Weekly Tax Update - July 27, 2015

1 General news

1.1 OTS to report on closer alignment of income tax and NIC

The Government has requested the Office of Tax Simplification (OTS) to undertake a study on the closer alignment of income tax and National Insurance contributions. The OTS will report before the Budget next year.

This requested report has been trailed in the national press as a potential merger of the two systems, which would be a radical and exciting development. This does, however, seem to overstate the intention behind the exercise.

The OTS will be reviewing the costs and benefits of closer alignment, looking at the case for change, including the burdens and distortions of the present system. It is also specifically looking at bringing the two systems closer together in relation to earned income for employees and employer and the self-employed. This could have very significant implications, particularly for the self-employed, including partners in partnerships and members of LLPs, as the overall NIC rate they pay is significantly lower than that paid on behalf of employees by their employers and the employees themselves.

It will not be looking at any extension of NIC; for example to dividends, property income or pensions.

www.gov.uk/government/publications/ots-review-of-income-tax-and-national-insurance-tor

1.2 HMRC response to withdrawal of extra statutory concessions

HMRC proposed in October 2014 to withdraw three extra statutory concessions (ESCs) following the House of Lords decision in the Wilkinson case (R v IRC ex parte Wilkinson [2005] UKHL 30).

These were:

professional remuneration administrative practice (the concession that allows professional practitioners to treated incidental income from an office or employment as trading income for tax purposes); (tax-free) sports testimonials; and roll-over on depreciating assets. (This ESC ensures a CGT charge does not arise where roll-over relief has been claimed and the claimant later dies). Following the responses received, the action HMRC will take is as follows:

Professional remuneration administrative practice: HMRC is going to consult more widely in the coming months and will consider mitigation options for affected groups.

Sports testimonials: the Government has, in fact, already announced a further consultation as reported in our Update of 13 July 2015.

www.gov.uk/government/uploads/system/uploads/attachment_data/file/442892/Tax_Treatment_of_Income_from_Sporting_Testimonials_-_Proposals_for_Legislation.p...