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PBR: At a glance guide. By Nichola Ross Martin

9th Oct 2006
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Rates and allowances
2007/08 income tax allowances increased inline with inflation (the personal allowance increases by £190 to £5,225).

There are no changes to income tax rates.
For national insurance (NI) purposes, earnings limits increased likewise, and there are no changes in NI rates.

Tax administration
No changes to filing dates, other than those announced, and modified from Lord Carter's review last year. For SA this means that paper returns for 2007/08 will have to be filed by 31st October 2008 and on-line by 31st January 2009.

For CTSA the enquiry window will be aligned with the actual date of filing from 2008. HMRC are to continue following Lord Carter's recommendations in relation to on-line services. Company filing will be aligned with companies house requirements by 2010. Aligning filing dates

TAAR - Targeted anti-avoidance rules for CGT
Schemes designed to enable individuals, trustees and personal representatives to gain a tax advantage from contrived capital losses will be closed with effect from 6th December 2006. The thin end of a GAAR?

Increased national minimum wage enforcement.

Construction industry scheme (CIS)
The legislation to bring in the new CIS scheme was laid in Parliament (just after the PBR). The new scheme will have a standard deduction rate of 20 per cent. Unregistered sub-contractors will be subject to a higher deduction rate of 30 per cent.

No changes in tax rates.
Improved and faster clearance procedures.
Small companies given assistance in retaining trademarks.
HMRC are to continue to review "moderisation" of tax motivated incorporations.

Crackdown on managed service companies (MSC)
Income received by workers in MSCs in relation to services provided through the MSC will be subject to employed levels of tax and NICs. The MSC obliged to operate PAYE and deduct tax and Class 1 NICs on that income - and the rules for tax relief for travel expenses will be the same as for other employed workers. The problem of MSCs escaping payment of tax and NICs due will be addressed by allowing the recovery of these debts from appropriate third parties.

HMRC estimates that there are 150 MSC scheme providers in the healthcare, construction, IT, comms and engineering industries, this measure will affect tens of thousands of employees.

IR35 remains in place for Personal Service Companies.

The draft legislation and questions for consultation are set out in a consultation document “Tackling Managed Service Companies” which will be released in January 2007.

Disclosure Regime - tackling non-compliance
The Government will consult on a new power to investigate a scheme where there are reasonable grounds to believe that a promoter has failed to comply with its statutory disclosure obligations. HMRC will publish a consultation document later this month.

Controlled foreign company (CFC) rules
Under amendments following the European Court of Justice Cadbury Schweppes ruling, companies will be able to ask HMRC to disregard profits arising from genuine business activities in other EU member states. The public quotation exemption has been repealed to target a specific CFC avoidance scheme.

International accounting standards
New legislation for companies involved in securitisation.

Six-Year Limitation Period for all Direct Tax Claims
New legislation is planned to ensure that the limitation period for the recovery of direct tax paid by mistake of law is six years from the date of payment. This is to ensure consistency with the limitation period for making claims in respect of direct taxes paid under assessment as a result of a mistake in a tax return, as specified in section 33 Taxes Management Act 1970 and paragraph 51 schedule 18 Finance Act 1998.

The provision will have retrospective effect, but will not disturb the entitlement of those who have secured what amounts to a final judgment in their favour prior to 6 December 2006.

Stamp Duty Land Tax
Measures to counter avoidance of stamp duty land tax came into force from 2pm on 6th December 2006. These will make ineffective a number of schemes involving the use of leases, partnerships and sub-sales, that are currently being exploited in an attempt to avoid paying stamp duty land tax.

VAT - Partial Exemption 'Special Method'
Changes will be made to the VAT partial exemption regime with effect from 1 April 2007. Businesses will be required to declare the suitability of their proposed 'special method', for the calculation of VAT liability, before it is approved by HMRC.

VAT-transfers of going concern
Tightening up of record keeping and retention by buyer and seller.

Missing Trader Intra-Community Fraud
Extra staff and a new strategy

Landlord’s energy saving allowance
Changes from 5th April 2007: availability of the allowance extended until 2015. Qualifying expenditure will include floor insulation. The present cap will be £1,500 per property, rather than per building. The allowance will be available to corporate landlords.

Changes to the conditions which must be met before a company or group converts to a UK-REIT to allow newly established companies easier conversion. Major change is that it need not have its shares actually listed when notice is given, and changes to the asset test.

Savings and investments
New rules for merging Peps into ISAs, and likewise child trust funds. Confirmed ISAs will remain past 2010.

Alternatively secured pensions(ASP)
The rules on ASPs are to be tightened by introducing a minimum income requirement, setting a higher maximum income and imposing an unauthorised payments charge where ASP funds remaining on the death of a member are transferred to pension funds of other members in the scheme.

Film relief
Section 42 relief for films is extended until 31 December 2006. The new film tax relief will commence from 1 January 2007.

Tax treatment of home microgeneration
Householders who have invested in microgeneration technology and will be exempt from tax on receipts from energy suppliers for sale of surplus power back to the mains grid.

Sir Digby Jones appointed as skills envoy.

Pledges to ensure that by 2010 90% of adults reach at least the equivalent of 5 GCSEs and 4 million achieve A-level equivalent skills.

New 'earn to learn' programme for people to gain graduate qualifications whilst still working part time.


Replies (13)

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By Simon Sweetman
12th Dec 2006 16:49

IR35 ?
It would appear that a significant problem about trying to use IR35 is that the companies in question have no assets to pay the tax and go straight into liquidation - then phoenixing and popping up somewheer else.

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By mikewhit
12th Dec 2006 14:05

Baby / bathwater
Yes Simon, but what about those using MSCs who are NOT vulnerable/low-paid, and are using MSCs as a means of outsourcing the running of a LtdCo which might be required for legislative reasons (e.g. agencies' reluctance to deal with individuals due to PAYE liability).

Surely an application of IR35 to the MSC would weed out disguised employment without having to take the whole thing down to the lowest common denominator ?

Sounds like the selfish boy breaking his toy so that no-one else could play with it !

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By sjn01
07th Dec 2006 10:56

HM Treasury Document
Hi Paul

Have a look at the following link - I think this might be what you are looking for.



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By NeilW
07th Dec 2006 13:32

Tax vs Employment
The easiest way to deal with the MSC problem is to make disguised employers responsible for their disguised employees - in all forms.

Quite why the government won't fix employment law so that no amount of intermediary structure between the master and the servant will stop employment happening, and then make tax law follow employment law. Problem solved.

Or is it just another case of never doing something simple when there is a more complex and trickier alternative?


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By User deleted
07th Dec 2006 15:15

This is exactly the conclusion that I have come to and most of these contractors would much rather be employed.

The small print in all this will be a bit of a gas, because the whole thing is bound to "widely drafted" and so it will affect those it should not affect too.

More rules! I do not know why I complain - more rules mean more writing...

Nichola Ross Martin
Editor, AccountingWEB

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By AnonymousUser
07th Dec 2006 15:54

Thanks Sandra

Why this doesn't appear on HMTs PBR microsite, or HMRCs PBR section, I don't know.

Still, yesterday night (after the PBR) HMRC didn't even seem to have a PBR section.

Don't know what sort of monkeys these departments employ but its worrying. Still awaithg a call back from HMT Public Enquiries who I phoned at 10am this morning to ask where the document was.

Ho Hum


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By steveoneill
07th Dec 2006 17:13

Target the providers
Yes underlying anti-avoidance rules need to be in place, but would it not be simpler to go after the 150 or so major MSC suppliers. The POCA 2003 S327-329 which are the principal offences are;-

327 Concealing
328 Arranging
329 Acquistion

could easily be tailored to the action of even devising a scheme. Taking a fee from an action that they know is being used in a tax evasion scheme is a proceed of crime.

To make an even stronger case these are company service providers, (forming companies, managing them, providing service address etc) and are clearly under the ML regulations 2003. It gets stronger in the implimentation of the 3rd Directive as employment agencies are clearly mentioned in the proposed legislative changes and will be bought into the regulated sector, especially under the clause "anybody aiding a person to become a company director".

The use of alternative professionals was one of the reasons accountants were placed in the ML regeime, it would nice if we actually
saw some positive results from this by the Government.

If you want to see a MSC provider try, we believe they are managing anywhere upto 10,000 companies.

Steve O'Neill
Business Tax Centre

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By NeilW
07th Dec 2006 18:49

Not MSCs
MSCs aren't the problem. Clients wanting to avoid employment taxes is the issue.

The providers that are there are there because there is a market. So fix the problem not the symptoms.

As I mentioned on the specific report -the simplest solution here is to eliminate the agency legislation and intermediaries legislation and replace the lot with a simple rule that no amount of structure between a master and a servant will prevent a master servant relationship arising if the facts point to that, nor will it prevent the master from being ultimately responsible for the employment taxes and operation of the social security benefits for a servant. (ie a simple 'duck' test for employment - disregarding all other structures).

Add this to another simple rule that states that an indemnity for employment taxes and benefits on either a servant or any entity associated with a servant is unenforceable.

Contract law indemnities then take care of the rest of the chain if the client so insists.

Why wouldn't this work? Client either makes the relationship non-employment (avoiding the entire issue), or the contract chain is responsible from top to bottom for the employment taxes. HMRC goes after the biggest fish and leaves contract law to sort out the rest of the responsibilities.

MSCs can still manage if there continues to be a market - because as it says in the report employment for tax purposes doesn't necessarily follow employment for employment law purposes.

Of course government could fix that by having employment law follow the tax reponsibility - but somehow I don't think this lot have the guts for that.

Labour market flexibility has to come from proper sub-contracted relationships - not from disguised employment.


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By mikewhit
07th Dec 2006 23:29

Who pays for employment
But if all contract workers in MSCs are converted into employees, who pays their wages if the worker is out of work between contracts ? Are contract workers who have to work around the country going to pay for their travel and accommodation out of their own salary - because the employer can't do that for them out of pretax earnings except on a temporary basis, AFAIK.

The extra costs associated with employment would have to be borne by the clients, who surely were only taking on temporary workers to fill a short-term need.

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By AnonymousUser
08th Dec 2006 09:21

does anyone have a link to the draft cis legislation confirming the new rates?

many thanks

Paul O'Connor
Goldblatt McGuigan

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By mikewhit
13th Dec 2006 15:01

Inability to phoenix
"then phoenixing and popping up somewhere else"

The DTI seems to use disqualification increasingly, following liquidation in contentious circumstances, especially where HMRC are creditors - I would have thought the directors concerned would have been taken out of the picture for a few years ?

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By Simon Sweetman
08th Dec 2006 14:37

exploitation ?
One of the problems with MSCs is their use to "employ" groups of low paid and vulnerable workers (this is where the healthcare sector comes in) and pay them in dividends, so avoiding NIC and - possibly - minimum wage as well. In this case there is no real choice for the workers.

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By AnonymousUser
07th Dec 2006 10:25

Managed Service Companies

PN03 refers to "The draft legislation and questions for consultation are set out in the consultation document Tackling Managed Service Companies, published alongside the Pre-Budget Report today."

(emphasis on today (which was yesterday)).

You are suggesting the consultation document is to be published in January?

I cannot see any links to consultation document on HMRC or HMT www sites.

Any idea whether they've goofed on the PN by saying budget day?

Paul Garbett

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