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| CURRENT SECTION :: IR35 / IR591 | UK's most visited IT Contractor Site - 250k unique visitors March 2008 |
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The Finance Act which gave us IR591 is currently on its way through Parliament. The generous Government who gave us the 0% tax rate now accuses us of tax avoidance because we used it. How do they justify this? You won't believe it. The debate was opened for the Government by Treasury Minister, Paul Boateng, who laid his card on the table with regard to the Government's position on tax, indicating that they will be using investment in public services as a justification for tackling tax avoidance. He doesn't only mean complex tax planning schemes, he means using the rules which the Government introduced to promote small businesses. He said: "Promoting enterprise and competition is important, but it must be underpinned by fairness. Our objective continues to be ensuring stable public finances and world-class public services, which are served by a fair tax system in which everyone pays or claims for what is due. To protect revenue for investment in the public services that the country wants and needs, we are determined to tackle tax avoidance and evasion". You can see here how avoidance and evasion are slowly being classed as the same thing, even though avoidance is legal and evasion is not. Also, who decides what is "fair", and does anyone really think we have "world class public services"? He goes on: "We have therefore introduced a number of legislative changes to close loopholes that have been exploited for tax avoidance, and we are taking steps to target low rates of corporation tax on small businesses that are reinvesting to ensure that distributed profits are subject to a minimum corporation tax rate of 19 per cent. We are protecting the zero rate as an incentive for businesses to invest for growth, enterprise and productivity". So, when they introduced a 0% tax rate for Companies earning less than £10,000 a year, did they really think that these people earning barely enough to survive would be able to "invest for growth, enterprise and productivity"? Conservative Treasury spokesman, Howard Flight said that: "This House declines to give a Second Reading to the Finance Bill because the provisions contained in its 574 pages increase the burden and complexity of taxation, particularly on small owner managed businesses; do nothing to increase the savings rate or improve United Kingdom productivity; and will lead to a further decline in the competitiveness and relative attractiveness of the United Kingdom as a location for investment". He continued by reminding that Government that they had actively encouraged small businesses to take advantage of incorporation through the zero tax rate, only to do a complete U-turn on the provision. He said: "The Paymaster General (Dawn Primarolo) will remember that she pointed out in Committee that small businesses would not look a gift horse in the mouth. She clearly expected the provisions to encourage small businesses to incorporate, but now we are told that it was not a gift horse after all. Consequently, small businesses now end up with a complex tax charge." Mr Flight also took issue with Section 660, saying "On another subject relevant to owner-managed businesses, clause 86 seeks to remove the ability of small owner-managed businesses to be held jointly, and the husband and wife to remain taxed on a 50:50 basis. "That flies in the face of the provisions that were specifically made in 1990, when independent taxation was introduced. Outside the Finance Bill, aggressive new interpretation of section 660A, universally criticized by the accounting profession, seeks to introduce another stealth tax, to tax as the husband's income dividends from the proportion of owner-managed companies that were historically owned by the spouse. The parliamentary debates and Budget press release relating to the Finance Act 1989 made it clear there was no such intention thus to interpret section 660A. "What is fundamentally wrong with these initiatives, essentially designed to extract more taxation from small, owner-managed businesses, is that they impose complicated rules on small businesses, which are costly to administer, potentially penal, and will possibly lead to mistakes." Mr Flight then went on the offensive over the new rules to force tax avoidance schemes to be sent the Revenue for approval, saying: "It is also notable that, although the Bill contains major anti-avoidance measures, there is a marked absence of Government initiatives to tackle tax evasion and the growing black economy, or for that matter, the £7 billion incorrectly paid out in state benefits as the result of one in five Department for Work and Pensions decisions being wrong, as recently reported by the Public Accounts Committee. Moreover, in the Chancellor's drive to leech the tax system, he might apply his ingenuity to improving the collection of £14 billion of uncollected tax last year, as the recent National Audit Office figures revealed. That partly reflects the growing unwillingness of the rising generation to be bothered with the demands of ever more time consuming, bureaucratic compliance in their private lives." David Laws of the Lib Dems was then handed the baton: "That was the last time that I shall defend the Treasury's long-termism, as business men now ask me how the Government could change their mind so rapidly. Under the Bill, the Government will raise almost £1 billion over the next couple of years by withdrawing all the reliefs that had previously been introduced. It would have been far too embarrassing, however, for the Chancellor to have to announce in the Budget that he was withdrawing the zero per cent. tax rate. That would sound like an anti-business measure, so he presented it as a further reform to stop tax avoidance. The introduction of a new 19 per cent rate will further complicate the system." The task of ending the debate and summarising and responding to the points made by MPs from all parties fell to the Paymaster General, Dawn Primarolo, best known in the freelance community as the woman who introduced IR35. She said in her infinite wisdom: "In reference to Michael Jack's points about tax avoidance, I want to touch on his points with regard to avoidance and whether Parliament has got it wrong. In 1997, Lord Nolan described avoidance as: "when a taxpayer reduces his liability to tax without incurring the economic consequences that Parliament intended to be suffered by any taxpayer qualifying for such a reduction in his tax liability. Tax avoidance is a course of action designed to conflict with or defeat the evident intention of Parliament". Primarolo said "Of course, we would expect all individuals and companies to want to make the most efficient use of the tax system and its reliefs, but we have seen systematic, abusive schemes that give relief for economic activity that was never undertaken or multiple reliefs for the same action that was never intended." And the gift horse Ms Primarolo? Silly us, why should we believe a word you say? Apr 22, 2004 Email this article Printer friendly page Previous Page
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