UK Consulting on Tax Issues

July 28, 2010 Taxation in UK

IMG_9101The UK Government is taking action to show national taxpayers and international investors that the country “is open for business”, by initiating an extensive round of public consultation of tax system legislation issues.

The UK Government has stated its intentions to make the tax system “simpler and work better for people”, through an announcement made on July 27th by David Gauke, Exchequer Secretary, and the release of nine public consultation documents. The Government claims that its new initiative of greater public feedback on proposed legislations will be a “new and innovative approach to tax policy making.”

The first wave of consultations are on Pay As You Earn (PAYE) Reform, Furnished Holiday Lettings, Pensions Tax Relief, Associated Company Rules, Disclosure of Inheritance Tax Avoidance, Foreign Branch Taxation, Controlled Foreign Company Interim Improvements, Modernization of Investment Trust Company Rules, and National Minimum Wage Regulations.

The PAYE document, which is released by the HM Revenue and Customs (HMRC), proposes a vast overhaul to the administration of the current PAYE system, and the implementation of a real-time software based information system which will theoretically greatly reduce burdens and PAYE compliance liabilities for businesses.

The HM Treasury (HMT) and the HMRC are conjointly seeking feedback on their Furnished Holiday Lettings proposals aimed at ensuring that “…the tax rules for furnished holiday lettings meet EU legal requirements in a fiscally responsible way.” The Government is debating altering current eligibility thresholds and restricting the use of loss relief.

The HMT is asking for feedback from the pension sector regarding a redesign of the national pension system and tax treatment outlined in the Pensions Tax Relief document, having found that previously announced plans to restrict pension tax relief were met with great opposition.

In the Associated Company Rules proposal, the Treasury is requesting industry assessment of a new set of tests created by the HMT to determine whether associated companies are economically dependent enough to be considered a single entity for tax purposes. The result of the consultation could have great repercussion for businesses, and national tax revenue, as associated companies are often used by corporations to segregate part of their operation into the UK’s corporate tax rate for small businesses. The HMT has also published a document on Foreign Branch Taxation, and a note on Controlled Foreign Company Interim Improvements, in the aim of increasing the international business competitiveness of businesses in the UK.

Richard Baron, Head of Taxation at the UK Institute of Directors (IoD), has already welcomed the Government’s decision to greater involve the public in the legislative process. Speaking about the consultation documents, he said, “…we can now see the new Government’s style: publish a detailed programme of consultation and then follow through with consultation documents which are open about the challenges and set out the options in sufficient technical detail.”

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