Payquest News
Special Budget Report - March 2010
To this end, legislation will be made from April 6, 2011, to stop businesses using Employee Benefit Trusts to make 'disguised payments' of remuneration to trustees.
Ray McMahon, a tax advisor at consultant365.com, added: "There has been an increase in these schemes, which offer increased take-home pay by various methods, over the recent years.
"It appears 'disguised payments' is an area the government wants to tackle. Businesses have just over 12 months to consider whether to continue with these schemes".
According to the notice, the government says it will take action on trusts and "other vehicles" used to reward employees, where income from employment is not taxed correctly.
Simon Dolan, of SJD Accountancy, said: "This Budget shows how intent the chancellor is to shut down avoidance schemes, which many contractors have been caught up in."
Mr Darling is equally determined to hit people not paying tax on offshore income or gains, SJD said, given yesterday's promise of tougher penalties from HM Revenue & Customs .
McMahon explains: "Where people have moved their money 'offshore,' HMRC will consider settlements with tax geared penalties which could be increased up to 150% or even 200% of the liability".
In a related move, and in line with BN66, the government says it will stop companies from claiming "excessive" tax relief for foreign taxes by "abuse" of the UK's double taxation treaties.
To do this, the government will deploy a package of new measures from April 1, 2010, that will include "principles-based approaches to protect Exchequer revenues."
The same Treasury notice reveals a further clampdown on another type of scheme advertised to contractors as a way they can maximise their take-home pay, said Bauer & Cottrell.
The notice warns of "a measure countering avoidance involving the release of loans to participators by close companies [so]...close companies will be denied a corporation tax deduction for releases or write-offs of loans to participators."
Until now, where a loan was made to a participator and subsequently written off, a reduction against corporation tax could be claimed, explained ex-Revenue inspector Kate Cottrell.
But the legislation produced by the government will target "a number of 'solutions' for contractors" that hinge upon loans being used in this way, she said.
"This [legislation] comes into force from today," warned McMahon, also a former tax inspector.
"[It will apply] where a director takes a loan from the company and then it is written off. Although there was a benefit and NICs to pay, it was considerably less than having to pay off the original loan."
Coupled with the incoming action on double tax treaties, the fact that Budget 2010 dictates write-off loans are now fully taxable confirms that the government remains "serious" about tax avoidance, said Dolan.
Pointing to the Treasury notice, he added: "There are quite a few significant moves in the Budget to attack contractors who might be thinking about using offshore schemes."
Taken together, the department's package of avoidance and evasion measures is expected to raise an extra £1.5billion, while ensuring a further £4bn of tax receipts by 2012-13.
While some will deduce that 'every little helps' in shoring up the UK's balance sheet, which shows full-year borrowing of £167bn, this multi-pronged tax clampdown came in a Budget that was, on balance, comparatively business-friendly.
………..arguably, and given the devilish detail of previous Budgets, the best news for contractors is that "the government has seemingly done nothing to harm us" in Budget 2010, said the PCG.
In fact, in all the Budget's 71 notices, and in all the supporting press notices, there is not a single mention of 'income-shifting,' the family business tax, dispensations or umbrella companies.
'False self-employment' in the construction industry does feature, albeit briefly and only to reiterate that the government is committed to tackling the problem with "a legislative solution."
"Overall, there was not a lot of negative announcements for contractors in the Budget - corporation tax rates aren't increasing any further, income tax is the same, VAT is not changing. To this extent, the positive of the Budget is that there's no new negatives."