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Six things I didn’t learn from the Budget

26th Mar 2012
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Simon Sweetman takes a look back at Budget 2012 and outlines six things the profession didn’t learn from the Chancellor's speech and published documentation.


2.207 Personal service companies and IR35 – The Government will introduce a package of measures to tackle avoidance through the use of personal service companies and to make the IR35 legislation easier to understand for those who are genuinely in business. This will include:

  • strengthening up specialist compliance teams to tackle avoidance of employment income
  • simplifying the way IR35 is administered
  • subject to consultation, requiring office holders/controlling persons who are integral to the running of an organisation to have PAYE and NICs deducted at source by the organisation by which they are engaged. (Finance Bill 2013)

Now this has obviously been inspired by the student loans agency, etc. saga of payments to companies by government departments. What they should do is to make it clear to government departments that they cannot do this sort of thing.

I have tried to understand what it says. The “organisation” here should be what in IR35 terms we would call the end client, and this would of course change the emphasis completely (and make everything really complicated). But I don’t think it is because those organisations will not have “controlling persons”. However I think the term “organisation” may be being used for both ends of the deal here (since the “engaging” organisation is not obviously the organisation in which X is an office-holder or controlling person), but it is not clear! In which case, it will make IR35 that much trickier and in need of serious reform.

Taxing child benefit

The child benefit approach is interesting in that it will presumably require the £50k+ earner to declare income which does not usually belong to him and which he may have no right to know about. That means more tax returns, as well.


It will be interesting to see how the CGT charge on non-resident non-natural persons is going to be collected (some kind of taxation at source, perhaps, but what if buyer and seller are both non-resident?)

The 50% rate

The 50% rate “failed”. But the major avoidance device was to accelerate income into the previous year, which of course would not have worked in subsequent years. The argument that it failed to collect the expected tax is entirely mendacious.

Cap on excessive reliefs

2.40 Cap on unlimited reliefs – The Government will, from 6 April 2013, introduce a new cap on income tax reliefs to ensure that those on higher incomes cannot use income tax reliefs excessively. For anyone seeking to claim more than £50,000 of relief, a cap will be set at 25% of income (or £50,000, whichever is greater)

But does that include loss relief (either carried forward or offset) for ordinary traders?  It does say all income tax reliefs earlier in the statement and then backtracks slightly about charitable donations.

OTS reports

Apart from the somewhat unfriendly approach to the age related allowance, for which it seems to get the blame, the OTS interim report on pensioners appears to go unnoticed.

What happens next?

AccountingWEB Budget 2012 resources - sponsored by Sage:


Replies (7)

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Time for change
By Time for change
26th Mar 2012 16:17


George Osborne have any comprehension about, what the word SIMPLIFICATION, really means!


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Chris M
By mr. mischief
26th Mar 2012 20:32

it's a bad joke

Before Osborne who was the last Chancellor who came to office with a massive fanfare about tax simplification?

Step forward Gordy Brown - who went on to treble or quadruple the UK tax code depending on which measure you use.

Osborne is on track to match this even if the rest of his budget was a total mess!



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By Rose1962
27th Mar 2012 09:36

50% rate HOW CAN THEY POSSIBLY KNOW much income was accelerated into 09-10 ? Agree the argument was rubbish.

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By justsotax
28th Mar 2012 01:23

Worse still they are also

depending on those 'honest' 1% of the highest paid to stop avoiding tax as a result of the lower tax rate.


Even my lowly basic rate taxpaying clients don't want to pay more tax if they can help what hope those who spend £1,000s on tax specialists to reduce their tax....

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By dwgw
30th Mar 2012 11:54

Lower tax rates don't end tax avoidance

I've seen enough clients willing to undertake schemes to avoid 10% CGT to know that there is no positive rate of tax that people won't seek to avoid.

It amuses me that a 50% rate is spoken of by some as though it were apocalyptically high when 60% was the top rate for many years only a generation ago.  And that was a welcome reduction from the still higher rates that prevailed not long before that!

Mendacious is a precisely chosen word by Simon to describe some of these arguments.  

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Replying to mrme89:
By ThornyIssues
30th Mar 2012 13:23

Taxation rates and evasion

dwgw wrote:

I've seen enough clients willing to undertake schemes to avoid 10% CGT to know that there is no positive rate of tax that people won't seek to avoid.

Firsly, let us all remember that avoidance is perfectly legal and legitimate, so we are really talking about evasion here.

While this is of course true, one only has to look carefully at those eastern european states who introduced flat rate taxation of around 18% (from marginal rates not too dissimilar to that of the UK) and notice that they are reporting a much improved total tax take as a result. What one can't know is just how widespread wholesale evasion was, prior to the flat rate introduction. What is also clear is that telling people accurately and honestly where their tax money is being spent, also seems to reduce evasion. 

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By dwgw
30th Mar 2012 13:44

No, I'm talking about avoidance

I certainly wasn't suggesting there was any evasion - I was helping those clients with their tax avoidance!  My point was that, human nature sadly being what it is (greedy), I don't believe a reduction in tax rates necessarily makes people less inclined to avoid tax if they can.  The new, lower rate becomes settled and, before long (or when the tax bill is looming), many will still seek to avoid it.  That will be so for a 45% rate and would be at lower rates still.

Arguments for flat rate tax are not entirely dissimilar to flat earth arguments for me - backwards.  I believe progressive taxation is just and equitable in a civilised society.  I'm sure a low, flat rate does raise the tax take in jurisdictions where tax evasion is widespread and the enforcement of tax collection is lax.  That doesn't make it a model for advanced western economies to follow.

I agree wholeheartedly that we in the west are crying out for a mature debate about tax and public spending, neither of which is inherently bad as the frothier commentators on the right would have us believe.     

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