How 2012 will unfold for tax: 10 key areas to watch
Pension tax relief to come under pressure
Both Labour and the Liberal Democrats have made noises about restricting pension tax relief. The coalition drastically simplified Labour’s plans to restrict the amount that can be contributed to a pension tax free. However, Labour shadow pensions minister Gregg McClymont could put that allowance back into the political spotlight, after having signalled his intention to review tax reliefs for high earners. This could encompass Sipps, and potentially find support from business secretary Vince Cable, who has argued the use of unregulated collective investment schemes in Sipps goes against the spirit of tax relief rules.
VCT and EIS sector to grow
Venture capital trusts (VCTs) and enterprise investment schemes (EIS) are among the last government-backed tax efficient investment vehicles. Some will come under pressure in the new year as the government clamps down on those it does not feel are doing their job of providing to small business and serving only as a tax break for wealth investors.
However, despite frequent suggestions the Treasury would impose more widespread restrictions on the sector, there has been nothing but enthusiasm form the government in supporting VCTs and EISs as a way to convert wealth into funding at a time when small businesses cannot rely on lending from the banks. Next year will see the introduction of a seed investment EIS for business start-ups, and the removal of the £1 million investment limit on VCTs will also boost growth of the sector. Association of Investment Companies director general Ian Sayers (pictured) has argued the latter could ‘transform’ the VCT sector.
Stronger regulation of tax agents
HM Revenue & Customs is to adopt a more regulatory role with tax planners and accountants, launching a new regime for tax agents. HMRC is offering tax agents more powers to execute particular functions for their clients using the department’s own tools. In exchange it wants more information on agents and the ability to name and shame individual agents who exploit tax rules. Further rules to penalise dishonest conduct of tax agents will also be introduced in 2012.
IHT and trust reform
The incredibly complex trust rule book will be reviewed, possibly next year, by the Office of Tax Simplification (OTS), and the Treasury. The review of trust law was one of the OTS’s strongest recommendations under its tax simplification review. However it decided reform had to be root and branch as adjusting any one piece of legislation would have had knock-on effects throughout the rest of the already creaking tax system. There is political will to radically reform inheritance tax (IHT), particularly among the Liberal Democrats. Turning IHT on its head, with a tax on beneficiaries for example, would fit neatly with trust reform.
Closer alignment of NI and income tax
Much excitement was caused last year when the Office of Tax Simplification suggested merging income tax with national insurance (NI). Though the Treasury later said it was interested only in bringing the collection of the taxes closer together, this is no small feat. It would involve changing the way NI contributions are assessed. Different options for calculating NI payments include assessments on a tax-yearly basis, or aggregation across employments or on earnings accumulated over the year.
Race to meet new Qrops rules
Overseas jurisdictions that offer qualifying recognised overseas pension schemes (Qrops) are in a race to comply with incoming regulations. Jurisdictions such as Guernsey and the Isle of Man have until 6 April 2012 to revise internal laws and regulations or else find themselves excluded from the Qrops market. Qrops schemes will have to make changes too, with increasing reporting requirements also coming in to force. The alternative is to lobby hard in the hope HM Revenue & Customs will change its mind.
Banks to face more pressure
Many in the public will still think the banks are having a very easy time of it but it looks likely 2012 will be tougher for the City. Chancellor George Osborne raised the bank levy (raised on bank debts) to 0.088% from 0.078% in his Autumn Statement. The Treasury said the rise was a result of lower than expected lending and needed to raise the targeted £2.6 billion a year in revenue. However, lending could still drop as the economic situation worsens. Osborne's efforts to resist the European Commission's plans for a 'Robin Hood' tax on financial transactions will also continue throughout 2012.
Steep task on tax simplification
The Office of Tax Simplification (OTS) must continue with its tax simplification programme to ensure the progress it has made is not dwarfed by the inevitable wave of new tax rules created next year. Of 36 reliefs marked for abolition this year four were saved from the axe. Alongside its grander reviews of inheritance tax and national insurance the OTS will be expected to continue working through obscure reliefs that can be cleared from the books. It is also tipped to look at capital gains tax reliefs in 2012.
HMRC crackdowns to spread
HM Revenue & Customs is planning a total of nine task forces in 2011/12, with more to follow in 2012/13. Over the past 12 months it has launched teams to focus on construction traders, taxpayers not submitting statutory tax returns, Scottish fast food outlets and landlords in the North West and north Wales. In 2012 its use of taskforces could spread to other locations in the country or to different industries and trades, or both. The government spending review ring-fenced £900 million to tackle tax evasion, avoidance and fraud from 2011/12. HMRC is aiming to claw back £7 billion each year by 2014/15, so there will certainly be more action next year.
Treasury to face resistance over tax avoidance measures
A definitive list of banned tax avoidance scheme is still due to be published but not until 2013. However, there will continued consultation and debate between the tax planning community and government throughout the year. Although the Treasury claims it has support for its plans, concerns have been raised about the proportionality of its proposed measures.