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.”

Photo by tompagenet

With only 10 days left ahead of the July 31st tax credit deadline, nearly one quarter of UK pensioners and a tenth of entitled low-income families are set to forfeit billions in “free money” by neglecting to make necessary claims with the HM Revenue & Customs (HMRC). According to estimates published by Unbiased, a UK online financial service portal, the missed credits will consist of GBP 1.5 billion in Child Tax Credits and GBP 2.4 billion in Pension Credits.

An estimated 9 percent of eligible families are expected to forgo their GBP 3,411 yearly household credit, despite recent changes announced in the Emergency Budget which restrict the benefits to some of the lowest earning families in the UK. The unclaimed figure represents a 1 percent increase over last year, when 8 percent of families ignored available tax credits.

The economic climate of the UK is still too tight for low-income families to ignore this fiscal opportunity. The current system of benefits has been created specifically with this group of the population in mind, and many are willfully missing out on huge quantities of money this year. Taxation experts have stated, however, that the HMRC should have delivered information packs and an Annual Renewal notice to applicable households with adequate time for taxpayers to respond or seek appropriate taxation advice.

Photo by happeningfish

The HMRC recently released its latest projections for the personal income tax collections for the 2010-2011 financial year. The department expects the national revenue figure to rise by approximately GBP 10 billion to a total of GBP 161 billion (approx. USD 243.1 billion). Nearly GBP 9 billion (approx. USD 13.6 billion) of the extra revenue will be accounted for by taxpayers earning over GBP 40 000 (approx. USD 60 408). According to the HMRC, 400 000 more individuals will pay income taxes in the new financial year, though the significant majority of the revenue increase will be caused by upward drift between income levels to higher tax bands.

The new projections show that revenues collected from the UK’s 26.4 million basic-rate taxpayers is expected to rise by GBP 1.2 billion (approx. USD 1.8 billion) to a total of GBP 68.1 billion (approx. USD 102.8). The additional increases projected by the HMRC will be accounted for by earners int eh 40 percent and 50 percent brackets. Over the 2010-2011 fiscal year, 3.1 million tax payers will fall in the 40 percent tax bracket, and pay a total of GBP 50.2 billion (approx. USD 75.8 billion). Only 282 000 individuals will qualify for the recently introduced 50 percent top-earners bracket, but will raise approximately GBP 42.5 billion (approx. USD 64.2 billion). Within the top bracket, an estimate 13 000 will be earning in excess of GBP 1 million (approx. USD 1.5million), and face an average tax liability of GBP 1 million (approx. USD 1.5million) each.

The latest figures relay a greater sense of optimism from the UK Government. The HMRC previously projected that both tax revenues and the number of tax payers would fall in the 2010-2011 fiscal year. Chas Roy-Chowdhury, UK Association of Chartered Certified Accountants Head of Taxation, explained the turnaround, saying “Unemployment has not gone up as much as anticipated and there has been inward migration.” According to political analysts, the improved situation is likely to be maintained, as all political parties currently campaigning for the upcoming UK election have given general support to the current income taxation balance.

Photo by alancleaver_2000

The HMRC reported on February 1st that 6 429 899 individuals had filed their SA returns online before the January 31st deadline. The figure represents approximately three quarters of submitted returns and marks a 12 percent improvement over the previous year, where only 5 759 006 individuals made timely online submissions. According to the HMRC in excess of 9.5 million SA returns are issued across the UK each year.

In a media statement the HMRC revealed that nearly 6 percent of all online SA returns were submitted on the 29th of January. Nearly 40 000 returns were filed on that day between 4pm and 5pm, representing the busiest submission hour for the tax year.

Stephen Timms, Financial Secretary to the Treasury welcomed the news and extolled the virtues of online filing. He encouraged those who are still filing paper returns to switch to the online method, saying that it allows a faster turnaround for the HMRC, and that any money owing can be settled in a timelier manner. On the other hand, in a separate HMRC statement issued on January 31st, the department revealed that the increased utilization of online filing and the impending SA deadline had led to record numbers of “phishing” and scam emails reported by UK nationals. According to the HMRC, in September 2009 nearly 83 000 scam attempts were reported, and October saw the daily scam report rate reach as high as 10 000. Typically the scam attempts consisted of an email that claimed that the recipient was due for a tax return and was directed to reveal their bank details.

Photo by World of Oddy

On January 25th the HMRC made available a pamphlet outlining their new VAT and Excise Wrongdoing penalty system, which will be enacted on April 1st, 2010. The offenses listed within the pamphlet are: the issuance of an invoice with VAT which the issuer was not entitled to charge, handling of goods on which Excise Duty has not been deferred or paid, using a product in a way which would mean that higher Excise Duties should have been paid on it, or providing products with a lower rate of Excise Duty than its use would entail.

The penalties are charged as a percentage of potential revenue lost by the HMRC, with the rate varying upon circumstance of discovery and the intentions of the offender. Wrongdoings that are covered by a “reasonable excuse” will not be charged a penalty. Penalties on non-deliberate wrongdoings reach a maximum of 30 percent and a minimum of 10. Deliberate wrongdoings reach 70 percent and begin at 20. The most sever punishments are laid upon those committing and concealing deliberate wrongdoings, whereupon penalties will reach 100 percent, and begin at 30. Leniency in penalties can be provided if the offender makes a full voluntary disclosure before any HMRC investigations are initiated. Further, parties involved in or knowledgeable of the wrongdoing, like agents, employees or advisers are also liable for penalties, unless it is shown that they took all reasonable steps to avoid involvement.

Photo by Sonti Malonti