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Budget report 22 June 2010

General Announcements

Review of HM Revenue & Customs powers

A range of changes are to be introduced to HM Revenue & Customs powers. These have been extended considerably in recent years although the changes announced are not expected to become fully operative before 1 April 2012. The changes relate to the modernising of information and inspection powers; and aligning the record-keeping rules and the time limits for assessments and claims with changes made to other taxes and duties. The existing information and inspection powers will be changes as shown in the table below.

 

Existing power	Elements of proposal that are new, aligned
To enter premises of revenue traders	A new element that would permit inspection of documents.
To enter premises of those thought to be acting as revenue traders	A new power to inspect documents is included.
To enter premises used by a revenue trader	Clarification that the existing powers include the power to enter premises used by a revenue trader, even if those premises are owned by another.
To make unannounced visits	No change.
Prohibition of inspection of wholly private premises	This is current practice but is now made explicit.
Application for a warrant to search (section 161A)	The power exists but would be extended to search for documents required to accompany the goods.
Information from those who may hold relevant information	This is new and would allow HM Revenue & Customs (HMRC) to seek information from other parties such as banks. Safeguards would be a formal notice requirement, pre-authorised by a tribunal.

 

This plan supersedes that which was announced in the March 2010 Budget.

 

Penalties for late filing of returns and payments of tax

The last ten years has seen a gradual increase in the requirement to file returns on time with a penalty arising for late filing. Measures announced today are designed to “complete the reform of the penalty regime.” The measures announced today were heralded in the March 2010 Budget and are now amended as follows:

Penalties for late filing returns (quarterly)

• a £100 penalty immediately after the due date for filing (whether or not the tax has been paid);
• the failure also starts a penalty period, which is set for a year;
• if there are further failures within the penalty period, then the fixed penalty escalates by £100 for each of those subsequent failures, up to  a maximum of £400 per failure. The penalty period is also extended to the first anniversary of the latest failure;
• if any of the failures are prolonged, then additional penalties of 5 per cent of the tax on the relevant return are charged at six and 12 months from the date of the failure; and
• if, by failing to make the return, the taxpayer is deliberately withholding information to prevent HM Revenue & Customs from correctly assessing the liability to tax, then penalties of up to 100 per cent of the tax on the return may be chargeable.

Penalties for late filing returns (monthly)

• this is a very similar structure to the quarterly model above, except that the fixed penalties are £100 for the first six failures in any penalty period, and then £200 for any subsequent failures.

Penalties for late payments (quarterly)

• where a taxpayer first pays late, although there is no penalty, it does start a penalty period, which is set for a period of a year;
• any further failures within that period will attract a penalty of 2 per cent of the unpaid tax, as well as extending the penalty period to the first anniversary of the latest failure;
• a third failure within the period will attract a penalty of 3 per cent, with further failures attracting a maximum of 4 per cent; and
• if any of the failures are prolonged, then additional penalties of 5 per cent of the unpaid tax are charged at six and 12 months from the date of the failure.

Penalties for late payment (monthly)

• this is a very similar structure to the quarterly model above, except that, after the first failure, the tax-geared penalties are 1 per cent for the next three failures in any penalty period, 2 per cent of the next three failures, etc. up to a maximum of 4 per cent per failure.

Bank levy

Effective from 1 January 2011, a much anticipated bank levy based on the banks’ balance sheet will be introduced which is expected to raise £2 billion in extra revenue. The levy will be set at a rate of 0.07 per cent, with a lower initial rate of 0.04 per cent in 2011.

Income tax and shared lives carers

With effect from 6 April 2010 qualifying shared lives carers may claim a new relief to be known as the qualifying care relief. Those shared lives carers whose earnings are less than the tax free allowance will not be taxed on their income from providing shared lives care. Those whose shared lives earnings are more than the tax free allowance have the option to choose a simplified method for calculating their profits.

Landfill tax

This is a change involving the departments of HM Revenue & Customs and HM Treasury. Currently HM Treasury must have regard as to whether material being landfilled is commonly described as inactive or inert when deciding whether or not to include it in an Order that lists the materials that qualify for the lower rate of tax. The change which comes into force from Royal Assent will specify that the Commissioners for HM Revenue & Customs must publish the criteria that HM Treasury will have regard to when determining what material is lower rated, and will publish revised criteria when necessary. HM Treasury will take account of these criteria when listing in an Order the materials that qualify for the lower rate of tax, for any disposals made, or treated as made, on or after 1 April 2011.

Trusts and compensating asbestos victims

An announcement has been made that supersedes the March Budget press release. With effect on and after 6 April 2006 trustees of certain trusts are exempt from capital gains tax (CGT), inheritance tax (IHT) and income tax (IT). The trusts that will benefit are those established on or before 23 March 2010 as part of an arrangement made by a company with its creditors and specifically to pay compensation to, or in respect of, individuals with asbestos related conditions.

 

Trustees are subject to IHT changes every 10 years on the value of property held in trust above the IHT nil rate band (£325,000) and also on certain payments made out of the trust. Trustees are also liable to income tax on income arising to the trust, and CGT on disposals of certain trust assets. Provided the trust is specifically established for the purpose of paying asbestos-related compensation for individuals, the trust is exempt from CGT, IHT and IT.

Insurance premium tax increase (IPT)

With effect on or after 4 January 2011 the rates of IPT are as follows:

 

	From 4 January 2011	To 3 January 2011
Standard rate	6%	5%
Higher rate	17.5%	20%

 

Note: For insurers using the cash receipt method to account for IPT, the new rates will have effect for premiums received under taxable insurance contracts on or after 4 January 2011.

 

For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.

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