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.
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: