Welcome to the February 2010 Newsletter from Connolly Accountants Ltd

The British Chambers of Commerce has called on the Government to abandon a 'damaging' rise in national insurance contributions, in favour of increasing VAT by 1%. According to its latest survey, the majority of business owners believe a VAT hike would have less of an impact on their business.

Meanwhile, two recent landmark court rulings could see some individuals facing significant retrospective tax bills. The cases relate to UK citizens living abroad who wish to be treated as tax exiles, and contractors who have at any point used, or are still using, offshore tax schemes.

With a General Election looming, all eyes will be on Chancellor Alistair Darling when he delivers his Budget statement. We will have coverage of all the key announcements affecting you and your business, so be sure to visit our website.


Business group urges Government to scrap national insurance increase

An incoming Government must concentrate its efforts on reducing the budget deficit, and should scrap the planned increase in national insurance contributions (NICs), according to the British Chambers of Commerce (BCC).

The latest monthly survey from the business group revealed that 41% of companies believe reducing the deficit should be the Government's number one priority, while many also believe that an increase in NICs represents the most damaging tax rise that could be imposed on them.

36% of those surveyed felt that a VAT increase would be the least damaging to their business, compared with just 6.6% who selected NICs as the more favourable option.

Meanwhile, the business group has used the Treasury's Tax Ready Reckoner to calculate that increasing VAT by 1% to 18.5% would raise an extra £4.5bn in revenue, compared with the £5.1bn that would be netted by a rise in NICs. The BCC argues that the difference between the two sums could be offset by targeted spending cuts.

David Frost, BCC Director General, said, 'Companies have and will continue to play their part in creating wealth and jobs, generating economic growth and driving recovery, but the right environment needs to be in place'.

'Raising a damaging tax on business, like NICs, will be counter-productive. It will mean fewer jobs and less tax revenue in the long-term. While businesses fully understand the need to bring down the UK's deficit, they are clearly saying that using VAT would be a less damaging way to achieve this.'


Taxpayers targeted in retrospective tax trawls

Two recent landmark court rulings could lead to some individuals facing significant retrospective tax bills, as outlined below.

UK citizens living abroad as tax exiles
Thousands of UK citizens living abroad as tax exiles could find themselves facing a retrospective tax bill stretching back as far as the previous six years, following a recent Court of Appeal ruling.

The case involved businessman Robert Gaines-Cooper, who has lived in the Seychelles since 1976. Despite the fact that he had adhered to previous HM Revenue & Customs (HMRC) guidance by spending fewer than 91 days in the UK on average each year, the judges ruled he had nevertheless maintained ties with the country.

The Appeal Court said that the 91-day rule did not actually establish non-residency, and ruled that the UK had remained the 'centre of gravity' of the defendant's life and interests.

The ruling means that thousands of UK tax exiles could have their lifestyle scrutinised by the Revenue, with factors such as the number and length of visits to the UK, any economic and business ties, and ongoing connections such as membership of UK banks or sporting clubs, being taken into consideration.

Contractors using offshore tax schemes
Meanwhile, contractors who have used or are continuing to use offshore tax schemes could be the target of a new clampdown by the tax authorities.

The warning follows a ruling by the Royal Court of Justice, which recently dismissed an application for a judicial review in the case of a self-employed information technology contractor who sought to challenge a £100,000 backdated tax demand from HMRC.

The judge ruled that the backdating of the demand did not breach human rights law.

The Professional Contractors Group has warned that HMRC may now retrospectively apply the tax legislation as far back as 1987, when the relevant legislation was first introduced. Those targeted could have to pay both the fines and the backdated taxes.

It is thought there may be 2,500 taxpayers exploiting such arrangements, with around £100 million of income tax at stake.

We can advise on all your tax planning needs – contact us today for a tax planning review.


ESSENTIAL TAX DATES AND DEADLINES

28 February: Last day to pay any balance of 2008/09 tax and Class 4 NIC to avoid an automatic 5% surcharge.

For more information on key tax dates and deadlines, visit our 2009/10 Tax Calendar.


QUOTE OF THE MONTH

'Let's scrap the NICs 'tax on jobs' and offset it with a 1% VAT increase. It's a tough call, but we have to be realistic about repairing the public finances, and promoting recovery.'

David Frost, Director General of the British Chambers of Commerce, explains the need for future tax rises.


WEBSITE OF THE MONTH

www.retirementreform.org.uk

Website of the Centre for Retirement Reform, a new think tank which has been set up to facilitate reform of the UK pensions system.


ON OUR WEBSITE

Essential business planning advice

For tips and advice on all aspects of business planning, from managing staff to growing your business, visit the Your Business section.

The latest tax information

View a host of tax advice and information here.

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