Finance Bill

The first Finance Bill of the new parliament has been published. The Bill, to be known as Finance Bill 2005, reintroduces legislation announced in Budget 2005 that was not enacted by Finance Act 2005. The government has also responded to representations made since 24 March by making a number of changes to legislation in the Bill as introduced.

 

Government response: Paymaster general Dawn Primarolo

 

Paymaster general Dawn Primarolo said: "The government believes that the measures introduced by the original Finance Bill presented to the House are essential for an effective, principled, targeted and fair tax system, that maintains the UK's competitiveness, but acts where there is a loss to the UK Exchequer. This new Finance Bill fulfils our commitment to reintroduce these clauses."

 

Stakeholder Response: Association of British Insurers

 

 

Following Thursday’s publication of the Finance Bill, Peter Vipond, ABI Director of Tax and Regulation, commented on the proposed legislation regarding the taxation of surplus assets of life funds:

 

“While it is disappointing that proposals relating to the taxation of policyholders in with-profits funds have been introduced without full consultation, we are pleased that the government intends to accept our call for a sunset clause. 

 

“We will continue to press for a level of taxation of with-profits business that is fair to policyholders, and look forward to working with the government on a longer-term solution that is more acceptable to all parties.”

 

Stakeholder Response: the Association of Chartered Certified Accountants

 

 

ACCA (the Association of Chartered Certified Accountants) has attacked the length and complexity of the legislation proposed in the Finance Bill.

 

Chas Roy-Chowdhury, ACCA Head of Taxation, said: "In our recent tax manifesto we spelled out to the government two key messages - firstly that businesses need certainty and clarity in tax legislation, and secondly that tax avoidance is legal, by definition. Retrospection (back to March 16) and complex anti-avoidance measures are precisely what business does not need and exactly what this finance bill introduces.

 

"Large businesses will be particularly hit by the anti-avoidance provisions in this bill - the 'arbitrage' clauses, which seem to propose the UK tax authorities policing multinationals. Companies will now be prevented from receiving 'double-dip' relief in two different jurisdictions if they use so-called 'hybrid' entities or instruments. This will create upheaval among many multinationals and widespread uncertainty as to how these clauses will apply."

 

On pensions, there is more bad news. The lump sum for an individual who agrees to defer taking up his/her state pension by five years will now be taxed.   

 

Chas Roy-Chowdhury said: "This is a blow and is not a move that will help with the pensions crisis. Not only will the government gain by not having to pay pensions for those five years but will also now earn tax revenue from these lump sum payments. We had hoped that these lump sums would be tax-exempt but they will now be taxable at anything up to 40%". 

 

But ACCA points out one silver lining amidst the clouds. Gift Aid has been extended to increase tax benefits to the individual from charitable giving.

 

Chas Roy-Chowdhury said: "The one positive contribution of this bill is to widen the Gift Aid provisions, by extending them to buildings, artefacts and gardens amongst others. For instance, being able to get free entrance to these attractions will no longer be taken into account, in the so-called 'economic benefit' test, so these activities will not now be excluded from Gift Aid relief."

 

ACCA believes the length and complexity of today's Bill illustrates why a Tax Policy Committee (TPC) needs to be established. This would operate along the lines of the Monetary Policy Committee (MPC). Government would set the overall economic framework of the tax environment and the TPC would work on adjusting the tax system as appropriate, with a view to long- term simplification.