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AJ

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The Chancellor’s first Budget of this Parliament

The Chancellor delivers his first Budget of the new Government on 8 July. What would I like to see, and what do I expect to see?

The first Budget of a new administration is often technically-detailed, and may contain bad news so as to get it out of the way as soon as possible. But with the Budget so close to the General Election, I doubt that the Chancellor will have had time for too many changes – we’ll have to wait until the Autumn Statement and Spring 2016 Budget for that.

What would I like to see? I’d like to see further encouragement to businesses, particularly SMEs and fast-growth companies. A promise to retain CGT Entrepreneurs’ Relief for the lifetime of this Parliament would be welcome, as would clarification on the rules concerning IHT Business Property Relief. I’d also like to see a replacement for the short-lived Patent Box regime, and further encouragement for investment in plant & machinery.

What do I expect to see? The Chancellor has already committed to not raising the rate of income tax or VAT, but there are other ways to raise taxes. These might include:

  • A continued focus on tax avoidance – A DEAD CERT
  • A new banking tax – I’m 50:50 on this – a year ago I would have said this was very likely, but with at least one major bank threatening to leave the UK I think it would be a risky move
  • A change to tax short term gains as income rather than as capital – LIKELY
  • Income tax higher rate threshold to be frozen – VERY LIKELY
  • More taxes on expensive properties – a Mansion Tax other than by name – LIKELY

We will have to wait and see, and I will be posting a full analysis after the Budget.

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I can sing a rainbow

The proposed “Enterprise Bill” announced in the Queen’s Speech, is at first glance, more than welcome. However, I couldn’t help but recall that childhood song that mentions all the colours of the rainbow – and more!

The colour alluded to in the proposed bill, is, of course, red. Specifically, that’s red tape. But how often have we heard this? For almost every one of the 30 years I have been advising SMEs, I have called for a simplification of the administrative burden on small and medium businesses. And in almost every Budget in that 30 years, there has been a promise to “cut red tape”. But if we go back to the days when I first studied tax, the legislation (the whole UK tax code) was in just two relatively slim volumes: one for direct taxes, and one for indirect taxes. Now it takes 8 books, printed in tiny font, on wafer thin paper, and several inches thick to contain all of the tax code. Granted, we live in a more complex world, with sophisticated tax planning that needs a framework to support it and to try and prevent abuse. But can red tape really be cut when that legislation has to be applied as equitably as possible?

Taking off my cynical hat, what does the Bill promise? It will include measures to reduce regulation on small businesses in a bid to boost job creation. It will seek to cut red tape for British business by at least £10bn and, for the first time, require independent regulators to contribute to that target. In addition, it proposes to create a new Small Business Conciliation Service, to help settle disputes between small and large businesses, especially over late payment practices. The government also aims to improve the business rates system ahead of the 2017 revaluation, including by modernising the appeals system. And it proposes to introduce a cap on public sector redundancy payments to six figures for the highest earners.

We will see…..

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DIY Budget – now I’ve seen it all

The 2014 Budget, which is due on 19 March, is the last real Budget before the next General Election. There will probably be a Budget in March 2015 and with the General Election due no later than June 2015, that Budget is not likely to contain very much in the way of content and will probably only set tax rates and allowances for the forthcoming year and, no doubt, a few election headline grabbing giveaways!

But the 2014 Budget is going to be interesting. Many are calling it a DIY Budget, as it has recently been announced that the government is to consult with the public as to what they’d like to see in the Budget. This is an interesting move, and no doubt fits the Prime Minister’s agenda of encouraging the people to have a real say. However, I can’t help but to make a comparison with the principle of hypothecation. This is the earmarking of specific taxes for particular causes. In other words, taxpayers would be able to say that they were happy to pay taxes for, say, education and health, but not towards more unpopular things such as defence and the Armed Forces. It is clear that in any democracy such a principle cannot work, as it would be an impossible task for any Chancellor to properly balance the books. Can you imagine the situation where some form of military intervention was announced, and half the tax payers refused to pay their tax that month as they disagreed with the fundamental principle. Anarchy would soon set in and the concept of an ordered and civilised society would no longer exist.

So hypothecation cannot and will not ever work. Equally, I cannot see how a DIY Budget can work. Granted, the tax profession has been asking for more opportunity to comment on proposals before they become law for a long time, and we are now in a far better position than we were even a few years ago. Much of the legislation is now announced in the Autumn Statement, with a draft Finance Bill being published for consultation before it becomes law some months later. But asking the people to say what they would like to see in the Budget is surely a hostage to fortune?

Now, he says, tongue in cheek. Perhaps the Chancellor would like to listen to what I have to say in my next few blogs about what I’d like to see in the Budget. I speak, of course, as a well-informed tax adviser, not as a member of the voting public. (Tongue very firmly glued into cheek.)

Andrew Jupp

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Will Mr Osborne reflect the more optimistic outlook in the Autumn Statement?

The Chancellor’s Autumn Statement will be given on 5 December (it was going to be 4 December but has been put back a day to allow the Prime Minister time to return from a trade mission). The Autumn Statement is now almost as important as the Budget; indeed, I would argue even more so. A few days after the Statement, the draft clauses of the 2014 Finance Bill will be published, and these will then be subject to various consultations before they are enshrined in law in the 2014 Finance Act, later next summer. But, and this is a big but, many of the proposals are likely to be effective from the date of the Autumn Statement. So we will be in limbo-land; we’ll have some idea as to what the new law might be, but no certainty. And they say that the life of a tax adviser is easy….

So, what would I like to see Mr Osborne tackle?

If the economic outlook really is as good as pundits would now have us believe, I’d like to see a mild relaxation of the fiscal purse strings. Nothing dramatic, but an easing in certain areas. Maybe an extension of the NI holiday to encourage employers to recruit more staff. Maybe an above inflationary increase in the personal allowance, to take more people out of the tax net completely. Small businesses would become more competitive if the VAT registration threshold was lifted – perhaps to £100,000 annual turnover.

Personally, I would love to see a simplification of the tax reliefs available for the investment in plant and machinery. The capital allowances rules have been tinkered with so many times in recent years that we’ve lost sight of the basic principle of encouraging investment in capital equipment, surely an effective enabler of long-term employment and success?

And I couldn’t write this without returning to my annual gripe. Please will HMRC get in touch with the real world and accept that the vast majority of taxpayers simply want an easy life, and to pay the tax that is legally due. Let’s have simplicity, fair administration of the tax system that we are stuck with, and yes, on occasions, cut a bit of slack for those trying to comply but sometimes getting it wrong.

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Defining new legislation

I’ve recently been working on a client case, where HMRC is refusing to accept that something the client does is “customary” and therefore exempt from tax under the relevant legislation. Much of the existing case law is old, although HMRC is still seeking to rely on it. Of course, it is correct to do so, as until there is legislation or case law to supersede what currently exists, HMRC has no other option.

But in my situation, what was customary maybe 50-100 years ago may not be now. The world moves on, but tax legislation and practice doesn’t often keep up with the pace. So let me take you through the story so far.

My client has been arguing with HMRC that something should be exempt from tax based on existing case law and practice. HMRC is saying that the existing case law is not relevant, and therefore we have to fall back on the strict sense of the taxing legislation. However, when the relevant case law created precedent, my client’s industry did not exists in the way that it does now. We have therefore put forward the argument that whilst the fact pattern is different, the principle we are seeking to apply is on all fours with existing case law.

HMRC is taking a very narrow view, and has raised an assessment for tax on my client. HNRC has offered two ways forward. (1) We produce more evidence in support of our client’s position. This is pointless as we have already established that within the spirit of the law my client’s position should be covered by existing precedent. (2) We appeal to the First Tier Tribunal (formerly the General Commissioners of HMRC). Now the First Tier Tribunal judges on points of facts, and these have already been considered, so this doesn’t really get us anywhere. But assuming we do appeal to the FTT, and lose, we can then appeal to the Second Tier Tribunal (formerly the Special Commissioners) and the STT can make a judgment based on law not fact. So it could decide in my client’s favour. But, of course, the story might not end there. If HMRC were so minded, they could escalate the matter to a higher court, and ultimately the Supreme Court (formerly the House of Lords).

This will all cost my client money, time and uncertainty. But short of throwing in the towel, what else can be done? Sometimes principles have to be pursued. Watch this space…..

 

 

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Recent tax cases – a purpose or not a purpose?

I was recently reflecting on a number of recent tax cases that have been through the courts. The term “purposive” has come into the English language (well, certainly that used by tax practitioners) in recent years. Put simply, it means the movement in recent years by the courts to look at the purposes behind a transaction or series of transactions rather than simply look at the facts on the face of things. These recent cases highlight a number of important principles.

First, the courts can read specific words into legislation where they perceive that there are clear drafting errors. On the face of it this seems sensible, but is it really right for the courts to second guess the intent of Parliament as evidenced by parliamentary draughtsmen in writing the legislation? There is some caution, though, in that the courts have also said that they will not read significant provisions into legislation if it is not clear that it was the intention of Parliament. But isn’t this slightly contradictory? I have always said that it is not the court’s job to write legislation; only to interpret it.

Secondly, the courts may take a restrictive interpretation than might be expected, so as to try and keeping within the presumed intention of Parliament, and deeming provisions should be viewed in exactly the same way as statutory provisions

But, purposive interpretation is not just one way. It’s doesn’t just work in the favour of HMRC but can be used in favour of the taxpayer

So where does this leave us now? My own view is that we are only starting out on the long hike to the summit of Mount Purposive. We’re probably not much past base camp. We’re clear of the trek ahead of us, but just with climbing any mountain, the route is unpredictable and can be dangerous. Whilst tax payers remain the unpredictable wind and terrain, it would be dangerous to finalise the ultimate route just yet.

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Muddled thinking….

HMRC has recently announced a “name and shame” policy for the top 20 or so promoters of aggressive tax avoidance schemes. From what we can tell, HMRC believes that despite all the recent changes and clampdown on tax avoidance, some promoters are still selling schemes that effectively only work by limiting the information available or the disclosure of key elements of the planning.

I am sympathetic to the rationale behind this, but am unconvinced that such an approach is the right way to go. We now the general anti-abuse rule, and specific, targeted legislation aimed at countering the effect of specific schemes. Is it really beyond the wit of parliamentary draughtsmen to write legislation that blocks any planning device that is considered to be abusive? It’s a bit like putting sweets on display in a sweet shop and then criticising little Johnny for buying them. Why not just ban sweets completely if they are bad for us.

Now don’t get me wrong. I fully support the sentiment behind what HMRC is trying to do. As a firm we have never endorsed aggressive off-the-shelf tax avoidance, and very few of our clients have ever had any appetite for such schemes. But I really don’t think that naming and shaming is the right approach. We’ve also seen it with multi-nationals such as Amazon, Google and Starbucks, and very recently with Vodafone. What very little of the press coverage mentions is that everything these companies have done is perfectly legal, and indeed, if they had not done so would face criticism from their shareholders for not maximising shareholder value. Vodafone will pay limited tax on its disposal of shares in Verizon because of very similar legislation in the Netherlands (the participation exemption) to that introduced in the UK a number of years ago (the substantial shareholder exemption). So the government introduces legislation to help multi-nationals and the press then names and shames companies for structuring their affairs in the best way possible to create shareholder value.

Muddled thinking methinks. Block tax avoidance by all means, but let’s decide how we are going to do it and stick to it.

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New blog starts today!

Hello and welcome

Welcome to my new website and first blog. This is an exciting time for me. Having made the decision earlier this year to set up my own consulting practice I’ve finally found time to get the website up and running. I guess I should be pleased that I’m so busy – you suddenly realise that you have to do everything yourself. There’s no in-house IT support (although my external guy , Ian Straughan from Rooks Move,  is superb). I have to design all the marketing material myself, keep ICAEW happy with regulatory matters, arrange my PI cover, complete quarterly VAT returns and make sure I record all my income and expenditure.

I guess it’s what my early-stage clients have been telling me for years. There’s so much admin to do that it’s sometimes hard to keep focused on the important matter of winning and looking after my clients. That will always come first, though, and it’s why I have set up Jupp Consulting.

After years of working in the Big 4 and other firms, where much of the activity was driven by profitability and short-term financial clients, I can now deliver to my clients the service they deserve.

My strapline is “practical and commercial strategic, tax and general business advice” and it does what it says on the tin.

Elsewhere in this website you will see that I describe our core values, and outline the range of services which we offer.

I will be blogging regularly on issue that I consider are topical and affect my typical clients. If these are of interest please do pass them on to friends and colleagues by email or re-tweeting them. And if there are things you’d like me to comment on, please let me know.

I’m very excited about the future but my excitement will be your success, as we work together to really make your business thrive and succeed.

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