News round up… August
W/C 30th August
Beer and wine, feel fine?
Diageo, the world’s biggest spirits maker, has called for an increase in tax on beer and wine. Submitting proposals to a Treasury consultation, the company suggests that one unit of alcohol is taxed at the same rate, regardless of the drink. Currently wine is taxed at around 19p a unit, lager 21p a unit, and spirits 22p a unit. According to Diageo, equalising the tax rate would earn the government between £524m and £1.9bn a year. Diageo, makers of Smirnoff, Baileys and Guinness, trades in around 180 markets and has offices in 80 countries around the world.
Taxpayers could make ‘significant profit’ from banks
Bank bail outs could earn the UK taxpayer £19billion profit in the next five years, according to analysis in The Banker magazine. If equity prices rise in line with predicted economic growth, the taxpayer could see a turnaround of earlier predictions that propping up banks could cost the taxpayer as much as £850bn. The government’s holdings in British banks is set to earn almost £30bn; a sum that could fund the UK’s primary schools for an entire year. Brian Caplen, editor of The Banker, said, ‘While the banks remain at fault for decisions that led to some of them needing a rescue package, the UK taxpayer could make a significant profit from bailing out the banks by 2015.’ Currently UK taxpayers are breaking even on shares in Royal Bank of Scotland and Lloyds TSB, once dividends and other earnings are considered.
W/C 23rd August
Billions of tax credits unclaimed last year
Last year an astonishing £3.9bn worth of tax credits went unclaimed, according to professional advice website unbiased.co.uk. Many people are unaware that Working Tax Credits (WTC) can be paid to top up low incomes. While WTCs remained relatively untouched by the emergency Budget, Child Tax Credits (CTC) faced major upheaval. Where a parent was originally allowed to claim CTCs if they earned up to £66,000 p/a - calculated as combined income if a couple - this has been reduced to £30,000. The perceived complexity of claiming tax credits could be one of the factors leading to the massive amount of unclaimed benefits. Last month saw the launch of The Office of Tax Simplification; an initiative to help clarify the taxation process.
Tony Blair reduces tax bill by charitable donation
Former Prime Minister Tony Blair will shave £1.38m off a £2.3m tax bill by donating to charity. Mr. Blair reportedly received a £4.6m advance for his book, which he plans to donate to the Royal British Legion. By donating the entire advance to charity he avoids paying a 50% tax rate and benefits from Gift Aid; a government scheme offering tax reliefs to those supporting registered charities. Mike Warburton of accountants Grant Thornton said, ‘There is no limit on the amount that someone can make under gift aid… Successive governments have encouraged charitable giving, but it is unusual that such a large donation is made by a former prime minister.’
Anger at work-parking tax
Plans to charge £250 tax a year to park at work has angered motorists, who are already suffering in the struggling economy. A number of local authorities are considering the levies, which would cut carbon emissions and reduce congestion. Perhaps most importantly, the fees will top up the rapidly declining council funds, which have faced the toughest hit in decades. The current plan, being examined by Bristol, York, Devon, Hampshire, Leeds, Bournemouth, South Somerset and Wiltshire, would target all companies with eleven parking spaces or more. A £250 levy would be imposed on employers by 2012. By 2014 this would rise to £350. While transport analysts commended the move, David Frost, the director-general of the British Chambers of Commerce described it as, ‘The wrong tax in the wrong place at the wrong time.’
W/C 16th August
Obscure HMRC rule penalising teenage savers
Teenage savers are being caught out by a tax rule so obscure that some tax specialists have never heard of it. Teenagers are suffering at the hands of a complex clause that ends tax-free interest payments when they reach they age of 16. The R85 form which entitles interest paid gross to those who don’t earn enough to pay income tax automatically stops in the tax year that savers turn 16. Savers are not informed of the automated change and will begin to be taxed at 20% unless a new R85 form is signed. Responding to criticism about the ‘age-16 trap’, HMRC said, ‘We rely on banks telling 16-year-olds that their R85 will be cancelled and inviting them to submit another form.’
Middle class families hit hardest in welfare squeeze
Budget cuts will be felt predominantly by middle class families according to senior coalition officials. Budgetary restraints mean the government aims to shave £13bn off benefits, costing a typical family with two children more than £1,700 a year in child welfare. Presently mothers of any income level are paid £20.30 a week for their first child and £13.40 for every other child. These new cuts would see the end of decades of state handouts for everyone regardless of income. Broad information about upcoming benefit cuts will be outlined in the Public Spending Review, published in October, with a full analysis in a White Paper released at a later date.
W/C 9th August
Portsmouth FC win High Court tax battle
HM Revenue & Customs have failed in their bid to retrieve the £37m it claims Portsmouth Football Club owes in unpaid taxes. The High Court dismissed a challenge to the clubs Company Voluntary Agreement which, HMRC claims, favours football-based creditors. Portsmouth chief executive David Lampitt said, ‘We're not out of administration fully yet but obviously it makes our discussions with the Football League and the Premier League hopefully a little bit easier.’ The club, whose debts total approximately £130m, were docked nine points last season when they became the first club in history to enter administration. HMRC described the outcome as disappointing, but confirmed it would not appeal the decision.
Tax payers gain £7.4bn as Northern Rock goes back to black
Northern Rock has revealed healthy profits for the first time since the financial crisis, taking the ‘bad bank’ back into the black. The good news means that the taxpayer is sitting on a profit of around £7.4bn, on paper at least. Northern Rock’s announcement comes amid predictions that Lloyds Banking Group would jump from a loss to a profit of around £800m. Northern Rock was the first high profile British victim of the economic crisis and was granted financial bailout from The Bank of England in September, 2007.
Tax credit repayments expected to rise
The number of families required to repay overpayment of tax credits is expected to soar as regulations change. Tax credits are based on the household income from the previous year. At the moment, the current income can rise by up to £25,000 without any impact on tax credits. However, over the next 18 months, this buffer will be reduced to just £5,000 - a move, which will result in a large number of families being asked to pay back substantial amounts of money wrongly issued. Last year the government was forced to write off more than £2bn in overpaid child and working tax credits.
W/C 2nd August
Locals given power over council tax rises
Local residents will be given the power to reject excessive council tax rises under new plans by Local Government Secretary Eric Pickles has announced. Under the scheme, councils proposing an excessive rise in council tax will be required to submit plans - and justification - to local residents. Pickles said of the plan, ‘This is a radical extension of direct democracy, as part of a wider programme of decentralising power to local communities.’ Council tax bills have doubled over the past 13 years, with the tax rising three times faster in the countryside as in towns.
Government continues ‘tax simplification’ with new paper
Just two weeks after launching new quango The Office of Tax Simplification, the government has issued nine tax consultations as Parliament breaks for the summer. The discussion paper invites feedback on proposed changes to some major rules, including the National Minimum Wage; the Controlled Foreign Company regime; Inheritance Tax and reform of the PAYE system. David Gauke, the Exchequer Secretary in charge of tax reform, said, ‘We are committed to a more considered and open approach to tax policymaking. I want to encourage relevant parties to provide their feedback on the tax consultations we have published today.’