Archives For Chas Roy-Chowdhury

By Steve Rudaini, PR manager, ACCA

This is ACCA’s response to the UK Autumn Statement 2013:

The UK Economy

Manos Schizas, ACCA Senior Economic Analyst, said: “Unlike previous Budgets and Autumn Statements, or PBRs, this Statement is aimed squarely at high-street businesses with plans for slow, steady or no growth. There is an irony in how talk of ‘rebalancing’ the UK economy has disappeared now. Growth is now once again meant to be fuelled by consumption, retail spending, and housing rather than by investment.”

Sarah Hathaway, head of ACCA UK, said: “Businesses, now more than ever, are looking for long-term, sustainable measures that extend beyond the term of Parliament or government. Quick fix, sugar-coated initiatives are not what the City and the wider UK business community are looking for and create uncertainty at a time when UK plc is looking to build on firmer ground. While many announcements in the Autumn Statement are favourable to businesses, their life span and breadth of impact will be critical for the economy. This sentiment is true for other government policies, for example apprenticeship funding, so that businesses have the foundations of both finance and skills in place to grow.

“The Bank of England has shown its understanding of businesses needs for certainty, first through its introduction of forward guidance and, just last week, its decision to make the Funding for Lending Scheme a business initiative rather than the home loan vehicle it had become. Businesses need that level of certainty about the long-term from the Treasury as well as from Threadneedle Street.”

Small and Medium Sized Business

Rosana Mirkovic, ACCA Head of SME Policy, said: “The Government has moved away from the previous focus of encouraging growth in the more dynamic SMEs towards supporting smaller enterprises through business rate inflation caps and a further promise of reforms on this front in 2017. Various measures announced for supporting the bricks-and-mortar high-street businesses show a welcome move back to supporting the smallest and micro businesses. However, braver decisions could have been made – business rates reform has been put off for 2017, when it is clear from previous, recent budgets that the system was just not designed to take spikes in inflation into account.

“Reducing National Insurance contributions for young people could help small businesses, however, whether this is aimed at helping SMEs or get young people off benefits is an important distinction. SMEs in the UK are calling for a more skilled workforce, not an unskilled one.”

Taxation and State Retirement Age

Chas Roy-Chowdhury, ACCA’s Head of Taxation, said: “Families across Britain will need to look in detail at what the Autumn Statement means for them. The married persons tax allowance is a welcome move in principle, but not everyone benefits. In having an allowance restricted to those who are basic rate taxpayers creates an even more complex tax regime as well as confusion around couples who eventually become higher rate taxpayers. It should be possible for all taxpayers living with a partner to benefit from the allowance.

“There is logic in the government increasing the state retirement age to 68 by the mid-2030s, as people live longer, but at the same time families looking to save for retirement are being penalised. The annual pension contribution limit is set to drop from £50K to £40K and the total value of the pot people can have will also drop by quarter of a million pounds from next April, so those trying to be frugal and not be dependent on the state are being squeezed.

“ACCA welcomes the decision to exempt HMRC from further budget cuts. It is vital that it is properly resourced to keep the tax system running, and help give staff the promised crackdown on those who try to evade or exploit that system. However, ‘no further cuts’ actually means cuts in real terms, making life difficult for HMRC. The Government wants to tighten tax collection, but it needs to invest in HMRC to achieve it.”

The key points from the Autumn Statement can be found here

The live tweets from ACCA can be found at @ACCATaxation @ACCA_SME @ACCA_UK and @ACCANews

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Chas Roy-Chowdhury-14

By Chas Roy-Chowdhury, head of taxation, ACCA

The news about the proposed Financial Transaction Tax, for the 11 EU member states that have signed up to adopt it under the procedure of “enhanced cooperation”, being potentially illegal, has created a lot of debate.

The tax, although to make sure that the financial sector makes a fair and substantial contribution to public finances and pays back at least part of what the European taxpayers had to  pre-finance during bank rescue operations, could have quite the opposite effect.

The legislative proposal – should it ever come into effect, as  the timeline foreseen for adoption of this controversial proposal by 2014 is not likely to be met – suggests to levy the tax on all financial transactions, provided that one of the parties is domiciled in one of the 11 participating countries. If one of the parties concerned is outside the FTT system, the taxing country – an FTT participant – would collect the tax to be paid by the institution as well as the tax paid on its own territory. The result could be that member states willing to adopt the measure will essentially be limiting their trade with countries which have not adopted it

A global approach needs to be agreed on to implement some form of FTT that would work for all, and help economic recovery by encouraging global trade.

The tax in its current form, as proposed by the European Commission, , while up to each participating country, would need to be tightly ring-fenced to be within their own territories and not extra-territorially as currently proposed, otherwise, according to the Council’s legal service opinion dating 6 September, this situation would be “discriminatory” in certain respects, and could result in “a distortion of capital movements” as well as in the unjustified exercise by participating countries of their jurisdiction “over entities outside the area concerned by the legislation.

In addition, the FTT as it stands, could risk being footed by the consumer rather than the banks it was intended to levy.

In a Financial Times article last week, it came up with some points on the legal debate of the implications in introducing an FTT:

  1. This is an unusually clear, blunt and damning legal opinion on a flagship European Commission proposal. Most Council legal service opinions are a model of equivocation. To be as forthright as this, the service needs to be absolutely confident about the legal argument, or enjoy a permissive political backdrop to make the case (i.e. important finance ministries either agree or are not displeased to see the opinion published).
  2. It is non-binding. This is not formally the end of the FTT — the talks go on. The Commission legal service completely disagrees with the Council’s viewpoint and will likely respond. Such differences are not unusual, far from it. What is rare is for the differences to be put to paper so starkly. This is not a happy moment for the Commission, especially given the political capital it spent on promoting this proposal.
  3. The politics was already moving against the most ambitious models for a Eurozone FTT. Many of the 11 euro area states looking to agree an FTT have been public about their reservations — France, Italy, Spain and (to a degree) even Germany. This opinion will likely accelerate the process of scaling back the original Commission proposal. That applies to its reach beyond the Eurozone, the range of transactions it covers and the rate that is applied.
  4. This may well be the death-knell for the so-called “residence principle”. This Commission-designed provision basically meant that financial institutions were taxed according to where their headquarters are based, rather than where the trade is executed. It was the crucial anti-avoidance provision that meant the FTT covered trades in London, Singapore and New York. The Council legal service basically argues that one of the core parts of that provision is unlawful because of its impact on states outside the FTT zone.
  5. An FTT could still emerge, albeit in far less ambitious form. The legal attack on the residence principle naturally gives a boost to those countries that are happier to see a stamp duty style tax. That imposes a levy depending on where the instruments are issued, rather than where the people trading it are based. The trouble is that it is much harder to design a stamp duty for derivatives — the instruments the FTT was primarily intended to target.
  6. This is a big win for the UK, which has long been making the case that the FTT is illegal and extraterritorial. That said, the legal challenge lodged by the UK strictly addressed a different issue — the process by which the 11 Eurozone states decided to move ahead as a vanguard to agree a tax that other EU states rejected. Nevertheless it is almost certain that the UK would sue over the residence principle as well, if it ever emerged in practice.

This tax was always going to be difficult to agree and implement. The Commission will now have to present solid arguments to member states and may potentially have to narrow the scope of its proposal. FTT should ideally only be implemented after global agreement otherwise it may cause those member states adopting the tax to lose financial sector businesses and jobs. In addition the Commissions own calculations showed that if FTT were introduced across the EU it would reduce growth by 0.3%. If such a growth reduction were to occur across only eleven member states then the negative growth could be even greater for the adopters.

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By Chas Roy-Chowdhury, head of taxation, ACCA

I gave evidence to the House of Lords Select Committee on Economic Affairs recently about corporation tax and how revenue is now being secured from companies through other means.

The bigger picture needs to be looked at when it comes to how corporations are taxed in the UK. There are other and additional ways by which companies in the UK are taxed, for example through VAT and through National Insurance Contributions (NICs).

A publication produced by the Office of National Statistics back in March, shows VAT numbers have held up remarkably well since the economic downturn because, the VAT rate has gone up to 20 per cent. That is probably what we need to look at in terms of the basket of taxes that we have moved towards—those companies that we know are going to be tied into the UK rather than those that can look at different locations to do business that are more favourable for them, taking tax as one of the factors and one of the components that they look at.

The fundamental problem is that large companies are by nature multinational – their shareholders, activities and customers are spread across the world – whilst national governments are not.

There is a tax chasm between what governments seek to capture by way of corporation tax and what companies, many of which are global in terms of their shareholders, activities and customers, generate in terms of global profits.

In practice, existing rules are highly complex and differences between countries can be exploited well within the law. HMRC has adapted to this and is not sitting on its laurels as some other Parliamentary committees have suggested. They are quick and effective and have developed a greater understanding of how companies work. The majority of corporations go through the tax process with ease. HMRC has achieved this despite declining resources.

ACCA wants to see tax simplicity. But that’s a big ask. Adam Smith’s four principles of what makes a good tax system – proportionality, transparency, convenience, and efficiency – still stand centuries later. I don’t think we’re near this and I also think we are in danger of losing trust in the tax system.

The House of Lords Economic Affairs Committee also raised the issue of naming and shaming those who have promoted aggressive tax avoidance or tax evasion schemes.

ACCA believes if naming and shaming is going to be introduced for tax avoidance, which is legal, the bar needs to be set very high. The complexity of the tax system means there is a risk that mis-interpretation could result in naming and shaming of a tax adviser; this could result in severe reputational damage.

We have long been calling for greater regulation of tax advice. While ACCA and other accountancy bodies have strict regulation and standards, anyone can set up and offer tax advice without those safeguards in place.

There’s no denying that all this is a very tricky and complex situation. But it is heartening to see that the issue is being discussed at international level, from the EU, to the US; and of course the G8 will be looking at the avoidance/evasion debate in June when it meets in Ireland.

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By Chas Roy-Chowdhury, head of taxation, ACCA

Well that’s it for the fourth Budget of the Coalition Government, and what a bore it was.

There wasn’t really any surprises, partly down to the leak from the Evening Standard less than one hour before George Osborne began his Budget speech.

I can’t help but feel that this Budget was very bland and that more could have been done to boost the economy.

The Chancellor of the Exchequer should have considered a temporary cut to the basic rate of income tax to 15 per cent for one year, instead of leaving it at 20 per cent, as people would have more money to spend and it would help revive the economy.

At a time when the economy is stalling, it needs a genuine boost. Cutting the basic rate to 15 per cent until 5 April 2014 would have been a brave move, but would help working families across the UK. Under today’s proposals they, and many others, will not notice any difference. A temporary tax cut seems drastic but these are exceptional circumstances.

The other “highlights” of the Budget was the personal allowance increase. On the face of it, looks good, but it will only benefit the population who are currently 20 per cent taxpayers, of which there are fewer and fewer. By dropping the threshold for the 40 per cent income tax bracket, many hardworking people who will begin paying 40 per cent for the first time will not just lose the benefits of the increased personal allowance they will actually need to pay additional tax on such things as savings and dividends because of the way the UK system taxes the top slice of income.

On the issue of tax avoidance – while it is no surprise the Chancellor went after it, he will always be treading a fine line between collecting tax and denting the UK’s appeal as a business-friendly economy – an essential requirement for our recovery.

A tougher looking tax avoidance regime might look good to the public, but while the Chancellor has been making noises about a global effort to crackdown on tax avoidance, unilateral measures such as GAAR, risk diverting businesses currently in or looking to move to the UK into the arms of other markets. The question will be whether other business-friendly tax initiatives, such as the patent box and the lower corporation tax rate will help the UK remain appealing. Some evidence would suggest the rot is already setting in.

The Chancellor mentioned that those who actively promote tax avoidance will be named and shamed. ACCA has always said that a ‘loose’ name and shame approach to tax avoidance is counterproductive. Tax avoidance is not illegal. Naming and shaming can penalise individuals and business reputations when they have not broken the law. There is also an issue over where you draw the line There isn’t a clear cliff edge between what you could say is acceptable tax planning and what is unacceptable tax avoidance. There is difficulty in terms of when name and shame becomes appropriate. Is it something that is linked to the amount of tax that isn’t paid, or the way tax is avoided?

There is always the risk with any name and shame approach that it becomes disproportionate and that companies promoting perfectly acceptable financial planning initiatives are severely punished when they have operated within the mainstream rules.

We hope that the Government has looked in more detail at the PAC’s proposals and will consider naming and shaming only when there is repeated, heavy use by individuals of tax avoidance initiatives. A quicker and wider review of the tax system needs to be considered, than what the Office of Tax Simplification (OTS) is currently resourced to implement, with a view to radical simplification.

On families and tax credit – the downside of this initiative is that it is a 20 per cent tax credit, when a full payment subsidy of £1,200 would be a much more beneficial vehicle for many young families struggling to meet childcare costs, which are notoriously expensive. The nature of a tax credit means that where a family is forking out thousands of pounds a year, it is the “carer” that will receive the complicated tax credit. If the Government is prepared to pay up to £2,400 for two children there is no reason why they cannot give it to families as a subsidy, irrespective of the amount they actually pay for the care. A one-child family with two working parents would hugely benefit from the extra funds.

Should one parent lose their job or decide for the benefit of their child or children that they wish to stay at home, the loss of this credit will be felt.

And then we turn to fuel duty – ACCA predicted the rise in fuel duty would be scrapped. That will be welcomed by households as well as businesses in the UK. ACCA’s Drivers for Change survey report showed that UK businesses identified fuel costs as a major short term challenge, so this may give them respite.

So is this a Budget for an “aspiration nation”, and for hardworking families? Time will tell…

Don’t forget to have a look at our coverage of the Budget as it happened here

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By Chas Roy-Chowdhury, head of taxation, ACCA

As the 2013 UK Budget approaches next week, ACCA called for the Chancellor of the Exchequer to use the Budget to increase the personal allowance threshold further than planned, without decreasing the level at which the 40 per cent tax band bites.

From 6 April this year, those turning 65 years old will no longer benefit from the higher personal allowance pensioners receive, which means some pensioners, who fall into the new 40 per cent tax bracket because of income from savings, dividends and part-time work, will be bitten by their tax bill.

This is a classic example of giving with one hand and taking with the other. It looks good for the Government to say that they are extending the personal allowance, but it is only true for the ever-shrinking population of 20 per cent taxpayers. By dropping the threshold for the 40 per cent income tax bracket, many hardworking people who will begin paying 40 per cent for the first time will lose the benefits of the increased personal allowance and they will need to pay additional tax on such things as savings and dividend income.

This is no longer the 1980s where only a small number paid the 40 per cent income tax. Many people who are working but struggling at the lower end of that bracket will not get much respite from an increase in the personal allowance. The Chancellor of the Exchequer should use the Budget on 20 March to give taxpayers a much-needed boost and raise the personal allowance for all income tax rates otherwise it is being less than honest.

Thirty years ago only five per cent of workers paid the 40 per cent tax rate – this has now more than doubled to more than 15 per cent today, which means more people will be affected by this change, even if their salaries do not sit comfortably in that threshold i.e. are on the borderline.

Is it fair to do this to pensioners who have paid their taxes throughout their working lives, only to penalise them for saving some of their pay for later in life?

It will be interesting to see how the Budget pans out and how the general public react to it as I believe it will be challenging times ahead.

Don’t forget to follow our Twitterfeeds for live coverage and comment on the Budget as it is announced on Wednesday 20 March from 12.30pm.

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