Welcome to the September 2011 Newsletter from Connolly Accountants Ltd

The Institute for Fiscal Studies (IFS) - a leading financial think tank - has published a review which calls for radical reform of the UK tax system, including abolishing fuel duty and stamp duty, expanding VAT and fully integrating National Insurance and income tax.

Meanwhile, HMRC has issued a reminder about the new, tougher penalties for late Self Assessment returns and payments, and has also warned of a large rise in the number of fake 'phishing' emails purporting to offer tax refunds. Also on our website - a guide to the wide-reaching reforms to capital allowances.


IFS calls for radical overhaul of the UK tax system

The Mirrlees Review, conducted over five years and published in two volumes, is described by the IFS as "the deepest and most far reaching analysis of the UK tax system in more than 30 years".

It claims that even though the tax system means that the Government takes £4 in every £10 earned in the economy,  poor tax design "contributes to an inefficient housing market, distortionary taxation of financial services, excessive reliance on debt finance, employment levels lower than they need be and distorted and inefficient savings and investment decisions".

The Review aims to offer a "blueprint" for long-term reform. Proposals include:

  • Replacing fuel duty with a comprehensive system of congestion charging on the roads
  • Integrating income tax and National Insurance, since the latter "no longer serves any purpose as a separate social insurance contribution"
  • Simplifying the VAT system but also expanding it to include financial services and "nearly all spending", with the money raised spent on cutting income taxes
  • Introducing an Allowance for Corporate Equity into corporation tax to ensure equal treatment of equity- and debt-financed investments and that only profits above the normal return to capital invested are taxed"
  • Abolishing stamp duty, which the Review describes as "among the most inefficient and damaging of all taxes"
  • Replacing council tax with a 'Housing Services Tax', with payments based on up-to-date house values
  • Reforming environmental taxes so that charges on carbon emissions are applied consistently
  • Making nearly all savings tax-free if they are "risk-free".

There are also proposals on work incentives and the benefits system, with the Review in favour of the Government's aim of replacing most of the current multiplicity of benefits with a Universal Credit.

The Treasury has responded by saying that it would need to look carefully at any costing of tax reform, which had not been addressed in the Mirrlees Review, while some of the suggested reforms were already underway, such as merging NI and income tax.

Other commenters have observed that in the current economic climate there will be little political will to take on such large-scale reform projects.

But Sir James Mirrlees, the Nobel Prize-winning economist who led the review said:
"[The tax system] could raise as much revenue and achieve as much redistribution as it currently does in far less costly ways. There is no getting away from the political difficulty associated with some of the proposed changes. But there is also no getting away from the enduring costs of failure to reform."

Whatever the likelihood of these proposals, the tax system is very complex and always changing. We can guide you through the minefield… contact us today.

HMRC issues reminder on new Self Assessment penalties

HM Revenue & Customs has issued a reminder about the new Self Assessment penalties for late returns and late payments, which come into effect this autumn and apply to returns for 2010/11, and all future financial years.

The new penalties for late Self Assessment returns are:

  • an initial £100 fixed penalty, which will now apply even if there is no tax to pay, or if the tax due is paid on time;
  • after 3 months, additional daily penalties of £10 per day, up to a maximum of £900;
  • after 6 months, a further penalty of 5% of the tax due or £300, whichever is greater; and
  • after 12 months, another 5% or £300 charge, whichever is greater. In serious cases, the penalty after 12 months can be up to 100% of the tax due.

New penalties for paying late are 5% of the tax unpaid at 30 days, at 6 months, and at 12 months.

Interest will also be charged on top of these penalties. The tax return deadlines remain unchanged - 31 October for paper and 31 January for online returns. The deadline for paying any tax due also remains the same at 31 January.

Just over 10 million Self Assessment returns or notices to file have been sent out by HMRC for the 2010/11 tax year.

More information on the new penalties is available from the HMRC website at www.hmrc.gov.uk/sa/deadlines-penalties.htm - or contact us for help.


ESSENTIAL TAX DATES AND DEADLINES

30 September: End of CT61 quarterly period.

Last day for UK businesses to reclaim EC VAT chargeable in 2010.

1 October: Due date for payment of Corporation Tax for period ended 31 December 2010.

5 October: Individuals/trustees must notify HMRC of new sources of income/chargeability in 2010/11 if a Tax Return has not been received.

14 October: Due date for income tax for the CT61 quarter to 30 September 2011.

19/22 October: Quarter 2 2011/12 PAYE remittance due.

31 October: Last day to file 2011 paper Tax Return without incurring penalties.

For more information on key tax dates and deadlines, visit our 2011/12 Tax Calendar.


QUOTE OF THE MONTH

"The UK has one of the highest personal tax regimes in the industrialised world, making it less competitive internationally, and making us less attractive as a destination for both foreign investment and talented workers. Only by returning to an internationally competitive tax regime will Britain enjoy long-term sustainable economic growth".

A letter to the Financial Times, signed by 20 leading economists, calling for the 50p tax rate to be scrapped.


WEBSITE OF THE MONTH

http://www.wickestradebuilder.co.uk/

New Business Link-sponsored site offering help and advice for people in the building trade.


ON OUR WEBSITE

Capital Allowances Are Changing: Make Sure You're Prepared

The current system of capital allowances will see significant changes from April 2012. Read our guide to the changes here.

2011/12 tax and financial strategies

Discover how to maximise your business and personal wealth with our 2011/12 guide to tax and financial planning.

Warning of 'soar' in fake HMRC phishing emails
HM Revenue and Customs has reported a 300% rise in fraudulent 'phishing' emails over the past year, with over 24,000 scam emails reported to HMRC in August alone.
Click here for the full story

New guidance on minimum wage for work experience staff
The Government has issued new guidance for businesses who offer work experience, placements and internships, designed to clarify when someone is entitled to the minimum wage.
Click here for the full story

50p tax rate "may not raise any extra revenue" claims
The IFS has found that the 50p tax rate for Britain's highest earners may not raise any extra revenue for the Treasury and could actually reduce it.
Click here for the full story

State pension age to 'rise earlier than planned'
The Government is to consider accelerating the rise in the state pension age following concerns that the current timetable is 'too slow'.
Click here for the full story

Autumn Statement date is announced
The Chancellor George Osborne will make his Autumn Statement on 29 November, the Treasury has announced.
Click here for the full story