Tax Update - 26 July 2010

1. General news

   1.1. Report on June 2010 Budget

   The House of Commons Treasury Committee report on the June 2010 Budget is available at: www.publications.parliament.uk/pa/cm201011/cmselect/cmtreasy/350/350.pdf

   The main conclusion is:

   "The Chancellor told us that he had built a degree of caution into the fiscal mandate by seeking to achieve it a year early. We welcome this as a signal that if economic conditions demand it he may be prepared to take measures to stimulate the economy, even if these delay the current plans for cutting the deficit."

   In relation to business aspects, there was a commitment to examine problems faced by SME's in raising credit, a commitment to consider the impact of the proposed bank levy (currently subject to consultation) and other proposed changes in the UK and international regulatory system, and an expression of encouragement for the Chancellor's willingness to reconsider the effect of his proposals in encouraging existing and potential share ownership schemes.

   1.2. Autumn Finance Bill: an informal consultation

   The Government has published draft legislation on technical tax measures, inherited from the previous administration, that are to be legislated in a Finance Bill to be introduced to Parliament in the autumn. Each document published (of which there are 32 in total) contains both the draft legislation and explanatory notes.

   Comments are welcomed with details of the relevant HMRC contacts provided within each document. The consultation period closes on 3 September 2010.

   www.hm-treasury.gov.uk/finance_bill_autumn_consult.htm .

   1.3. Office of Tax Simplification

   The Chancellor and Exchequer Secretary have launched the Office of Tax Simplification to provide the Government with independent advice on simplifying the UK tax system. The Office has been established as an independent Office of the Treasury and should draw together expertise from across the tax and legal professions, the business community and other interested parties. Rt Hon Michael Jack and John Whiting have been appointed to lead the Office on an interim basis.

   The Chancellor has initially asked the Office to take forward two reviews, which cover tax reliefs and small business tax simplification (including IR35).

   Tax Reliefs Review: terms of reference: The Office has been commissioned to review a list of all reliefs, allowances and exemptions within the taxes and duties administered by HMRC and identify those reliefs that should be repealed or simplified to support the Government's objective for a simpler tax system. The Government is particularly interested in identifying reliefs that are largely historic, not frequently used, create distortions in the tax system or are complex for business or HMRC to administer. The Office has been asked to produce an interim report by late autumn 2010 and a final report with recommendations to the Chancellor ahead of Budget 2011.

   Small Business Tax Simplification Review, including IR35: terms of reference: The Office is to provide an initial report to the Chancellor by Budget 2011 that identifies areas of the tax system that cause the most day-to-day complexity and uncertainty for small businesses and recommends priority areas for simplification. Once the Government has considered the initial report the Office will be asked to produce specific recommendations on tax simplification for small businesses. As part of the initial report, the Office will also explore alternative legislative approaches to IR35. IR35 (the intermediaries legislation) is legislation introduced in 2000 to counter avoidance of tax on employment income where workers receive payments from a client via an intermediary (usually a personal service company) and the relationship between the worker and the client would otherwise be one of employment.

   Chancellor George Osborne said:

   "The previous Government took a complex tax system and made it even worse. A decade of meddling and intervening has made the tax affairs of millions of families and businesses across the UK extremely complicated. We need to sort out this mess.

   "Two years ago I promised to create the Office of Tax Simplification. Today, we're delivering on that promise. With its independent, expert advice it will be a permanent force for a simpler tax system.

   "Simpler, more competitive taxes will help us show the world that Britain is open for business."

   The Rt Hon Michael Jack, the Chair of the OTS, said:

   "Entrepreneurship should never be stifled because of an overly complex tax system. That's why I am delighted that the Government have committed themselves to looking at ways to simplify the tax system, with an initial focus on...