As the dust settles after the Budget, the prospect of Customs & Excise protecting #1.5bn of public funds, after a clampdown on four abuses of the system, seemed a little far-fetched, tax experts said.
The claim by Customs appeared muted after several months of speculation that Chancellor Gordon Brown would send accountants reeling with 200 anti-avoidance measures. By the time he sat down, less than 20 announcements could be considered blocking measures.
Small and medium-sized businesses were pleased some anomalies had been cleared up. Clive Jacobs, chairman and chief executive of Holiday Autos, said the levelling out of insurance premium tax in his industry was important. ‘It was a grossly unfair tax. Now there is a level playing field.’ The change will force all holiday insurance companies to levy 17.5% VAT – not just travel agencies offering insurance.
Customs also wants to prevent commercial sports clubs from reconstituting themselves as non-profit making bodies and extracting the profit by other means. Also, it wants to stop companies from taking advantage of hiring goods in EU countries with low VAT levels, and to end tax relief on the transfer of businesses.
But Price Waterhouse VAT partner Chris Tailby questioned whether Customs would reach the targets set out by Brown. ‘Customs does not have a very good history of predicting the VAT it is going to save,’ he commented. ‘It is hard to see how it can justify the figure, even if everybody is at it.’
Graham Ross, a VAT partner at KPMG, agreed: ‘I find it very difficult understanding the idea that it will protect that much revenue. And it is not exactly fair to include changes to insurance premium tax on holiday insurance as an anti-avoidance measure when it is just a revenue-generating tax change.’
Ross said there were also question marks over how some of the new rules will be applied.
‘The rules on hiring or leasing goods abroad are unclear in several respects.
The phrase ‘used and enjoyed’ is being employed to determine where VAT should be applied, but what happens with mobile phones and laptops? It’s easy to determine where most goods are used and enjoyed, but some are harder – and services will be even more fraught with difficulty. There will need to be some guidance.’
The prospect of a renewed clampdown on VAT groups and the relief they enjoy was attacked by Tailby.
‘Why does Customs want a consultation process? It has already dealt with most of the schemes available,’ he said.
‘VAT groupings give tremendous savings to companies. If they prevent part-exempt companies going into exempt groupings it will raise administration costs and generate VAT that shouldn’t be generated. This is a revenue-raising measure, rather than an anti-avoidance move.’
Schemes that allow banks and financial traders to gain excessive relief for foreign tax to be paid in dividends will be stopped. It is an extension of the clampdown on banks being paid interest income.
Individuals will no longer be able to avoid CGT on sales by going abroad for a short time. They will need to stay away from the UK for at least five years.
Foreign income rules allowing UK residents to avoid both UK and foreign tax will cease
– Bringing companies with gains into groups with losses to avoid tax will be stopped
– Offshore trusts created before March 1991 will be brought into line with current practice.
Companies to be prevented from hiring goods in advantageous locations for VAT
– Commercial sports clubs will not be allowed to redesignate themselves as non-profit making organisations in order to sidestep VAT.
Drastically fewer offices for HMRC in the hope to reduce their running costs
Tayabali Tomlin and d&t directors launch £20 a month TaxGo service, aiming to be the 'biggest UK firm' by client numbers
Companies must report on their complex financial structures including offshore accounts and notify HMRC
An examination by the Public Accounts Committee (PAC) has revealed serious concerns relating to HMRC’s plans