Tax Cut for Self Employed Workers Scrapped

Tax Cut for Self Employed Workers Scrapped
A planned tax cut for 2.7m self-employed workers has been scrapped by the UK government. It was originally due to scrap Class 2 National Insurance contributions in April but the move had been delayed by a year and has now been shelved. It cited concerns that low-earning self-employed people would pay more to access the state pension, and it would make the tax system more complex.

Labour’s John McDonnell called it a “betrayal of the self-employed”.

The government was originally due to scrap Class 2 NI contributions, paid by self-employed people with profits of £6,205 or more a year, in April 2018 but last year announced it was delaying that for a year.

But it announced on Thursday that they would not now be abolished in this Parliament. The move was set to save millions of workers about £150 a year.

But there had been concerns that the move would hit more than 300,000 self-employed people earning less than £6,000 a year who were paying the Class 2 NICs voluntarily, in order to access the state pension. They would have faced being moved to Class 3 contributions, raising weekly payments from £2.95 to £14.65.

In a written statement, Treasury Minister Robert Jenrick said the change had been intended to simplify the tax system for the self-employed but it had “become clear” that a “significant number” of self-employed people with the lowest profits would have ended up paying more.

“Having listened to those likely to be affected by this change, we have concluded that it would not be right to proceed during this Parliament, given the negative impacts it could have on some of the lowest earning in our society,” it said.

Trying to address the concerns would have meant “greater complexity to the tax system, undermining the original objective of the policy”. He added: “The government remains committed to simplifying the tax system for the self-employed and will keep this issue under review in the context of the wider tax system and the sustainability of the public finances.”

But shadow chancellor Mr McDonnell said: “This is yet another betrayal of the self-employed. These people are the engine of the economy and have been let down again, while giant corporations have seen their tax bills slashed.”

The Federation of Small Businesses said it would hit more than three million people and would “net the Treasury more than £350m annually in the three years to 2021”.

FSB Chairman Mike Cherry said the Treasury “should have worked harder” to find ways to protect low-earners.

“The self-employed community has been let down today, missing out on a promise to reduce their tax burden. This raises serious questions once again about the government’s commitment to supporting the self-employed. ” He added: “Class 2 NICs is a regressive levy that indiscriminately hits sole traders and makes life even tougher for those who are hard-up.”

Amazon’s UK Tax Bill Dropped by 50%

Amazon’s UK Tax Bill Dropped by 50%
Amazon has seen a 50% fall in the amount of UK corporation tax it paid last year, while recording a 54% increase in turnover for the same period. This snippet of news raised eyebrows this morning when it was revealed. So what’s going on?

The answer is simple on the face of it. Taxes are paid on profit not turnover. It paid lower taxes because it made lower profits. Last year it made £48m in profit – this year it made only £24m so it paid £7m tax compared to £15m. What is more interesting is WHY its profits were lower.

Part of the reason is the way it pays its staff. Amazon UK Services is the division which runs the fulfilment centres which process, package and post deliveries to UK customers. It employs about 16,000 of the 24,000 people Amazon have in the UK. Each full-time employee gets given at least £1,000 worth of shares every year. They can’t cash them in immediately – they have to hold them for a period of between one and three years.

If Amazon’s share price goes up in that time, those shares are worth more. Amazon’s share price has indeed gone up over the past couple of years – a lot. In fact, in the past two years the share price has nearly doubled, so £1,000 in shares granted in August 2015 are now worth nearly £2,000. Staff compensation goes up, compensation is an expense, expenses can be deducted from revenue – so profits are lower and so are the taxes on those profits.

But surely this extra income for the staff is taxed? Probably not.

HMRC rules allow employees to receive £3,600 worth of shares from their employer tax free every year. Most of these awards are below that threshold.

The employee wins through a tax-free windfall, Amazon wins because it hasn’t got to pay any cash out, which leaves HMRC as the big loser. This is not just allowed by UK tax law – it is required by it. So, weirdly, the more valuable Amazon becomes, the less tax this particular bit of its business pays.

There is heightened sensitivity around the tax affairs of technology giants such as Amazon, Google and Apple. The challenge of adapting a tax code written for a bygone era to work effectively on technology multinationals who have socked billions away in low tax jurisdictions remains. But the practice of giving staff shares is widespread, generally seen as a good way to promote loyalty and engagement – and is 100% legal.

Stamp Duty Land Tax Boosts Tax Receipts

Stamp Duty Land Tax Boosts Tax Receipts
The UK government is on track to raise a record amount of tax from property sales, despite a fall in the number of home sales. Official figures show that £7.7bn has been raised from stamp duty land tax (SDLT) during the first eight months of the 2016-17 financial year. That is 12% more than was raised during the same period the year before.

But this has come despite a 10% drop in the number of homes being sold in the UK. Between April and November this year, 782,000 homes were sold, down from the 868,000 sold in the same eight months of the previous financial year.

Even if that trend continues, the exchequer’s revenue from stamp duty may still exceed the previous record of £10.7bn raised during 2015-16.

The increased tax take reflects two big changes to stamp duty in the past two years, as well as the impact of the continued rise in average house prices, which have gone up by 7% in the past year.

In December 2014, the whole SDLT system was overhauled and new tax rates were brought in. These range from 0% on homes worth £125,000 or less, up to 12% on the top slice of homes worth more than £1.5m. The overall effect of the new system is that stamp duty has been cut for the 95% of buyers who buy homes worth less than £1m, but has been raised for those buying more expensive properties.

Then, in April this year, a SDLT surcharge was brought in for anyone buying a second home. This added a further three percentage points to the rates they would have otherwise paid.

Property commentator Henry Pryor said these changes were now depressing the number of transactions at the top end of the market. And he warned this might eventually feed into the government’s tax take.

“While there has been a direct impact on transactions at the top of the market, there is as yet no evidence to support those who have been calling for the chancellor to rethink the rates applicable to buyers of the most expensive properties,” he said. “But estate agents estimate that more than 40% of SDLT revenue comes from within the M25. Plus the number of all transactions in London was, in August, 39% down on a year ago, so this will inevitably create a hole in the chancellor’s accounts in due course.”

Jonathan Hopper, managing director of Garrington Property Finders, said: “Buy-to-let investors will understandably feel aggrieved at the stamp duty surcharge they now face, but their calls for April’s increase to be reversed are likely to fall on deaf ears.”

Tax Awareness Needed as Deadline Looms

Tax Awareness Needed as Deadline Looms
People wishing to file their tax return on paper face a looming deadline, but flexible workers in the self-assessment process need to be aware of the rules. About one in 10 people in the system files tax returns on paper.

The deadline for doing so is 31 October. Online filing has a deadline of the end of January 2017. The self-employed and those with more than one source of income must file. Accountants say changing work methods mean more people may be in the system. A rising number of entrepreneurs and self-employed freelancers found in the more flexible “gig” economy will have to grapple with the tax return system.

Lucy Brennan, partner at accountancy firm Saffery Champness, said: “For people who are unsure about the process, or are submitting for the first time, it is crucial that the information is filed promptly and accurately – even if it seems that no tax is due to be paid. “It is imperative that, if you are still completing a paper tax return, vigilance and accuracy is maintained as fines may be handed out to those who file their return late.”
About 10 million people are in the self-assessment system, and returns up to three months late will incur a fine of at least £100.

The vast majority file electronically and so face a later deadline, but Chas Roy-Chowdhury, head of taxation at accountancy body the ACCA, said that they should already be alert to changes in the system.

“The paper deadline is particularly important this year for those using older computers and browsers, as HMRC systems will now only allow filing of online returns through more recent technology,” he said. “While the move to more secure browsers is a sensible one, it may come as an unwelcome shock to those who might be faced with upgrading technology that they don’t really understand or feel comfortable if they miss the paper deadline.”

Anyone using an older browser, such as Internet Explorer 8, will need to update it or use a different browser in order to file their returns online by the end of January.

Married Couples Failing to Claim Tax Perk, says HMRC

Married Couples Failing to Claim Tax Perk, says HMRC
Less than a quarter of couples eligible for marriage tax allowance are bothering to claim it, according to HM Revenue and Customs (HMRC). The allowance – introduced in April 2015 to incentivise marriage – is worth £220 in 2016/17.

weddingdress

However those eligible can also back-date a claim for last year, meaning £432 can be claimed in total.

Out of 4.2m couples who could claim that amount, only 1m have done so, despite an HMRC advertising campaign.

Marriage tax allowance lets one half of a married couple transfer part of their tax-free allowance to their partner. However one of the partners must not be earning more than £11,000 – the personal allowance – while the other must be paying income tax at the basic rate.

A spokesman for HMRC said it takes less than five minutes to apply online.

“We don’t know the reason why so few couples have taken up this allowance, but the fact is, it’s a fairly quick and simple process and could save couples up to £430 – which can go a long way especially around this time of year,” said Sam McFaul, a personal finance writer at MoneySavingExpert.com.

Anyone wanting to claim can go to this page.

 

Taxpayers Turn to Online Tax Returns, says HMRC

Taxpayers Turn to Online Tax Returns, says HMRC
A record 89% of self-assessment taxpayers who filed their return by Sunday’s deadline did so online, as many turn their back on paper filing.

Some 9.24 million people completed their self-assessment tax forms via the HM Revenue and Customs (HMRC) website. A total of 1.14 million returns, the other 11% of submissions, were filed on paper before an earlier deadline.

Some 870,000 expected returns were not received by the deadline, with those individuals facing financial penalties. These fines start at £100, even if there is no tax to pay, before rising to an additional £10 a day after three months, and rising further if returns are more than six and 12 months late.

The busiest period for self-assessment submissions was between 14:00 GMT and 15:00 GMT on Friday, when 50,358 people sent through their forms online.

“Each year, we are dedicated to making the self-assessment process easier and more intuitive,” said Ruth Owen, director general for personal tax at HMRC.

The Friday surge came despite many people facing disruption when trying to access HSBC bank accounts online, with the bank being “attacked” by cyber criminals.

Google Tax: European Commission ‘Willing to Probe Deal’

Google Tax: European Commission ‘Willing to Probe Deal’
The European Competition Commissioner says she is willing to investigate Google’s tax arrangements should someone complain about them. Her comments come as the SNP’s economy spokesman, Stewart Hosie, says it has sent a letter calling for such a probe.

The development comes as the row over Google’s tax affairs in the UK and elsewhere intensifies.

Meanwhile, Google has written to the Financial Times defending its £130m deal, saying it complies with the law. “After a six-year audit we are paying the full amount of tax that HM Revenue and Customs agrees we should pay… Governments make tax law and tax authorities independently enforce the law, and Google complies with the law,” Peter Barron, the company’s European public affairs chief wrote.

The EU’s Competition Commissioner, Margrethe Vestager, said that, at this stage, she would not be drawn on whether Google’s tax settlement with Britain amounted to a so-called sweetheart deal. But she told BBC Radio 4’s Today programme: “If we find that there is something to be concerned about if someone writes to us and says, well, this is maybe not as it should be then we will take a look.

Yesterday, 31 countries signed an international agreement designed to stop multinational companies using complex tax arrangements to avoid paying corporate tax. The agreement, signed at the Organisation of Economic Cooperation and Development in Paris, will mean that those countries all share tax information. Under its terms, multi-national companies will have to tell the country they operate in what they make in that nation and how much tax they pay.

Critics say the deal doesn’t go far enough, and that such information should be made public, rather than held confidentially by the tax authorities.

The European Commission will later reveal proposals to stop tax avoidance by multi-national companies. “Hopefully, we will end up in a situation where companies pay taxes in the countries where they also make their profits and these new proposals will take us another step down that road,” said Ms Vestager.

In his letter to the FT Mr Barron said this is what Google is doing already. He said in all the coverage of the settlement little has been said about how international tax rules work.

“Corporation tax is paid on profits, not revenue, and is collected where the economic activity that generates those profits takes place. As a US company, we pay the bulk of our corporate tax in the US: $3.3bn in the last reported year. What should Google pay in the UK? We pay tax based on the value added by the economic activity of our staff here, at the current standard rate: 20%”.

David Cameron on Wednesday defended the deal UK authorities struck with Google over tax, saying the Conservatives have done more than any other government. The PM told the Commons the tax “should have been collected under [the last] Labour government”.

Google agreed to pay £130m of tax dating back to 2005 to HMRC, which said it was the “full tax due in law”.

European MPs have described it as a “very bad deal”, and Labour said it amounted to a 3% tax rate.

Amazon’s Reporting of Sales Could Raise Tax Bill

Amazon’s Reporting of Sales Could Raise Tax Bill
Amazon, the global online retailer, is changing the way it records sales in a move that could see it paying more tax.

Transactions carried out in European markets were previously recorded in Luxembourg, with which Amazon had a low-tax agreement. Now sales made through subsidiaries in the UK, Germany, Spain and Italy will be registered in those countries, the retailer has said.

Amazon had received heavy criticism for its tax avoidance policies.

“More than two years ago, we began the process of establishing local country branches of Amazon EU Sarl, our primary retail operating company in Europe,” the company said in a statement. “As of 1 May, Amazon EU Sarl is recording retail sales made to customers through these branches in the UK, Germany, Spain and Italy. Previously, these retail sales were recorded in Luxembourg.”

Amazon added that it was “working on opening a branch for France”.

In recent years, the European Union has intensified its investigations into the tax deals negotiated by global companies with countries such as Ireland, Luxembourg and the Netherlands. It suspects that such deals amount to illegal state aid and distort competition.

Last year, the European Commission – the EU’s executive arm – launched a formal investigation into Amazon’s tax arrangements with Luxembourg.

And the EU is also looking into tech giant Apple’s tax dealings in Ireland, coffee-shop chain Starbucks’ dealings in the Netherlands, and Italian carmaker Fiat’s agreement with Luxembourg.

PwC Promoted Tax Avoidance ‘On Industrial Scale’, say MPs

PwC Promoted Tax Avoidance ‘On Industrial Scale’, say MPs
Accountancy firm PricewaterhouseCoopers (PwC) has been accused of promoting tax avoidance “on an industrial scale”, in a report by MPs. It is said to have helped hundreds of clients cut their corporation tax bills by setting up bases in Luxembourg.

Earlier this week the Archbishop of Canterbury said companies should pay tax wherever they earned their profits.

PwC said it disagreed with the Public Accounts Committee report but added that the tax system was “too complex”.

The report was based on an evidence session held in December, at which PwC gave evidence.

“We believe that PricewaterhouseCoopers’s activities represent nothing short of the promotion of tax avoidance on an industrial scale,” said Margaret Hodge, chairwoman of the Public Accounts Committee (PAC). She said PwC had written more than 500 letters to the tax authorities in Luxembourg, on behalf of more than 300 international clients.

The tax avoidance schemes, which are legal, involve companies diverting profits to tax havens like Luxembourg via a series of loans between different parts of the business. The profits are eventually taxed in that country, but often at tiny rates.

Shire Pharmaceuticals, based in Basingstoke, was one company said by the MPs to have diverted profits to Luxembourg. It paid just 0.0156% of its profits to the local tax authority, they said. The main rate of corporation tax in the UK is 21%. However Shire said it always complied with tax obligations in the jurisdictions in which it operates.

The MPs also accused PwC of misleading the committee at an earlier hearing. “We consider that the evidence that PwC provided to us in January 2013 was misleading, in particular its assertions that ‘we are not in the business of selling schemes’, and ‘we do not mass-market tax products, we do not produce tax products, we do not promote tax products’,” said Ms Hodge.

In its defence, PwC said: “We stand by the evidence we gave the Public Accounts Committee and disagree with its conclusions about the work we do.

“But we recognise we need to do more to explain the positive role we play in the tax system and in helping businesses to operate successfully. We agree the tax system is too complex, as governments compete for investment and tax revenues. We take our responsibility to build trust in the tax system seriously and will continue to support reform.”

The PAC said it was now down to HM Customs and Revenue (HMRC) to challenge the advice given to multinational companies by accountancy firms.

Earlier this week, the Archbishop of Canterbury, Justin Welby, told the BBC there needed to be simplification of an “unbelievably complex tax system internationally. If you earn the money in a particular country, the revenue service of that country needs to get a fair share,” he said.

The European Commission is currently investigating the internet giant Amazon, over its agreements with the Luxembourg tax authorities.

The UK government is also in the process of introducing the Diverted Profit Tax, announced by the chancellor, George Osborne in the Autumn Statement.

The tax aims to counter the use of “aggressive tax planning techniques” to divert profits from the UK to low tax jurisdictions.

Profits made after 1 April 2015, and diverted to other countries, will be taxed at 25%.

HMRC Tax Crackdown Yields Record Additional Tax

HMRC Crackdown Yields Record £23.9bn in Additional Tax
The government has raised a record £23.9bn in additional tax for the year to the end of March as a result of a crackdown on tax avoidance. HM Revenue and Customs (HMRC) said it had secured the money – the highest amount since records began – as a result of its investigations.

The figure is almost £1bn higher than the target set by Chancellor George Osborne in the Autumn Statement.

The extra money raised is in addition to regular tax receipts.

HMRC credited “increased activity” on unpaid tax for the figure. “HMRC will pursue those seeking to avoid their responsibilities and will collect the taxes that are due,” said Treasury minister David Gauke. “The government is determined to tackle the minority that seek to avoid paying the taxes they owe,” he added.

HMRC said that of the total amount it had raised, more than £8bn came from large businesses, £1bn from criminals and £2.7bn from tackling avoidance schemes in courts.

In total, HMRC has said it expects to secure £100bn between May 2010 and March 2015 as a result of its investigations into unpaid tax. The “tax gap” – the difference between the amount of tax due and that collected – was 7% for the 2011-2012 financial year, the most recent figure available.