Pre Budget Report 2009 - Other Measures

Equitable liability

If a taxpayer fails to file a tax return on time, they may be issued with a determination by HMRC based on an estimate of the liability. The only way to displace a determination is to file a tax return. If the taxpayer fails to do that within the time limit, the tax is legally due and cannot be appealed against. By concession, in the past HMRC have offered a relief called "equitable liability" - if it was clear that the determination was excessive, they would not collect the tax.

Recently a number of concessions - practices which HMRC operate to moderate the harshness of the law - have been withdrawn, and equitable liability was one of these. After a campaign by the tax profession, it will now be included in the law itself, so that HMRC will not collect tax where it is clear that a determination is excessive.

To qualify, a taxpayer must be able to show that the amount is too large, and must bring his tax affairs up to date by filing appropriate tax returns and paying outstanding tax, interest and penalties. It will still be better to do everything on time rather than relying on this new rule.
 

Offshore disclosure opportunity

The PBR includes measures to increase the penalties for "offshore tax evasion". People hiding their money from HMRC in offshore accounts will be subject to penalties of up to 100% of the tax evaded, and there will be separate penalties for failing to notify the opening of an account in certain foreign countries. This means that a total penalty of 200% could be levied, together with interest - if the tax rate is 40%, let alone 50%, the final liability is considerably more than the figure you started with.

At present, taxpayers have been invited to make a disclosure of any offshore assets that have been concealed from HMRC. It will be necessary to come forward by 4 January 2010 to qualify for a special reduced penalty regime. This is supposed to be "one last chance" before the higher penalties will apply in future. HMRC say that they have access to information from over 300 financial institutions which will identify UK taxpayers who have accounts abroad and have not disclosed them - so, once they have sifted through all that information, they will come looking for those who are still hiding.
 

Public sector pay and pensions

One of the biggest measures announced in the PBR is a cap of 1% on public sector pay settlements in 2011/12 and 2012/13, to deliver savings of £3.4bn a year, and reforms to public sector pensions from 2012/13, delivering another £1bn of savings. The Government has to cut spending, and its payroll is clearly one of the largest figures in the budget - but many public sector workers will feel that they are having to suffer for the rest of the country.

Tax avoidance

As usual, the Chancellor has used the PBR to close down a number of cunning tax-saving schemes across a range of taxes. These include schemes to exploit capital allowances, avoidance of stamp duty land tax, reduction of insurance premium tax, and ways of getting money into trust without paying inheritance tax. The Government's figures always include a saving from closing down these plans, but it is more likely that the planners will simply move their efforts elsewhere and hardly any extra tax will result.