Minister delivers on threat to end City bonus abuse

Minister delivers on threat to end City bonus abuse

Tax advisers hit out at retrospective and 'draconian' national insurance crackdown

The government has extended its tax avoidance attack on City bonuses,
outlining a bill to counter the avoidance of national insurance contributions
through exotic payment schemes.

A government bill was being introduced to parliament as Accountancy Age went
to press on Tuesday bringing NICs into the disclosure regime. It also detailed
new powers to take on avoidance retrospectively.

Tax advisers said that the bill was ‘draconian’, but not particularly
surprising given Dawn Primarolo’s statements during the pre-Budget report last
year.

The bill will see HM Revenue & Customs collect another £95m in national
insurance contributions in 2004/05, and £240m per annum going forward, a
spokesman for HMRC said.

The legislation extends the disclosure regime to cover national insurance
schemes. ‘In practice, the tax disclosure rules provide the information
necessary to counter both tax and NICs avoidance in the usual situation where a
scheme seeks to avoid both,’ a note to the bill says. ‘But they do not provide
information in relation to schemes seeking to avoid only NICs.’

The bill also seeks to give new powers to the Treasury to enact retrospective
rules on NICs, where necessary from the date of Primarolo’s statement, which
announced ministers’ intention to crack down hard on City bonus schemes.

HMRC cited then the use of national insurance avoidance schemes being
prevalent in the payment of City bonuses, which are on the up this year.

City NICs schemes have notoriously included the payment of bonuses through
exotic items such as gold bars, Turkish lira and platinum sponges. Advisers said
they had been surprised that NICs had been left out of the disclosure programme
initially, adding that the bill gave a clear indication of the direction of
government policy on tax.

Mike Warburton, senior tax partner at Grant Thornton, said: ‘The bill
explains the draconian nature of what we are now dealing with. It makes it very
debatable whether it’s worth anybody’s while doing things that are seen as
aggressive by HMRC.’

John Whiting, tax partner at PwC, said: ‘It is fundamentally an enabling
bill, and the regulations that presumably will follow will tell us what’s really
going to happen. But it is a very important signal in terms of [the idea of]
retrospection.’

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