructure. The problems with the PAYE system have been evident for years, and paved the way for a major overhaul to standardise numerous separate systems into a single database for employee records.

The National Insurance and PAYE Service (NPS) went live in a phased implementation that started in June 2009, more than two years’ behind schedule. The decision to delay the project was made to protect the integrity of the PAYE system, but built up a huge backlog of PAYE returns in 2007-08 and 08-09.

The deferral cost the department an extra £33m and prevented it from realising some £55m of planned efficiency savings during 2008-09 and 2009-10. Further changes, including improved security measures, added a further £78m to the cost of the project. Based on its revised figures, HMRC expects to save around £532m over five years, and to recover its investment of £389m by 2013.

In spite of introducing the new system, PAYE processing errors increased in 2009-10, amounting to £132m in underpayments (a 15.7% increase) and £238m in overpayments (a 148% increase). The department discovered that going live with a high volume computer system that wasn’t adequately scoped or tested was a sure way to foul things up even more.

Before migrating 54.3m live taxpayer records from 12 regional databases into 45.4m employment records on the new database in June 2009, HMRC neglected to validate the integrity of the information, assuming that its new exception processes would be able to correct inaccuracies as the system received new data from employers.

“Eevidence from the initial operation of the new Service suggests that the Department did not fully appreciate the extent of risk from data inaccuracies or its implications for the delivery of PAYE,” observed the NAO report.

The capability to reconcile many of these discrepancies within the new system was not available until the third phase of the project in April 2010, which meant that more than 7m over- and underpayments were unreconciled when it came to run the 2010-11 annual coding exercise. These records will now be processed from August 2010, although it is not yet clear how many cases will clear automatically and how many will be left for manual working.

When the new system encountered an employee that it could not match to existing employment data, it automatically generated a new, erroneous employment record. So many new items were appearing that when HMRC processed 2008-09 data on the system, it exceeded its 12.5m capacity for open items. The 7m work items arising from 2008-09 returns had to be removed from the workflow queue rescheduled for processing in August 2010.

“The Department found that the new service had produced significantly more amended tax codes than expected, with the potential to generate up to 25.8 million coding notices, almost double the amount anticipated. A significant number of the codes generated were incorrect.”

While its computer was churning out coding notices, HMRC only really became aware of the problem as the volume of calls mounted to its contact centres – which peaked at more than 18,000 calls per day about erroneous coding notices.

In January 2010 HMRC put in place a recovery programme to identify and prevent the issue of any further incorrect coding notices to individuals and ensure that corrected coding notices were issued to employers in time for the 2010-11 tax year. At its peak, the department assigned a total of 3,000 staff to the project, including 2,400 who were switched from their usual work supporting personal tax customers.

At the end of June 2010, estimated a further 2m records were at risk and needed review and will begin bulk processing of 2008-09 reconciliation this month. The department is also undertaking a review of the annual coding exercise to identify lessons learned and further actions not addressed by its recovery programme, the NAO reported.

Rob Durrant-Walker, tax manager at UHY Hacker Young, commented: “Even though HMRC’s new system should lead to more accurate codes in future that can cope with increased job mobility, these figures are quite shocking. We have seen a steady increase in PAYE errors over the past year. For the amount of tax collected in error through PAYE to jump 148% in one year is simply unacceptable.”

A spokesman for HMRC apologised for the errors and acknowledged the processing of PAYE returns and coding notices was “not acceptable”.

“The new system raises the bar in terms of data quality and will in the medium term significantly improve overall accuracy, reducing both under and overpayments,” he added. “Our contact centres are able to quickly correct inaccuracies, when contacted by the taxpayer, in part because the new system has for the first time created a single taxpayer record which the contact centre operator can access and amend.”

But all the anguish and half-billion pound costs of the PAYE system upgrade could be rendered redundant within a few years, if the new government’s proposals for reform are put into practice. Rather than trying to reconcile its data with that supplied by employers in their annual returns, HMRC is looking to move to real time information, with the added possibility of taking on responsibility for calculating and deducting tax due centrally in a second phase.

Given HMRC’s lamentable track record on recent PAYE computerisation projects (remember NIRS?), many practitioners have called into question the department’s ability to handle centralised deductions. But perhaps the five-year catalogue of woe compiled by the NAO encouraged ministers to look at the alternatives.

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Update: 25 August Audit report uncovers PAYE coding fiasco

The scale of HMRC’s difficulties in introducing a new system to manage PAYE codes has emerged in an appendix to the department’s 2009-10 accounts.

A report prepared by the Comptroller and Auditor General to accompany the annual HMRC accounts (2.7MB PDF) devotes several pages to the problem, and estimates that if 18.2m unresolved “open” cases are taken into account, a net figure of £1.6bn in repayments may still be outstanding going back to 2007-08 and preceding tax years.

There has been some controversy in recent weeks over the decision not to publish a full annual report for HMRC. In the government’s view, dropping the annual accounts would save money and was not necessary because many of the targets on which they reported related to initiatives that were no longer relevant. The CIOT’s John Whiting, Grant Thornton’s Mike Warburton and PKF’s John Cassidy all complained to The Observer about important information for departmental transparency and for tax advisers that would no longer be available.

As in previous years, the NAO has qualified its audit report with regard to Tax Credit errors and fraud. In 2009/10 the department paid a net £27.3bn in Child and Working Tax Credits, and estimates that error and fraud resulted in incorrect payments of up to £2.27bn, 8.3% of the total.

But for long term students of HMRC’s IT disasters, the Auditor General’s report gives an insight into the problems that continue to plague the department’s computing infrastructure. The problems with the PAYE system have been evident for years, and paved the way for a major overhaul to standardise numerous separate systems into a single database for employee records.

The National Insurance and PAYE Service (NPS) went live in a phased implementation that started in June 2009, more than two years’ behind schedule. The decision to delay the project was made to protect the integrity of the PAYE system, but built up a huge backlog of PAYE returns in 2007-08 and 08-09.

The deferral cost the department an extra £33m and prevented it from realising some £55m of planned efficiency savings during 2008-09 and 2009-10. Further changes, including improved security measures, added a further £78m to the cost of the project. Based on its revised figures, HMRC expects to save around £532m over five years, and to recover its investment of £389m by 2013.

In spite of introducing the new system, PAYE processing errors increased in 2009-10, amounting to £132m in underpayments (a 15.7% increase) and £238m in overpayments (a 148% increase). The department discovered that going live with a high volume computer system that wasn’t adequately scoped or tested was a sure way to foul things up even more.

Before migrating 54.3m live taxpayer records from 12 regional databases into 45.4m employment records on the new database in June 2009, HMRC neglected to validate the integrity of the information, assuming that its new exception processes would be able to correct inaccuracies as the system received new data from employers.

“Eevidence from the initial operation of the new Service suggests that the Department did not fully appreciate the extent of risk from data inaccuracies or its implications for the delivery of PAYE,” observed the NAO report.

The capability to reconcile many of these discrepancies within the new system was not available until the third phase of the project in April 2010, which meant that more than 7m over- and underpayments were unreconciled when it came to run the 2010-11 annual coding exercise. These records will now be processed from August 2010, although it is not yet clear how many cases will clear automatically and how many will be left for manual working.

When the new system encountered an employee that it could not match to existing employment data, it automatically generated a new, erroneous employment record. So many new items were appearing that when HMRC processed 2008-09 data on the system, it exceeded its 12.5m capacity for open items. The 7m work items arising from 2008-09 returns had to be removed from the workflow queue rescheduled for processing in August 2010.

“The Department found that the new service had produced significantly more amended tax codes than expected, with the potential to generate up to 25.8 million coding notices, almost double the amount anticipated. A significant number of the codes generated were incorrect.”

While its computer was churning out coding notices, HMRC only really became aware of the problem as the volume of calls mounted to its contact centres – which peaked at more than 18,000 calls per day about erroneous coding notices.

In January 2010 HMRC put in place a recovery programme to identify and prevent the issue of any further incorrect coding notices to individuals and ensure that corrected coding notices were issued to employers in time for the 2010-11 tax year. At its peak, the department assigned a total of 3,000 staff to the project, including 2,400 who were switched from their usual work supporting personal tax customers. At the end of June 2010, estimated a further 2m records were at risk and needed review and will begin bulk processing of 2008-09 reconciliation this month. The department is also undertaking a review of the annual coding exercise to identify lessons learned and further actions not addressed by its recovery programme, the NAO reported.

Rob Durrant-Walker, tax manager at UHY Hacker Young, commented: “Even though HMRC’s new system should lead to more accurate codes in future that can cope with increased job mobility, these figures are quite shocking. We have seen a steady increase in PAYE errors over the past year. For the amount of tax collected in error through PAYE to jump 148% in one year is simply unacceptable.” A spokesman for HMRC apologised for the errors and acknowledged the processing of PAYE returns and coding notices was “not acceptable”.

“The new system raises the bar in terms of data quality and will in the medium term significantly improve overall accuracy, reducing both under and overpayments,” he added. “Our contact centres are able to quickly correct inaccuracies, when contacted by the taxpayer, in part because the new system has for the first time created a single taxpayer record which the contact centre operator can access and amend.”

But all the anguish and half-billion pound costs of the PAYE system upgrade could be rendered redundant within a few years, if the new government’s proposals for reform are put into practice. Rather than trying to reconcile its data with that supplied by employers in their annual returns, HMRC is looking to move to real time information, with the added possibility of taking on responsibility for calculating and deducting tax due centrally in a second phase.

Given HMRC’s lamentable track record on recent PAYE computerisation projects (remember NIRS?), many practitioners have called into question the department’s ability to handle centralised deductions. But perhaps the five-year catalogue of woe compiled by the NAO encouraged ministers to look at the alternatives.

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Update: 28 July ACCA plea on small businesses taxes Association applauds Office for Tax Simplification

The Association of Chartered Certified Accountants (ACCA) has welcomed the establishment of the Office for Tax Simplification (OTS) but says the government needs to do more to ensure that UK tax policy caters to the needs of small businesses.

Chas Roy-Chowdhury, head of taxation at ACCA, called for the coalition government to ‘think small first’ when creating new taxation policies for business, rather than the current top down approach.

‘It needs to create a foundation of principles that can apply to all businesses, based on the needs of the smallest, with additional layers added for larger, more complex companies,’ Roy-Chowdhury said.

ACCA is calling for more clarity in several areas of business legislation, including the PAYE system, income tax bands, VAT flat rates for small businesses, the employee benefits system and deductions from business tax profits.

The association is also urging the government to ensure its approach to simplifying taxation remains consistent.

‘In recent years, the UK tax policy has changed as often as the people in charge of it. To make this initiative truly of benefit to businesses of all sizes, it is vital that the work of the OTS remains politically independent and that its recommendations do not fall by the wayside as the coalition government shifts its focus to other areas of the UK economic recovery,’ Roy-Chowdhury said.

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Update: 27 July Pension tax relief may be cut further

Government plans to restrict pension tax relief for the higher paid may be even more aggressive than those put in place by the previous Labour administration. The coalition is planning to replace the big tax changes that Labour had put in place, starting next April.

These would have raised an extra £4.6bn by 2014-15.

However a Treasury consultation paper suggests a range of options, one of which might raise even more - £5.3bn.

The alternative proposals being put forward by the Treasury were welcomed by the National Association of Pension Funds (NAPF) which said they would be "less damaging" than Labour's plans.

"It's a simpler approach that that will encourage higher earners to stay in their workplace pensions, so helping protect pensions saving for all staff," said Joanne Segars of the NAPF.

Coalition plans

The Labour government put in place rules from next April to severely restrict pension tax relief for high paid individuals - those earning more than £150,000 a year and in some cases those earning more than £130,000.

Under the coalition's proposal, tax relief on pension contributions will now continue at a taxpayer's highest tax rate.

However the Treasury suggests that each taxpayer's annual pension allowance - the amount their pension pot can grow tax free - should be slashed from the current £255,000 a year to between just £30,000 and £45,000 a year.

Under the Treasury plan, a £40,000 limit to the annual allowance - after which an extra tax bill would be generated - might be exceeded by someone whose pension entitlement in a final salary scheme had risen by just over £2,000 in a year.

Chas Roy-Chowdhury of the Association of Chartered Certified Accountants (ACCA) said the coalition's plans might catch more people in the tax net who were considerably lower paid than those targeted by Labour.

"It is still likely that many earning a lot less than the £130,000 could be affected where they are in a defined benefit (final salary) scheme," he said.

"This will depend on the valuation method and length of enrolment in the scheme but could affect even those on half the £130,000 especially if they make additional voluntary contributions (AVCs)," he warned.

Pay rise impact

To work out the increased value of someone's pension pot if they are a member of a defined contribution scheme is easy.

They are simply given an annual statement each year of the value of their pension investments. However membership of a traditional final-salary scheme involves using a formula in which the rise in someone's accrued pension is multiplied by 10.

Thus a pay rise, perhaps due to promotion, which had the knock-on effect of increasing someone's pension entitlement by £4,000 in a year would currently fall within a £40,000 limit.

However the Treasury is suggesting that this annual accrual should be multiplied by much more, perhaps by 15 or even 20, and as a result severely limit the annual pension increase that can take place tax-free.

Raj Mody of the accountancy firm PwC said it was possible that twice as many individuals in final salary pension schemes would breach the new limit.

"For example, a 50-year-old employee in a typical final salary scheme earning £80,000 a year who, through promotion, got a 20% pay rise, could find themselves with an additional tax bill of over £10,000, he said."

An unintended consequence of the new regime is therefore likely to be a continued shift of employers and individuals away from final salary schemes to defined contribution plans."

More tax

The Treasury consultation document illustrates the possible effects of the new approach for the exchequer.

Its figures suggest that by 2012-13, a £45,000 annual pension allowance would raise a similar amount to that expected under Labour's plans - in the region of £3.6bn.

But a lower £30,000 annual allowance would raise £4.8bn - £1.2bn more than Labour intended.

By 2014-15, an annual allowance of just £30,000 would raise an extra £5.3bn in tax while a £45,000 annual allowance would raise £3.9bn by that year.

Those estimates take into account the possibility that some taxpayers might tweak their pay arrangements to avoid breaching the new lower allowances.

Labour's plans

Labour had planned to restrict the amount of tax relief available to the highest paid because with the top rate of tax now at 50%, they could offset half of their pension contributions against their income tax bills.

The Treasury had calculated that in 2008-09 a quarter of all pension tax relief, worth £28.4bn that year, was going to the tiny minority of tax payers who earned more than £150,000 - worth an average of £20,000 a year each.

To rein in the effect of the new 50% tax relief Labour put in place two changes due to start next April.

The first was that tax relief would be tapered away from 50% down to 20% as people's incomes rose above the £150,000 level.

The second and more profound change affected those with incomes of more than £130,000.

If the value of their employer's pension contributions, when added to their personal income, took their gross income over £150,000, then they would start to be taxed on the value of those employer contributions at a rate of as much as 30%.

This approach was widely criticised as far too complex.

Many experts suggested that the coalition, if it still wished to rein in tax relief for higher earners, should simply restrict the amount by which anyone's pension pot could grow each year before it started to lose tax relief.

That is the plan on which the Treasury is now consulting.

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Update: 23 July Revenue extracts £9m tax from dentists and doctors

Tax officials have harvested £9m in unpaid tax from 1,500 medical professionals, although 30,000 were approached in a disclosure campaign.

Letters were sent to doctors and dentists asking them to come forward with any admissions of unpaid tax from previous earnings.

A deadline was set for the end of June before HM Revenue and Customs (HMRC) started targeted prosecutions.

HMRC said it was happy with the results and urged others to come clean.

"We did not have a target in mind, but nonetheless, the campaign has resulted in millions of pounds of tax that might otherwise have been lost being paid to HMRC as required by law," a spokeswoman said."

"Anyone who has been evading tax should talk to us as a matter of urgency, as voluntary disclosure always makes financial sense."

Deadline Medical professionals who admitted unpaid tax before 30 June could pay past tax, plus interest, and a penalty of 10% of the unpaid tax. For those found out after the deadline, the fine would increase to between 20% and 100% of the unpaid tax.

However, accountants have said they considered the response to be muted, with many medical professionals now facing investigation and, in the most serious cases, prosecution.

"HMRC is making it clear that it holds information, particularly in relation to doctors and dentists, that still has not been disclosed," said Stephen Camm, tax partner at PricewaterhouseCoopers.

"From the disclosures that have been made, HMRC have uncovered individuals who should have come forward but who have failed to do so. "Investigations will start in the autumn in earnest. HMRC is already working on cases for prosecution and expect numbers to rise.

There is no doubt that any medical practitioner that has something to disclose to HMRC must deal with this issue now." The medical professionals are the latest group to be targeted by the Revenue.

Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants, said: "This whole process is very much about HMRC focusing on collecting taxes, from plumbers to gas fitters to doctors.

"The message is that the tax authority has become more authoritative and will continue to be so."

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Update: 22 June BUDGET 2010 HM Treasury Press Notices PN01 A fairer personal tax and benefit system The Government proposes the following measures under this heading:

• personal allowance for those aged under 65 up by £1,000 to £7,475 in 2011–12;
• capital gains tax rate increased to 28 per cent for higher rate and additional rate taxpayers;
• 10 per cent rate for entrepreneurial business activities extended from the first £2 million to the first £5 million of qualifying gains made over a lifetime;
• working with local authorities in England to implement a council tax freeze in 2011–12;
• bank levy to be introduced from January 2011;
• basic state pension to be uprated by increase in earnings, prices or 2.5 per cent, whichever is highest, from April 2011;
• tax credit eligibility reduced for families with household income above £40,000 from April 2011;
• pensions tax relief annual allowance reduced from April 2011; and
• benefits to be indexed by CPI instead of RPI from April 2011.

• the standard rate of VAT will increase to 20 per cent with effect from 4 January 2011;
• the reduced rate of 5 per cent remains unchanged;
• the sectoral rates for the VAT flat rate scheme will be updated; and
• the standard rate of insurance premium tax will increase to 6 per cent and the higher rate to 20 per cent from 4 January 2011.

• the personal allowance for the under-65s will remain at £6,475 in 2010–11 but will be increased to £7,475 in 2011–12;
• the basic rate limit for income tax will be reduced in 2011–12, the exact amount of reduction to be confirmed in the autumn but based on current RPI estimates to be £2,500; and
• the higher rate threshold for 2011–12 is to be confirmed in the autumn.

• the starting point at which employers start to pay NICs will increase by £21 per week above indexation from April 2011;
• the upper earnings limit and the upper profits limit will maintain alignment with the income tax higher rate threshold;
• the rate for employees' NICs below the Upper Earnings Limit will increase to 12 per cent for 2011–12 and to two per cent for earnings above it;
• the rate for employers' NICs will increase to 13.8 per cent for 2011–12;
• the reduced rate married women between primary threshold and upper earnings limit is 4.85 per cent for 2010–11 and 5.85 per cent for 2011–12;
• the rate of Class 4 contributions for profits below the Upper Profits Limit will increase to 9 per cent for 2011–12 and to two per cent for profits above that limit;
• the figure for Class 2 contributions for 2011–12 will be determined by data available in the autumn.

• benefits, tax credits and public service pensions will be price indexed by reference to the consumer price index from April 2011;
• the state pension will be uprated by the highest of the increase in earnings, prices (using the CPI) and 2.5 per cent from April 2011, although it will be increased by at least the equivalent of the RPI in April 2011;
• the standard minimum income guarantee in pension credit will increase in April 2011 by the cash rise in a full basic state pension;
• the child element of the child tax credit will increase by £150 above CPI in April 2011 and the baby element will be removed;
• income thresholds and withdrawal rates are reduced for 2011–12 to become: first withdrawal rate 41 per cent; second income threshold £40,000; second withdrawal rate 41 per cent; income disregard £10,000; and
• child benefit will be frozen for three years from 2011–12.

• the main rate of corporation tax will be 27 per cent in 2011–12, 26 per cent in 2012–13, 25 per cent in 2013–14 and 24 per cent in 2014–15;
• the small profits rate will be 20 per cent from April 2011; and
• a bank levy will be introduced effective from 1 January 2011 based on banks' balance sheets at a proposed rate of 0.07 per cent, with an initial lower rate of 0.04 per cent in 2011.

• the rate will rise from 18 per cent to 28 per cent for higher and additional rate taxpayers from 23 June 2010; and
• entrepreneurs’ relief lifetime limit of gains will rise to £5 million from 23 June 2010.

• cider duty rates will be reduced from 30 June 2010; and
• landline duty will not be implemented.

• an extension with immediate effect to the rules dealing with the derecognition of loan relationships and derivative contracts;
• a measure having immediate effect to prevent avoidance involving authorised investment funds;
• examination of the possible introduction of a general anti-avoidance rule;
• consultation on bringing inheritance tax on trusts within the disclosure of tax avoidance schemes regime;
• examination of possible further changes to the stamp duty land tax rules on high value property transactions;
• confirmation that employer financed retirement benefit schemes come within the March 2010 Budget measures announced to tackle the use of trusts to reward employees, the legislation to take effect from April 2011;
• confirmation that, with immediate effect, the anti-avoidance measure to prevent life insurance companies from manipulating previously unrecognised profits will also have effect where life insurance business is transferred to another company; and
• confirmation that anti-avoidance rules announced at the March 2010 Budget to counter the manipulation of the consortium relief rules will take effect from the date of the publication of draft legislation.

• the personal allowance for those aged under 65 will be £7,475;
• the basic rate limit will be reduced by an amount to be confirmed once the Retail Prices Index (RPI) for September 2010 is known;
• the NIC Upper Earnings/Profit Limit (UEL/UPL) will be reduced to maintain alignment with the income tax higher rate threshold; and
• the NIC secondary threshold will be increased by an extra £21 per week above indexation, calculated once the RPI for September 2010 is known.

• from 1 April 2011, 27 per cent;
• from 1 April 2012, 26 per cent;
• from 1 April 2013, 25 per cent; and
• from 1 April 2014, 24 per cent.

• ensuring that where a UK figure is being compared with a worldwide figure, the same amount is included in both figures in respect of the same borrowing;

• excluding certain securitisation companies; and

• ensuring that long-term arrangements that have the economic effect of loans are taken into account for the gateway test.

• widening the relief applying where disposal proceeds are reinvested in new oil trade assets (applying with effect for disposals made on or after 24 March 2010);
• ensuring that reinvestment relief applies as intended in a group context (applying to disposals made on or after 22 April 2009);
• extending the rules applying to prevent chargeable gains arising on the swap of UK/UKCS licences in some circumstances (applying with effect for disposals made on or after Budget Day 2011);
• extending the field allowance to investment in fields that have previously been decommissioned (applying to fields whose development is authorised on or after 22 April 2009); and
• reducing the field allowance thresholds to qualify as an ultra-high pressure/high-temperature field (applying by way of an Order to be introduced before 29 July 2010).

• the current requirement that the shares making up a VCT's ordinary share capital be included in the official UK list throughout the relevant accounting period will be replaced with a requirement that the shares be admitted for trading on any EU-regulated market;
• the current requirement that at least 30 per cent of the VCT's qualifying holdings is represented throughout the relevant accounting period by holdings of eligible shares will be increased to 70 per cent, but the definition of eligible shares will change to allow VCTs to include shares which may carry certain preferential rights to dividends.

• the new legislation will exclude shares in a company from qualifying if it is reasonable to assume that the company would be treated as an enterprise in difficulty for the purposes of the European Commission's Rescue and Restructuring Guidelines;
• the current requirement that there is a qualifying trade carried on wholly or mainly in the UK will be replaced for shares issued on or after the commencement date with a requirement that the company issuing the shares must simply have a permanent establishment in the UK.

• to ensure that an unintended tax charge does not arise where a UK life insurance company transfers long-term insurance business to a non-EEA overseas company (applying for transfers of business taking place after 22 June 2010);
• to ensure a consistent basis of taxation where life insurance business ceases to be carried on in the UK through a UK company and starts to be carried on by a UK branch of a company resident elsewhere in the EEA (applying with effect for periods of account beginning on or after 1 January 2011); and
• to prevent manipulation to avoid tax on previously unrecognised profits where life insurance business is transferred to another company (applying to transfers of business on or after 24 March 2010).

• where derecognition arises as a result of the acquisition or variation of a capital interest in a company, partnership or trust; or
• where derecognition is triggered by an event that occurs in a later accounting period.

• the application of the limits on income withdrawals is deferred to age 77;
• immediately before age 75, members will become entitled to income withdrawal and a tax-free lump sum in respect of their remaining fund;
• the charge on lump sum death benefits paid on death over the age of 75 is reduced to 35 per cent; and
• the specific IHT charge will not apply.

• update ITEPA 2003, s. 292, which exempts from income tax amounts paid to MPs in respect of additional expenses incurred in staying overnight away from their only or main home for the purposes of their Parliamentary duties;
• update ITEPA 2003, s. 294, which exempts from income tax amounts paid to MPs in respect of travel to certain European institutions and Parliaments;
• introduce a statutory exemption for certain travel expenses paid under the IPSA scheme, to replace the existing concessionary exemption for the reimbursement of MPs' expenses in respect of Parliamentary travel;
• introduce a statutory exemption for certain spouses' travel expenses paid under the IPSA scheme, to replace the concessionary exemption for the reimbursement of expenses relating to specific travel by MPs' spouses; and
• introduce a new provision to exempt from tax payments under the IPSA scheme for the costs of evening meals purchased by MPs when the House of Commons is sitting late.

• VAT and insurance premium tax;
• aggregates levy, climate change levy and landfill tax;
• air passenger duty, alcoholic liquor duties, tobacco products duty, hydrocarbon oil duties, general betting duty, pool betting duty, bingo duty, lottery duty, gaming duty and remote gaming duty; and
• other excise duties.

• be introduced over a number of years;
• treat late payment of tax and late-filed returns separately;
• reflect the more frequent filing and paying obligations for these taxes and duties compared to direct tax;
• try to encourage filing and payment by the correct dates by imposing an escalating series of penalties, depending on the number of failures within a set penalty period. Further penalties will arise if there is a prolonged delay in filing returns or paying the tax due;
• include a right of appeal if the taxpayer has a reasonable excuse for the lateness; and
• be avoided where taxpayers have agreed a time to pay arrangement with HMRC (as regards the late payment penalties).

• £100 penalty immediately after the due date for filing (whether or not the tax has been paid);
• the failure also starts a penalty period, which is set for a year;
• if there are further failures within the penalty period, then the fixed penalty escalates by £100 for each of those subsequent failures, up to a maximum of £400 per failure. The penalty period is also extended to the first anniversary of the latest failure;
• if any of the failures are prolonged, then additional penalties of five per cent of the tax on the relevant return are charged at six and 12 months from the date of the failure; and
• if, by failing to make the return, the taxpayer is deliberately withholding information to stop HMRC from correctly assessing the liability to tax, then penalties of up to 100 per cent of the tax on the return may be chargeable.

• if a taxpayer first pays late, although there is no penalty, it starts a penalty period, which is set for a period of a year;
• any further failures within that period attract a penalty of two per cent of the unpaid tax, as well as extending the penalty period to the first anniversary of the latest failure;
• a third failure within the period attracts a penalty of three per cent, with further failures attracting a maximum of four per cent; and
• if any of the failures are prolonged, then additional penalties of five per cent of the unpaid tax are charged at six and 12 months from the date of the failure.

• one per cent for the next three failures in any penalty period; and
• two per cent of the next three failures, etc., up to a maximum of four per cent per failure.

• extend their scope to cover supplies in all categories of natural gas pipeline;
• limit their scope to supplies involving natural gas pipelines located in the EU or linked to such pipelines; and
• extend the relief from VAT at importation to all natural gas imported via a network (including liquefied natural gas by tanker).

• any supply made on or after 4 January 2011; and
• any acquisition or importation taking place on or after that date.

• the supplier and customer are connected parties;
• the value of the supply (and any related supplies made under the same scheme) exceeds £100,000. But this does not apply if the prepayment or issuing an advance VAT invoice is normal commercial practice;
• the supplier or someone connected to the supplier funds a prepayment for the goods or services; or
• an advance VAT invoice is issued where payment is not due in full within six months (except hire purchase invoices issued in accordance with normal commercial practice).

• the grantor and the customer are connected parties;
• the consideration for the right or option (and any related supplies made under the same scheme) exceeds £100,000. But this does not apply if the right or option is normal commercial practice; or
• the supplier or someone connected to the supplier funds the payment for the right or option.