Other measures announced
Tax policy
It has long been the complaint of tax professionals that tax legislation is subject to insufficient scrutiny by Parliament, resulting in badly drafted law.
The Government has made a commitment to addressing this by publication of a discussion document to help shape a new approach to tax policy making. The document promises more transparency, consultation and accountability in the making of tax policy. This could see many of the provisions of future Finance Bills made available in draft three months before publication. The Government hopes this will help to build a more predictable, stable and simpler tax system and will evaluate new legislation after it is implemented to ensure it is effective.
The Government has also confirmed its intention to create an independent Office of Tax Simplification. More details about this will be published shortly.
These proposals are generally to be welcomed but simplification of the tax system may see the introduction of a General Anti-Avoidance Rule at some time in the future. The discussion document indicates the Government will engage with interested parties on the need for such a rule.
Financial Services Authority to be disbanded
In the lead-up to the Emergency Budget, Chancellor George Osborne announced his intention to break up the Financial Services Authority (FSA), transferring many of its key regulatory powers to the Bank of England (BoE), and introducing a new Consumer Protection and Markets Authority.
Arguing that the existing tripartite regime involving the FSA, HM Treasury and the BoE had ‘utterly failed' to identify and control the rapid and unsustainable increase in debt that was at the heart of the financial crisis, the Chancellor said that by bringing responsibility for micro – and macro – prudential regulation under one roof, such problems would not be repeated.
A new Financial Policy Committee will be created within the BoE which will take on the role of examining the macro issues that threaten economic stability, and taking the appropriate action. With its new combined responsibilities of monetary policy and financial regulation, the BoE is set to become one of the most powerful regulatory bodies in the world.
Bank levy
A Bank levy will be introduced with effect from 1 January 2011. It is intended that the levy will apply to the following where relevant aggregate liabilities amount to £20 billion or more:
- The consolidated balance sheet of UK banking groups and building societies;
- The aggregated subsidiary and branch balance sheets of foreign banks and banking groups operating in the UK; and
- The balance sheets of UK banks in non-banking groups.
It is proposed that the levy will be set at 0.7% which is anticipated to return £2 billion annually. A lower initial rate of 0.4% will apply for 2011. There will also be a reduced levy rate for longer-maturing wholesale funding; defined as greater than 1 year to maturity. The reduced rate will be 0.2% for 2011 rising to 0.35% thereafter.
The levy will not be deductible for corporation tax purposes. The levy will be administered by HMRC and will contain anti – avoidance measures.
A joint statement released by France, Germany and the UK indicates that those countries are in broad agreement over these measures. Consultations will take place over the summer and it is anticipated that final details of the measures will be published later in the year.
The government is also intending to explore a Financial Activities Tax, which also seems intended to target banks, but few details are known at this stage.
Penalties for late filing of returns and payment of tax
The Government will be introducing changes to the penalty system for late filing of returns and late payment liabilities for VAT, Insurance Premium Tax, aggregates levy, landfill tax, air passenger duty, and excise and betting duties. The proposed changes will be staged over a number of years. The penalties will not apply to repayment returns.
The new late filing penalties will involve a flat rate penalty for late filing together with a twelve month “penalty period” during which further late filing will incur increased penalties. If the late filing is deliberate a penalty of up to 100% of the return liability could be applicable. If any returns are delayed by prolonged periods, an additional penalty of 5% of the tax due will apply.
Late payment will see a percentage penalty together with a twelve month “penalty period” during which the penalty percentage increases for subsequent late payment. Again, a penalty of 5% of the tax due will apply where payment is withheld for prolonged periods.
As an example, for a business filing quarterly returns, the sequence of events for late filing of all four returns in a twelve month period will be as follows:
- Late return 1 – Penalty of £100 even if the tax has been paid. A 12 month penalty period begins.
- Late return 2 – Penalty of £200 and the penalty period is extended by 3 months.
- Late return 3 – Penalty of £300 and the penalty period is extended by a further 3 months.
- Late return 4 – Penalty of £400 and the penalty period is extended for a further 12 months.
The maximum penalty for quarterly returns is £400; for monthly returns the penalties start at £100 with a maximum of £200.
For a business filing quarterly returns, the sequence of events for late payment of tax in a twelve month period will be as follows:
- Late payment 1 – No penalty but 12 month penalty period begins.
- Late payment 2 – 2% penalty and penalty period extended by 3 months.
- Late payment 3 – 3% penalty and penalty period extended by 3 months.
- Late payment 4 – 4% penalty (maximum level) and penalty period extended by 3 months.
The measures will be introduced by Treasury Order with the date of implementation to be announced.
Health in pregnancy grant
The health in pregnancy grant is a £190 one-off payment to all expectant mothers that is made irrespective of income. The Government proposes to abolish the grant from 1 January 2011. Women who reach the 25th week of pregnancy before 1 January 2011 will still be entitled to the grant providing they satisfy the conditions.
Child Trust Fund
The Government has already announced its intention to reduce and then stop all Government contributions to Child Trust Funds. Subject to legislation, the Government intends to reduce Government contributions at birth, and to stop Government contributions at age 7, from August 2010. It is intended that HMRC will stop issuing new Child Trust Fund vouchers from 1 January 2011.
Until legislation is in place, Child Trust Funds will continue as usual.
Saving Gateway
The proposed Saving Gateway will not be introduced in July 2010.
Council tax
Local authorities will be encouraged to implement a freeze in council tax in England in 2011/12. The Government will clarify in due course the terms under which local authorities that commit to freeze or reduce their council tax will be compensated.
