Recently by Carol Barrie

Alistair Darling in his PBR announced a new 50% payroll tax on banks and building societies paying discretionary bonuses of £25,000 or more. This new tax, which will be payable by the banks and building societies and not by the individuals is expected to raise £0.55 billion between now and 5th April 2010.

Interestingly the tax only applies to bonuses payable between 9 December and the end of the current tax year. This would imply that the Chancellor expects bonuses of £1.1 billion to be paid in that three and a half month period. Perhaps he believes there will be a lot of bonuses paid before Christmas.

There is however one word in his announcement that initially raised a question mark, and that was the word 'discretionary'. Reviewing the press releases however makes it very clear that the new tax will apply to both 'discretionary' and 'contractual' bonuses.

It looked at first sight as though the Chancellor was just trying to deter banks from paying bonuses that they are not already by law obliged to pay but it now seems clear that it is also a revenue raising measure albeit of fairly modest proportions. This appears to be a win-win situation for the Chancellor, either the banks will be discouraged from paying large discretionary bonuses or the government will increase the tax take. They will in any event gain the tax on contractual bonuses.

The benefit to the Chancellor will be further enhanced by the fact that bank payroll tax will not be taken into account when calculating the banks profit or loss for other tax purposes.

Chancellor Alistair Darling tried very hard in yesterdays pre budget report to convince the world at large that it is the very wealthy in our society who will meet the cost of the recent economic events. The real way in which the cost will be met becomes very apparent when you read the small print.

Alistair Darling announced a 0.5% increase in the rate of both employees and employers National Insurance effective from April 2011. What he did not immediately make clear was whether this was a confirmation of the increase already announced in the last budget or a further increase.

An examination of the press releases confirms however that the 0.5% increase announced today is in addition to the previous increase.

This means that from April 2011 employees and employers National Insurance will both go up by 1%. The expected take from this 1% increase is some £8.6 billion. By comparison the expected tax take form the much publicised bank payroll tax is a mere £5.5 million. Even the increased tax rate on those earning more that £150,000 per annum is only expected to raise £1.1 billion.

What this clearly demonstrates is that the only way for the country to get out of the current economic turmoil is for the entire population to pay more tax.

A major concern must of course be that this additional levy will be a strong disincentive to employers taking on new employees. Let us all hope that this proves not to be the case.

There is no doubt that employers will be looking even harder for any legitimate ways of reducing this further substantial increase in the NIC burden.

For further comments on the Pre-Budget Repor I attach a link to my firm's commentary and suggested actions
http://tiny.cc/ae9rH

The media at the moment is full of reports of MP's who are furious at Sir Thomas Legg who they claim has "changed the rules" on MP's expenses. They insist that it is unfair that they are being asked to pay back amounts which were within the rules when originally paid.

Welcome to the real world that the rest of us inhabit!

Many taxpayers have sacrificed over many years in order to put money into their pension schemes secure in the belief that they would reap the benefits in their retirement. They confidently expected that all the funds would be used at retirement to provide a tax free lump sum plus a pension taxed at their marginal rate of tax

In April 2006 Government changed the rules with retrospective effect to cap all existing pension arrangements. A pension cap of £1.5million was set and any fund value in excess of this is taxed at 55%, as well as 40% tax being due in the normal way on any pension paid from the remaining funds.

In response to suggestions by the relevant professional bodies in 2006 that the £1.5million cap would simply stay at that figure and be eroded by inflation, Government maintained strongly that this would not be the case and they even announced the increases from 2006 to 2010 to back up their assurances. The figure rose each year in stages from £1.5million in 2006 to £1.8million in 2010.

Then, of course, last year Government couldn't resist the opportunity to claw back more money in stealth taxes and so the £1.8million limit was frozen for five years between 2010 and 2015. So someone with a fund of £1.8million in 2010 earning a return of 3.0 per annum on their fund will see it rise to £2.08 million by 2015 and Government will take nearly £155,000 of that increase, in spite of the fact that inflation will have reduced the real value of their pension in that five years.

So much for being prudent and saving for your retirement! Is it any wonder that people are now wary about saving via their pension fund? What future retrospective raids will Government make on taxpayers hard earned savings.

It really is not nice to have the goalposts moved after the event and perhaps MP's will now have some personal understanding of the deep resentment and mistrust felt by the electorate who having saved for their retirement have had their pensions pots raided.

HMRC have adopted the policy for some time now of referring to tax payers as customers. I have never been quite sure why they have insisted upon this since most of us would choose not to be customers of HMRC, if we had any choice.

If we are customers then we must ask ourselves whether the customer care we receive is all it should be.

A client of my firm recently received a notice stating that their gross payment status was being withdrawn under the construction industry scheme. Anyone in the construction industry will know only too well the cash flow problems that can be caused by having gross payment status withdrawn.

The reason given for the withdrawal of gross payment status was 'that the 2008/09 P35 hadn't been received'.

Having submitted the said 'P35' by recorded delivery on 5 May, the client rang HMRC to find out what the problem was. They were informed that HMRC had indeed received the P35 in early May, but hadn't logged, or processed it, until 25 June, thus giving the impression that the P35 was late in being submitted.

At this point the client called their HMRC construction industry scheme contact to pass on the information, only to be told that they would still need to officially appeal against the withdrawal of their gross payment status.

In other words, having failed to log and process a customer's P35, another department of HMRC had then withdrawn their gross payment status because of the first HMRC department's failure! Then, to add insult to injury, the "customer" was told that they had to appeal against the notice withdrawing gross payment status, which should never have been issued in the first place!

With customer service like that, commercial businesses would not be expecting to keep their customers for very long!

Looking at the Commercial Property section of today's Birmingham Post there are two articles which are quite remarkable in the contrast they present.

First is an article by David Green entitled '106 deferments could restart stalled schemes!'

The article points out that Birmingham City Council are trying to help the development industry by deferring the requirements within Section 106 agreements where the developer can show that they cannot meet the Section 106 costs at the present time.

The other is an article written by me entitled 'New Tax burden for industry'. The article is about the recently published HMRC consultative document setting out proposals that will result in a significant additional national insurance burden on the development industry by deeming large numbers of self-employed people to receive employment income.

Efforts by Birmingham City Council to help developers deal with what, in the current downturn, have become onerous Section 106 obligations can only be regarded as constructive and helpful. It is a great pity that HMRC and Government seem hell bent on dealing another hammer blow to an industry in deep recession. They should instead be following Birmingham City Council's excellent lead.

The proposals set out in the consultative document are all the more galling because despite applying Employers Insurance to self-employed workers' earnings they do not plan to treat them as employed for any other purpose. So they will get none of the state benefits that employees get when they lose their job.

Phrases like "having their cake and eating it" come readily to mind.

No one can argue against anti-avoidance measures needed to protect the Exchequer from abuse, but these proposals will go way beyond that and catch many cases of genuine self-employment.

It is vital that the industry speaks with a common voice to ensure, if at all possible, any final legislation is targeted, more narrowly, at the real mischief it is aimed at.

We shall be sending our own response to the consultative document from RSM Bentley Jennison and if anyone would like to respond to this article, I will make sure that your comments are taken into account.

31st July is the date that those who are self employed have to pay their first instalment of income tax for 2009-10.

Most people who are affected should already have received letters from their accountants telling them what to pay; but there are significant traps to avoid if cash flow problems are making it difficult to meet the liability.

• If the tax due on 31 July is paid more than 28 days late you will suffer a 5% surcharge on the amount due - a whopping 60% effective rate of interest for the year
• If you are in the construction industry, late payment of tax can result in the withdrawal of gross payment status.

The name of the game has to be to either pay your tax on time on Friday 31 July or go to the HMRC before then and negotiate time to pay.

If time to pay is granted all of these hidden problems disappear.

Failure to act could put an even worse strain your cash flow.

As if Gordon Brown has not already done enough to kill off pension provision in the UK, Alastair Darling announced measures in the budget which will put yet another nail in the coffin.

For 2009/10 anyone with income of £150,000 or more from all sources in that or either of the two previous years, will lose higher rate tax relief on any pension contributions in excess of £20,000 per annum, unless they have a past history of paying premiums of a higher amount at least quarterly or more often.

If they have paid regular annual premiums for many years - hard luck!

If they have regularly had their bonus paid into their pension fund but the bonus would put their income from all sources above the £150,000 threshold - hard luck. The bonus will be treated as salary for the purpose of applying the £150,000 tax limit.

Existing final salary schemes are totally protected from any charge under the new rules unless additional benefits are being given to a member.

What do these rules mean in practice?

• If two people both earning £160,000 a year have regularly put £30,000 a year into their pension fund but one pays monthly premiums and the other pays annual premiums one will get full tax relief on £30,000, the other will lose higher rate relief on £10,000 at a cost to him of £2,000!!!
• If someone has total income of £149,000 per annum and his employer puts £100,000 into his pension fund he will suffer no tax on the employer's contribution. If he receives bank interest of £1 making his income up to £150,000 he will pay higher rate tax of £20,000 on the pension contribution; a marginal tax rate of 2,000,000%!!!

Whatever happened to equality between taxpayers? Pressure is being put on government to change these ludicrous rules. We can only hope that they will see sense.

In the meantime people who have over many years saved for their retirement in their pension fund see yet one more incentive to save in this way being withdrawn. Is it any wonder that taxpayers are getting totally disillusioned and moving away from pension funds as a means of providing for their retirement The real danger, of course, is that people will stop saving for their retirement altogether or spend the savings when harder times come, becasue they are no longer locked in a pension fund.

I can't resist a final word about the MPs particularly since next month they are going to have to declare all of those lucrative additional jobs that may well take their MPs salary to more than £150,000 per annum. As I said earlier final salary schemes are exempt from the new rules and who have the best final salary schemes in the UK? Nuff said !!!

So much has been said in the press recently about MPs expenses and flipping homes. Now that the fuss has, to some extent, died down it is perhaps time for a few observations (with a tax bias) on what has been going on.

• Anyone who has to work at a number of different locations can, in principle, be re-imbursed for the additional cost necessarily incurred by him or her in performing the duties of that employment including subsistence and accommodation without any tax liability arising . So far so good.
• Anyone who has two homes can, as a matter of tax law, elect which of these homes is to be exempt from capital gains tax for any particular period.
• An employee cannot, under any circumstances, have his employer pay for the cost of completing his income tax return without a taxable benefit in kind arising.

MPs expenses are, we are told, to cover costs incurred to enable them to do their job, but surely as with the tax rules this should be the extra cost over and above what they would incur in any event.

It seems to me, therefore, that the best way to deal with the debacle about MPs expenses is to have the expenses claims all made available to the tax office that deals with all MPs and to let HMRC judge whether the expenses have been incurred wholly, exclusively and necessarily in the performance of their duties as MPs, using the same yardstick that HMRC apply to the general body of taxpayers.

If the expenses pass the test, then no problem. If not, MPs can either re-imburse the excess or pay tax and NIC on it.

MPs may bleat that their expenses have been approved by the Fee Office but they are still, as far as I am aware, subject to the same tax rules as the rest of us. There is no problem with security or confidentiality or with independence.

On the topic of CGT on their houses, I have to side with the MPs. They are only doing what any other taxpayer can do unless, of course, the second property is used exclusively for business purposes.

If a property or any part of it is used exclusively for business purposes then the CGT exemption doesn't apply to it/that part of it. If all of the costs of running their second property are being claimed by an MP that implies that the property is only used by them for carrying out their Parliamentary duties and is used only for business. So no exemption and one again for the tax man to sort out.

Strenuous efforts have been made over the years to persuade government to give tax relief for the cost of completing income tax returns. So far the pleas have fallen on deaf ears. Reports of MPs claiming the cost of preparing their tax returns and even taking tax advice as part of their Parliamentary expenses must be one for the tax man. If the rules allow that cost to be claimed then that is fine as long as they pay tax on the benefit like the rest of us would have to do.

A lot of what was in today's Budget had already been pre-announced and therefore came as no surprise.

There were however a few interesting nuggets, some good, some bad, some downright ugly; some predictable, some a total surprise.

Above average increases in petrol, tobacco and alcohol duty and the previously announced 0.5% increase in both employers and employees NIC (curiously absent from today's statement), just confirm what we already knew. All of us are going to have to pay extra tax to pay off the swingeing debts now being incurred by the Government. The increased tax rates for those with income of more than £150,000 a year are just not enough to make any real impact but it looks good to suggest that better off will be footing the bill.

The car-scrapping scheme might, at first glance, appear attractive but lack of credit is still going to be a limiting factor, even for those driving a ten year old car, who are prepared to splash out on a new one in these troubled times. Tax relief for pension contributions in excess of £20,000 per annum is now restricted to basic rate for those earning more than £150,000 per year.

There is a get out for those who have regularly paid in excess of this amount for over a number of years, but only if contributions are paid quarterly or at shorter intervals. In the case of two taxpayers who have each been paying £30,000 per annum for several years, but one has paid premiums monthly and the other has paid annual premiums; the one paying monthly with get basic and higher rate relief on £30,000. The other will get basic and higher rate relief on £20,000 and basic rate relief only on £10,000.

Whatever happened to the taxpayer's charter - assuring us that all taxpayers will be treated equally?

The removal of higher rate relief for pension contributions has been mooted for several years but no-one anticipated a system where the quantum of relief will depend up on the frequency of premium payments!

On a positive note, you can now buy a furnished holiday let in the EEA and get all the tax benefits of UK holiday lets - you can also get IHT exemption on businesses and woodlands in other EEA countries in the same way that you can for UK businesses and woodlands. It would be nice to think that this is the Chancellor being generous but it is, in reality, to prevent challenges to UK legislation under the Treaty of Rome.

There is further evidence in the Budget of HMRC's determination to stamp out tax evasion. Firstly there is to be a second disclosure facility in the autumn which has been widely anticipated. What was not anticipated was that HMRC are going to make public the names and addresses of tax payers who evade tax and who have either not made an unprompted disclosure, or when prompted by HMRC have not made a full disclosure.

In the past only information about taxpayers who have been prosecuted or appealed against penalties for tax evasion has ever come into the public domain.

From 1 April (6 April for unincorporated businesses) companies purchasing cars with CO2 emissions below 110g/km will receive 100% tax allowance on the cost. For emissions between 110g/km and 160g/km the annual tax allowance will be 20% of the cost and above 160g/km it will only be 10% of the cost, calculated on a reducing balance basis.

Another rule that has changed is in relation to cars costing more than £12,000. At present the annual writing down allowance for such cars is limited to £3,000, but on sale the balance of any unrelieved cost is allowed. Since most expensive cars are unlikely to be kept for more than three to four years, the full cost will be allowed for tax over this period of time.

For cars purchased on or after l April (6 April for unincorporated businesses) there will be no balancing allowance; the business will simply continue to attract writing down allowance each year at either 10% or 20% rate, depending on the CO2 emissions. It will take some 11 years for the majority of the cost of the car to be written off under this new regime - even at the 20% rate!

Currently leased cars costing more than £12,000, suffer a restriction to the leasing cost based upon the cost of the car - the higher the cost, the greater the restriction.
In future the leasing restriction will be solely by reference to the CO2 emissions of the car being leased. For cars with CO2 emissions of 160g/km or less the full lease payment will be allowed for tax purposes. For those with higher emissions, there will be a 15% restriction on the allowable leasing costs.