Remember the days when we used to just have one Budget a year? Of course, the Autumn Statement under the coalition is very definitely not a mini-budget (according to them)- although a number of tax and benefit measures were announced. So what are the main ones, and how do they affect you?
Pensions and benefits
Leaked before the actual statement, the Chancellor announced that the State Pension age will be increasing sooner than previously advised, with a minimum age of 68 by the mid 2030s and 69 by the late 2040s. If you have children now, they won’t be able to retire until they are 101.
This means that anyone younger than mid-forties is looking at an increase in retirement age, to keep pensions in line with the latest life expectancy projections, apparently. George did not, however, address the issue of the wildly different life expectancies (figures from the ONS) depending on where in the country you live…
State pension and jobseekers benefits will also be excluded from the welfare spending cap- where the Government is going to tighten the welfare purse strings and allow the lower classes to fight it out amongst themselves for a share of the pot. And heaven help you if you become incapacitated at the end of the financial year, when it’s all been spent.
Cars and fuel
Another pre-announcement was the scrapping of tax discs for cars. Unfortunately this does not mean the Road Fund Licence is being scrapped, merely the perforated circle of paper attached to your windscreen. From 2015 the system will be completely online (most evaders are currently caught through number plate recognition rather than inspection of said perforated circle) and drivers will be able to pay for the disc monthly through direct debit, rather than 6 or 12 monthly as at present. The current rates for 6 month licences are around 10% higher than the annual disc- both this and the direct debit option should come in cheaper from 2015 with a 5% premium instead.
The next fuel duty rise has also been scrapped. After all the Government cares deeply about “hard-working families”.
On top of the personal allowance rising to £10,000 from April, the one policy the Lib Dems have actually managed to get through, the Autumn Statement confirmed some family-friendly measures that have already been wafted about.
The transferable married couple (or civilly partnered couple) allowance will become a reality, but only for those households where one member does not work, or works very little, earning £9,000 or less a year. Up to £1,000 of personal allowance can be transferred to a spouse, saving 20% in tax (£200 a year).
For those with small children, after reading a report by two posh foodies, the Government has also decided to introduce free school meals for every infant school age child (4-7) in years Reception to year 2 starting from next September. Junior children can fend for themselves.
At an average cost of around £2 per day, that equates to a fairly impressive £390 a year saving for parents. Of course, parents will be free to choose whether their child takes free dinners or whether they would rather send sandwiches, at least for now- the report the Government are acting on actually advised that sandwiches were so evil, they should be banned from schools altogether. Presumably along with all children with food allergies and other dietary requirements that would mean they can’t eat State-approved food…
The High Street
Even the Government has noticed that the High Street is suffering somewhat, and has announced a raft of business rates measures aimed at rejuvenating the shops near you. Discounts, £1,000 reduction in bills and reoccupation relief might mean that you see some new shops offering keen prices to compete with the not-cold-and-windy option of shopping online.
But watch out, you might be more likely to be served by a spotty teenager. A new concession for workers under 21 will save employers national insurance for these workers- up to £1,000 per worker earning £16,000- making them much cheaper to employ than those ancient 21 year olds.
There were lots of other figures in the Autumn Statement- some changes to capital gains tax rules on residential properties, and lots and lots of new figures showing how the last figures were all wrong. The new figures clearly show what A Grand Job George has been doing. We’ll all just have to wait until the next Statement to hear how wrong these figures were and how much even better George is doing just before the 2015 election…
You’ve got to hand it to HMRC, they are keeping up with the times, and where they suspect some financial skulduggery is going on they will use all resources at their disposal. Including stalking you on the internet.
It’s true- officers in any one of HMRC’s 56 taskforces have been known to snoop through people’s Facebook accounts, Twitter feeds and even do a spot of Google Street View snooping in order to catch canny criminals. They are looking for signs that a potential fraudster’s lifestyle doesn’t fit with their declared income, so looking for Bentleys or Yachts on drives is fair game, along with investigating the private school fees you pay, as in one example quoted by accountancy firm UHY Hacker Young, whose client had a poster advertising a school fete in their garden at the time the Google Vans* passed by.
A spokesman for HMRC confirmed the use of Google Street View, but played down the extent of its use: “We do use Google Street View but our investigations have a greater focus in looking at an individual’s bank account, employment history and the value of their property.”
So is this an inappropriate invasion of privacy, or is it only those with something to hide that are going to complain? And the use of publicly-available social information has been fair game for a while- insurance companies will search Facebook as a matter of course when defending personal injury claims to make sure you’ve not just posted pictures of yourself bungee-jumping, so is this any different, really?
*if this isn’t already trademarked, it soon will be
With all the hoo-ha over the Royal Mail flotation- where shares are currently trading 40% up on subscription price- many of the private investors getting £750 shares may have decided to hold the shares within an ISA to protect the income and gains from tax. Indeed, many people prefer to invest in an ISA over a pension scheme as there are no restrictions on what you can do with the ISA gains as and when you want to spend them. Now, however, it seems the Treasury is considering implementing caps on how much can be invested in ISAs, and on how much can be withdrawn tax-free from personal pensions.
ISAs have been around since 1999 when they took over from the popular PEP scheme. ISAs can either be cash, or hold investments, and when they were first introduced, the contribution limits were £7,000 per annum for shares, or £3,000 for ‘mini’ cash-only ISAs. However, in 2009, the previous Government decided that contribution limits should be upped, and the limit currently stands at £11,520, with a maximum of half invested in cash ISA accounts.
But in a disturbing and likely to be highly unpopular move, the Sunday Telegraph has reported that Treasury officials are worried that ‘ISA millionaires’ are taking the mickey, and are discussing the possibility of introducing a £100,000 lifetime contribution cap.
Now. If you had contributed the maximum to an ISA every year since they appeared, the total possible contributions is around £130,000, and it would therefore take some investing genius to have turned that into a million in 14 years. However, if you bring in any previous PEP/TESSA savings from before 1999, it is possible that some people are sitting on a tax-free mountain. However, the Sunday Telegraph claims this is a tiny fraction of ISA holders.
But if the contribution limit were £100,000, far more people would be affected- an estimated 2% of current ISA investors and an unknown proportion of people who may have been hoping to build up that level of contribution over a lifetime, particularly when planning to use the ISA funds as retirement savings. According to reports, in 2012/13 an estimated 15 million ISA accounts were opened with an average £3,900 investment- this would mean the £100,000 limit would be met in a little over 25 years of average contribution.
But if the average contribution is, and has been, well below the maximum contribution limit, why was the limit increased at all? If it is only the wealthy that benefitted, it is now the not-so-wealthy who end up paying the price.
But Government fiddling with tax free vehicles is not new, and fiddling may be one of the reasons why ISAs are used as retirement savings. Before, money held in a pension plan could be drawn at 50, now the lower age limit is 55 and who’s to say the Government (whomever that may be at the time) won’t change it again, up to 60 or even 65 before you retire. This time, however, reports are not that the age will be adjusted, but the tax free percentage.
The current regime allows you to contribute into a scheme (subject to ever-tighter contribution limits) and receive tax relief at your marginal rate at the time. However, the price for this tax relief on the way in, is that the funds are restricted on the way out, in that, you have to buy an annuity or draw from the capital. When you die, if you’ve bought an annuity there’s nothing left; if you haven’t, you suffer a massive tax charge on any balance. Any pension paid is also taxable as income.
The one shining advantage in the pension structure is that you can withdraw up to 25% of the value of the pension fund out as cash, tax-free, and many people will use this to pay off any mortgage outstanding, so as to reduce living costs in retirement. Sunday Telegraph sources claim that it is this tax free cash under scrutiny, with rumours that the amount will be cut to 20%, or even capped- the Republic of Ireland has introduced a €200,000 cap and the Pensions Institute suggest a cap of just £36,000 would be appropriate.
Sounds like the Government might be scuppering its own plan to get more people to save more for their retirement. Either that, or this is all smoke and mirrors in advance of the Chancellor’s Winter Autumn Statement, so that when he announces that tax relief on pension contributions will be capped at basic rate, we all think it could be worse.
The Treasury deny a lump sum cap is being considered, but say they have been out ‘listening’ *hums twilight zone*.
Apparently, firms oversupplied some European markets with rolling tobacco by 240% and then proceeded to turn a blind eye when it was smuggled back to Britain. On top of that, the tax authorities failed to fine or prosecute the big four tobacco companies.
This has contributed £660m to the loss to the public purse.
“[HMRC] has failed to challenge properly those UK tobacco manufacturers who turn a blind eye to the avoidance of UK tax by supplying more of their products to European countries than the legitimate market in those countries could possibly require,” said Margaret Hodge, chairwoman of the Public Accounts Committee (Pac).
The oversupply went to countries like Belgium and the Netherlands, as well as Spain, which just happen to be convenient holiday destinations or somewhere you could drive to in a van.
Of course, the tobacco industry contested the claims and said: “We don’t oversupply, it wouldn’t make any sense to do that. The UK is one of our most profitable markets.” The HMRC defended themselves too, saying that the illegal cigarette market had been more than halved with nearly 3.6 billion illicit smokes and more than 1,000 tons of rolling tobacco seized in the last two years.
It has emerged that Facebook paid no corporation tax in the UK last year, despite the fact they made an estimated £223million. According to accounts, the British wing of the social network made a loss on these shores.
Figures show that FB’s turnover here was £34.6million, though analysts reckon it was something more like £200million. These figures don’t show up on the UK accounts because Facebook’s sales in Britain are put through Irish books, where corporation tax is lower.
Of course, this is completely legal under the rules of HM Revenue & Customs, but that won’t stop it sticking in the collective craw.
Margaret Hodge, chairman of the Commons Public Accounts Committee, said: “This is yet another example of what appears to be deliberate manipulation of accounts of economic activity to deprive the British taxpayer of a rightful tax contribution, according to the profits they make in the UK.”
Facebook said: “We pay all taxes required by UK law and we comply with tax laws in all countries where we operate. We take our tax obligations seriously, and work closely with national tax authorities around the world to ensure compliance with local law.”
If you were lucky enough to lose your child benefit entitlement earlier this year, but continued to draw it, the deadline for informing HMRC is looming. By law, you need to tell HMRC that you owe them money (yes, really) no later than six months after the end of the tax year in which the tax liability arose. For the 2012/13 tax year (the child benefit rules changed in January 2013) which ended on 5 April, you need to register for a Self Assessment return by 5 October. That’s next Saturday.
Why do I need to complete a tax return?
The law changed in January and made those where one partner in a couple has income over £60,000 ineligible for child benefit, and those with an income of between £50,000 and £60,000 entitled to a reduced amount. HMRC wrote to those they thought might be affected to tell them they could either stop receiving the benefit, or they could claim the cash, and repay it through a Self Assessment tax return.
While declining the benefit is the simplest option for those earning over £60k, it may be that the non- or lower-earning partner receives the benefit and they continue to want this cash (rather than asking for ‘housekeeping’). Also, there is a cash-flow benefit of taking cash totalling £1700+ of the Government’s money and not giving it back for up to 22 months. Those earning between 50k and 60k would not be advised to decline the benefit, as they should get a proportion, and even for those whose salary is over £60k, allowable deductions like pension contributions might mean they officially earn less, for child benefit abatement purposes.
Of course, high earners will probably already need to complete a tax return as any non-PAYE income (including miniscule bank interest) will need to be declared and higher rate tax paid. But remember, Labour says people earning £50-£60k are not high earners (although someone earning £6k a year may disagree), so they may indeed be needing a tax return for the first time.
You may also need to declare your child benefit if your income rose above £50k for the first time in 2012/13.
What do I have to do?
You need to register for Self Assessment, but helpfully, you can now do it online here, quoting your National Insurance number. If the only reason for needing a tax return is down to child benefit, then the person earning over £50k should register. If both spouses earn over £50k , then the highest earner should register.
What happens if I don’t register for Self Assessment?
Well, immediately, nothing. However, if HMRC can show that you had a liability and you didn’t tell them in time, you can be penalised for not submitting tax returns and suffer surcharges for not paying back (in tax) the benefit received. The normal deadline for submitting online returns is 31 January following the end of the tax year (so 31 January 2014 for 2012/13), but paper returns normally have to be in by 31 October (2013). However, where a return is not issued by 31 July, you normally get up to three months to submit a paper return. The normal late tax return penalties will apply if you don’t get your tax return in on time.
However, more worrying is the new ‘failure to notify’ penalty regime, under which HMRC can penalise you up to 100% of the tax due just for failing to tell them you were going to owe tax.
What will you be doing this time next week? If you want to save some money, you will be in the pub.
Next Wednesday (25th September) is Cheap Beer Day Tax Parity Day, a protest day staged by members of the VAT Club JB. However, unlike most protests (which at best mean nothing to the ordinary person, but at worst mess up your day in some way), this protest actually saves you money and encourages you to go drinking. Win/win.
The point behind the protest (in case you care) is that the hospitality industry is narked at our current high levels of VAT that definitely apply to pubs, clubs and restaurants, but may not apply to supermarkets selling similar products. This is clearly leading to a decline in the industry and VAT Club members are campaigning for VAT on served drinks and food to be changed to the reduced rate, currently 5%.
The JB of the VAT Club JB and mastermind of the campaign is Jacques Borel, a veteran VAT campaigner who has already stamped his feet across Europe, earning VAT reductions in Germany, Belgium, Sweden, Finland and France.
Borel, who has a vested interest, owning 1,042 restaurants and 35 hotels across Europe, believes lower prices will lead to a rejuvenation of the hospitality industry, and create jobs- his mission is “to launch 1.5m new jobs in bars and restaurants across Europe” before he retires. He claims the tax reduction from 19.6% to 5% in France led to the creation of 225,000 jobs in the first year.
For one day only, pub chains JD Wetherspoons, Brains, Heineken, Shepherd Neame and Punch Taverns, alongside family brewers Fuller’s and St Austell, will join forces with Pizza Hut and Subway and will reduce their prices by 7.5%, to reflect the Utopia of a reduced rate VAT world.
Clearly, the difference between 20% and 5% is actually 15%, rather than 7.5%, but Borel is a pragmatist- “if Government cut VAT to 5%, some businesses would pass on the entire cut to their customers, others would pass on slightly less. We believe that the average amount prices would fall for consumers will be about 7.5%” He also doesn’t believe in dressing business as altruism “This is going to be an incredible driver of sales…you have to remember that these guys are not heroes; they are businessmen. They know that reducing VAT will bring in more custom.”
And it seems he’s right on the money. “We’re aiming to make it the busiest day of the entire year,” Tim Martin, JD Wetherspoon’s chairman told The Telegraph. “Creating tax parity among pubs, restaurants and supermarkets will create more jobs and raise the amount of tax that Government receives. It’s a win, win situation for Government, voters and our industry.”
While no-one (other than the VAT man) is likely to complain at a reduction in VAT, it remains to be seen how effective the campaign is. Finding full pubs on Tax Parity Day, however, is only going to provide concrete evidence that it is the extra VAT cost keeping people out of pubs. You could say it is your patriotic duty to join in next week.
You’ve got to feel a bit sorry for HMRC. Incomes are stagnant or falling, more people are out of work (including fewer HMRC officers) and still they are expected to keep grinding more tax out of people to prop up the Treasury coffers.
The latest bright idea is to marry up debit and credit card data with declared income and profits to catch out traders who omit to disclose all their profits. New powers bequeathed by Government allow HMRC to request access to this data from the UK’s ‘merchant acquirers’, which will give them the value and number of transactions made in favour of any specific trader. This data can then be tied into information reported on tax forms.
So far sounds disturbingly like common sense. The legislation, which took effect on 1 September, allows HMRC to obtain data on card payments to all UK businesses for the previous four years. The first requests for the data will be sent to card companies this week and from next year this will be an annual request.
HMRC say this will “level the playing field” for all businesses and they estimate this could reduce fraud by £50 million per annum.
Whether this does prove such a valuable tool in business remains to be seen- perhaps many evasion-inclined businesses would try and overlook cash payments rather than third-party recorded card payments. However, what would be more scary is if these powers were extended to look at personal purchase histories- the situation where the Revenue are able to call you up and ask you just how you can afford to pre-order a PS4 while on JSA may not be far away…
So the Government’s much awaited childcare tax relief has finally been fleshed out and poor old George can’t win. After being criticised over the (also fairly woolly) transferable marriage tax allowance for favouring families where one
woman partner doesn’t work, he is now being criticised for rewarding women parents who do go out to work. Poor lamb.
Yes, the proposed new scheme will only apply where all parents are working, and will give relief at 20% (equivalent of basic rate tax) on up to £6,000 of childcare costs per child, per year, a benefit of up to £1,200 per child every year. However, the relief will not only be available to basic rate taxpayers (those earning less than broadly £41,450 per year), but also to families where each partner can earn up to £150,000. Payments will be made via voucher in a similar way to employer provided childcare voucher schemes.
The scheme is not due to begin phasing in until September 2015, at which point all five year olds and under will become eligible. The following year, six year olds will be added, then seven year olds and so on until all children up to the age of 12 are eligible. From then on, entitlement will stop in the September following their 11th birthday. Not great news if your child is born in August. Also, the eagle-eyed among you will have noticed that if your children were born before September 2010, you can go whistle and you will never benefit from the scheme. I knew I didn’t like this Chancellor.
However, the proposed scheme is only a proposal at the moment, and comments are being sought on the final application of the scheme. Following representations, parents on parental leave and who are carers will now be specifically able to claim even though they are not ‘working’, so more changes may yet emerge before 2015. Revenue and Treasury consultations are normally only receive responses from interested representative groups and pensioners with far too much time on their hands, but to make it easy for parents, the actual people affected, to express an opinion, the Treasury have actually also produced a handy online questionnaire so we can all tell them exactly what we think. About the working parents childcare relief scheme.
The Chancellor has already come under fire from groups championing the stay-at-home parent, claiming the relief stigmatises and excludes people making this important choice. Mr Osborne said he was “on the side of people who want to work hard and get on in life” and told the World at One that he had “huge respect” for mothers who stay at home for “lifestyle reasons”.
Laura Perrins, of the pressure group Mothers at Home Matter, spat her tea out and told the Telegraph: “Saying stay-at-home mothers have made a lifestyle choice is pejorative and patronising. They are contributing to the economy, to society, to everything. Staying at home is not a luxury, it’s not a hobby. Women who chose to stay at home make huge sacrifices.”
One does wonder why they would need to pay for childcare if they had made the sacrifice to stay at home with their children, however.
You might remember a few months back we told you how Thomas Cook Airlines were pocketing your Air Passenger Duty (APD) if you had to cancel or miss your flight. APD is only payable if you (the passenger) actually take off, so if you didn’t turn up for any reason, Thomas Cook just pocketed the money. On short-haul European flights this might not be a huge amount, but could add up to £332 on a flight to Goa, or £268 for a family of four travelling to destinations such as the USA and Gambia. Besides, it’s the principle that counts, right?
Now, Thomas Cook Airlines have decided to “review” this policy, and glory hunters Which! are all over this one, claiming this change of heart has only come about after they highlighted the issue. This might be true, but Which!! also showed Thomas Cook Airlines up as being the worst rated airline to fly with to the Canaries/Balearics and Greece and we’ve seen no evidence that they’ve got any better despite Which!!!’s efforts.
In any case, Thomas Cook Airlines have decided to go the Ryanair/Flybe route and charge £25 ‘admin fee’ when processing APD refunds, £12 more than the APD charge on European flights. Easyjet refund APD in full with no admin charge, so it can be done, but only by airlines who aren’t as inefficient as the ones that spend £25 in staff hours looking for the misplaced APD in order to return it to the customer who paid it. After all, it couldn’t possibly be just a ploy to keep customers money…
A Which!!!! Travel expert (Richard Lloyd must be on holiday this week) said: ‘We welcome the fact that Thomas Cook Airlines has responded to our research on APD refunds by improving its policy. We’re pleased that consumers cancelling long-haul flights will no longer lose out unnecessarily on up to hundreds of pounds of APD. However, we are disappointed there will be an admin charge that is higher than the APD for flights within Europe, making it pointless for some short-haul customers to apply for a refund.’
Never more acute a need than during the long school summer holidays, Grandparents Plus and Age UK have estimated that childcare provided by UK Grandparents is worth £7.3 billion a year. With 1 in 4 working families and 1 in 3 working mothers using grandparents for childcare, and 1 in 5 grandmothers providing at least 10 hours a week of childcare, the proportion of child-caring grandparents who are of working age is set to grow as the State retirement age gradually rises.
However, the Department for Work and Pensions (DWP) is The proposed flat-rate pension from 2016 of £145.40 is only earned with 35 years qualifying contributions. If grandmothers gave up their own careers to raise their families, they may not have enough years in the bank to qualify for the full amount and will receive a pro-rated smaller amount.
However, current child benefit rules state that whomever is claiming child benefit (often, but not always the mother for this very reason) can claim a National Insurance stamp for child caring responsibilities until the youngest child reaches 12 years of age. However, if the mother is working, she could earn enough to get her National Insurance stamp through her salary (earning at least £109 per week) in her own right.
Now, parents and grandparents can retrospectively claim to transfer some or all of the child benefit National Insurance stamp to grandparent (or other family member under State Pension age) carers. The claim must be sent to HM Revenue and Customs in the October after the end of the tax year (ie from 1 October 2013 for 2012/13 claims) and can be made for any number of weekly stamps, with no minimum child caring hours requirement on the grandparent/carer. More details are available in this HMRC information sheet.
This credit transfer is only available for credits from April 2011 onwards, but claims can also be made 2011/12 tax year now. 2012/13 claims cannot be made until October, as HMRC needs to check that the parent surrendering the child benefit credit has earned enough to generate their own credit before making a transfer. Both parent transferor and child-caring transferee must sign the form.
Pensions Minister Steve Webb said
“Many grandparents are working hard all year round looking after their grandchildren, and it is important that they do not damage their own state pension rights as a result. Such grandparents are contributing to society just as much as someone in a paid job and should therefore be entitled to the same protection for their state pension as if they were in work.”
So everyone’s favourite Chancellor George Osborne has officially confirmed that there will be an announcement of a tax break for married couples included in his Autumn (Winter) statement. However, the news has not been met with as much jubilation and patting on the back as anticipated, or at least, not outside the Tory party HQ.
But why not? Lots of people in the country are married, surely they would appreciate a nice little tax break from Dave, as he promised back in 2010. The Conservatives like to promote family values, and what better way to do so than to reward proper families for doing the right thing?
The problem is, that the Conservative idea of a family is not necessarily one that is valid and relevant today. Even leaving aside the idea that only married people can be a proper family for a moment, the way in which the allowance is most likely to work will only benefit a small proportion of married couples.
The proposed scheme will work by allowing one spouse to transfer some (or possibly all?) of their personal allowance to the other spouse. Current figures suggest that up to £750 of allowance will be transferable between spouses, which will be worth a whopping £150 in tax savings. But the big problem behind the plan is that, unless one of you has a highly-paid job (like an MP, for instance), for many households, both spouses need to work.
Transferable personal allowance only works if one spouse (not necessarily, but presumably in Conservative-land, a woman) does not work, or works for ‘pin money’ earning less than (broadly) £8,500. The other spouse must also earn more than around £10,300. This means that the lowest income married families may not earn enough to benefit from the scheme. If both spouses work, or both earn £9,440 or more, there will be no tax benefit of marriage at all. It could be argued that the only people who will benefit are the well-off, who can afford for one spouse not to work, although the proposed scheme could also be income-limited in a similar way to entitlement to child benefit to try and prevent people getting higher rate (40%) relief on transferred amounts.
But proponents of the scheme argue that it will encourage people to get married, which, in turn, is categorically proven in cast iron terms to be better for absolutely everyone involved, including the children, which are an absolute requirement of marriage. But will it really? Is less than £3 a week really enough to turn your head and run down the aisle/gap between chairs in a register office? Even a high street wedding dress costs more than £150. And what about widows? Are they not worthy because their spouse had the indecency to die?
The plan will cost around £550m a year in its current form and will apply to up to 4 million married couples. But couldn’t that money could be better spent on something that benefits more of the population, like lowering VAT, or Council tax? Although that would presumably not have the dual effect of pandering to the 1950s notion of family held by senior Conservatives and pissing off Deputy Prime Minister Nick “I have never understood the virtue of a policy that basically says to people who are not married: you will pay more tax than people who are married or, more particularly, married according to the particular definition of marriage held by the Conservative Party” Clegg completely.
Amongst all the economic doom and gloom there’s sometimes a bright spot- that someone else might be feeling it worse than you. Latest figures released by the Office for National Statistics show that, with the income gap at its lowest for 26 years, it is the people considerably richer than yow that are feeling the pinch hardest. Wonder if the Government know about this…
Figures updated to 2011/12 show that household income of the richest quintile of people before tax was 14 times higher than those in the lowest fifth. However, once taxes and benefits were taken into account, that figure fell to just four times.
And most of the tax paid by the lowest fifth is in VAT and other indirect taxes. Because these are levied at a fixed percentage rather than increasing with income levels, VAT has a disproportionately high impact on those with lower incomes. The increase in VAT to 20% in January 2011 meant that the lowest quintile paid 29% of disposable income in indirect tax, compared with just 14% of income spent by the highest earners. However, once direct progressive taxes are added into the mix, the total proportion of income paid in taxes by both groups is similar, although the lowest still pay slightly more, proportionately, at 36.6% (compared with 35.5%). This inequality, particulary with VAT, is why some unions are calling for a drop in VAT rate rather than an increase in personal allowance- if you already earn less than £9,500, increasing the personal allowance will not benefit you at all.
Of course, those with the lowest incomes also tend to receive cash benefits to supplement their actual income, with 57.7% of gross cash income of this group coming from benefits, compared with just 3% of the highest income group. All this means that rich people’s income is ‘only’ four times that of the lowest paid.
Of course, this is only good news if you consider yourself to be among those with the lowest income and/or you subscribe to the social concept of income equalisation. It could be argued that, although the Government has a mandate to tax the population to help provide communal services, like defence and the NHS, the prospect of Robin Hood-esque taxation to give some of your money to other people is outside any such remit. Of course, this argument will be of no use whatsoever when you get prosecuted for not paying your taxes, but it might make you feel better when languishing in your cell.
Who said politicians were scaremongerers? Not Vince Cable that’s for sure. Speaking in Glasgow yesterday, the Business Secretary refused to stoop so low when (presumably) canvassing for a No vote in a Scottish independence referendum.
What Cable did do, according to Scottish paper The Daily Record, is merely to warn Scots, out of a touching concern for their pockets, that if they chose to vote Yes, they could end up paying more for children’s clothes and food than if Scotland chose to remain within the comforting arms of the rest of the UK.
Not wanting to be seen “fishing for a headline that says ‘Alex Salmond will impose a new tax on children’s clothes’”, Mr Cable also threatened roaming charges on mobile phones, international stamp costs and increased costs for Scottish hauliers in a report he described as “positive and optimistic in tone”.
But does he have a point? Not that Alex Salmond is going to prioritise a school uniform tax, but there is an underlying issue to do with VAT. Children’s clothes and staple food items are zero-rated for VAT purposes in the UK, meaning the VAT on them is charged at a pocket-friendly 0%. However, under EU law, which governs VAT throughout the Union, the UK’s zero rate is actually not allowed, as countries are supposed to have just two rates, a standard rate (generally around 20%) and a lower rate for concessionary items. The UK zero-rating is only still here because it has been around so long, and the EU have so far turned a blind (ish) eye.
If Scotland were to become independent, it would need its own Revenue authority, and its own VAT rules, and as a new member, it may not be able to implement an outdated, non-sanctioned zero-rate. The implication is, therefore, that things like children’s clothes and food could, at best, be reduced rated, which assuming a 5% reduced rate, would make these things 5% more expensive.
The Daily Record produced a handy school uniform graphic (above) showing the extra 5% that could possibly in the middle distance future be levied on poor Scottish parents. We just want to know where they got school shoes for £10 from…
When it was first mooted, it was a bit of a joke, but following the consumer backlash against Starbucks, resulting in them promising to make ‘voluntary’ additional tax payments and growing consumer grumblings about boycotting the worst tax offenders, the new fair tax mark has indeed come into existence.
With the same kind of idea as the fairtrade badge, where consumers can choose whether they spend their money on items that are fairtrade or not, the fair tax campaign think their mark is “a unique tool aimed at setting a high standard of corporate behaviour and transparency relating to tax.”
Today, the first set of rankings have been released, where 25 of the UK’s largest retailers (note this is UK companies, so Amazon is not included as it is not a UK company) have been scrutinised on three separate measures,; whether they report their earnings by each country, how close their effective tax rate is to the headline rate, and whether they have subsidiary companies in tax havens. Only companies with a score of 12-15 (out of 15) will get the all-important badge.
The results of the retail sector can be seen here. Top of the shop is George Osborne’s favourite Greggs with an impressive 15 out of 15, closely followed by wine retailer Majestic, which has seen impressive growth over the past few years since no-one can afford to pay pub prices any more, with a score of 14. These two are the only two UK retailers to earn a Fair Tax Mark.
At the bottom end, Carphone Warehouse, Home Retail (Argos), Sainsburys and WH Smith all languish on just 2 points, with Tesco and N Brown Plc (clothing) just a point higher on 3. Tesco apparently got all defensive claiming their tax rate is low because of Government subsidies to encourage investment and job creation. Not sure what the 50+ tax haven subsidiaries have to do with the Government though.
The plan is to roll out the judgment to various other sectors in due course.