For those of you struggling to sleep at night, may I recommend the latest UK Finance Bill.  According to the accountants Grant Thornton, at 686 pages, it is the longest Finance Bill in UK history.  The Finance Bill can be found here.  I am reluctant to even mention the fact that the UK Government has announced 45 tax consultations in case you stop reading.

I enjoyed Jeremy Peat’s comment piece on the UK Budget.  Jeremy comments on the 50p rate of income tax, the 40% income tax band, the economy and lending.  I particularly liked this comment: “What about incentives? Well, one effect of the Budget is to drag very large numbers of folks into the 40p tax band. Logically, I would have thought the adverse effect on the incentives of this substantially larger group would be expected to be [much] greater than any positive incentive effect from reducing the top rate to 45p for a much smaller group.”  If you are registered with the Herald website you can find all of Jeremy’s article here.

Now to the fiscal powers debate Italian style.  It is claimed that Italy’s prosperous German speaking South Tyrol autonomous province wishes to buy its financial independence.  South Tyrol has a population of around half a million and already has a large amount of autonomy. Up to 90% of tax revenue stays in the region, while the other 10% goes to Rome.  South Tyrol was occupied by Italy at the end of the WWI and annexed in 1919.  After WW2 the Allies decided that the province would remain a part of Italy, but would be granted a large amount of autonomy.  The article that I came across on Twitter can be found here.

“Devo max” for London?  An interesting article from the London Evening Standard can be found here.  I am surprised that Boris Johnson has not made more of an issue of this before now.

Last week I mentioned the report by the David Hume Institute on the debts and liabilities that an independent Scotland may be responsible for.  The report also made reference to the fact that the UK has approximately £821bn of “assets”.  I was glad to see that the “asset” side to the fiscal powers debate continued this week.  An article in the Scotsman on this issue by Jennifer Dempsie can be found here.

It seems that any new charge is automatically labelled a “tax”. My first example is from Dundee and a so called “tax on creativity”.  Members of Dundee’s licensing committee have decided to postpone implementing a controversial act that it is claimed could hinder the city’s arts scene.  The rule would have required exhibitions or public shows put on by the artists, gallery owners, musicians or publishers to be licensed from 1 April, even if they were free.  With the cost of a licence ranging from £124 to £7,500, artists said many free shows and exhibitions would simply not take place. The background to this is the Criminal Justice and Licensing (Scotland) Act 2010.  An article from the Courier on this can be found here.

My second example has been termed a “property extension tax” by the Daily Mail.  The Mail reported this week on how planning permission fees for property extensions will increase from £160 to £300 in Scotland.  The Mail compared this with the £150 charge in many English local authorities.

Now to the unsurprising news that charities have banded together to protest at the capping of donor tax relief that was announced by George Osborne in his Budget statement.  Two leading umbrella bodies, the National Council for Voluntary Organisations and the Charities Aid Foundation, have set up a website calling on Osborne to exclude charities from the proposed cap.  More than 200 organisations have already signed up to support the campaign, called “Give It Back George”.  Principals of five Scottish universities are among those signatories to a letter asking the UK Government to abandon this proposal.  The campaign website can be found here.  An article on this from the Scotsman can be found here.

An article in the Herald claims that this week’s 8% rise in Air Passenger Duty (APD) will lead to a 46% growth in HM Treasury’s revenue from APD by 2016.  It does seem that APD makes the news every week.  The reason for that is how APD is at the centre of a number of debates.  The airline industry would like to see it abolished or at least reduced.  Then there is the call for it to be devolved to the Scottish Parliament.  The UK Government has already signalled its intention to partially devolve APD to Northern Ireland.  Worth also noting that until recently the environment would be mentioned in the context of APD.  That though now rarely happens.  How quickly things change.  An article from the BBC news website can be found here.  If you are registered with the Herald website an article on APD can be found here.

The Guardian reports that the House of Lords Financial and Economic Affairs Committee has warned against the planned European Union financial transaction tax.  That is not a surprise.  What is interesting about this article is that it covers a possible alternative to the proposed financial transaction tax.  The alternative is the introduction of national stamp duties on share transactions, which the UK already has and which France is set to follow in August.  The Guardian article can be found here.

Now to Ireland and news that almost half of Ireland’s 1.6 million households have refused to register to pay the new €100 annual tax on residential property by the 31 March deadline.  The mass non-compliance was organised through an Internet campaign and backed by protest marches.  The levy, which also applies to foreign owners, is expected to rise sharply next year.  A report on this from the Irish Times can be found here.

Swiss authorities have issued warrants for the arrest of three German tax inspectors.  The three are accused of buying a CD containing bank client data stolen from Credit Suisse in Zurich, which led to the investigation of hundreds of German taxpayers with undeclared Swiss accounts.  The Prime Minister of North-Rhine-Westphalia has come to the defence of the tax inspectors and has said that the tax inspectors were only doing their duty.  Given the escalating war of words between these countries in this issue, I suspect that this matter will run for a while yet.  A report from Spiegel online can be found here.

Good luck to Edinburgh Rugby this weekend and also to those competing at the new look Gala RFC sevens.  I wonder if any politicians will be pictured eating hot pasties or sausage rolls at these events.  Have a good Easter weekend.

I will start with where to find one of the most comprehensive and detailed review’s of last week’s UK Budget statement.  The link is to the always impressive Institute of Fiscal Studies and can be found here.  In particular see the “Business tax, stamp duty and anti-avoidance slides”.  Slide 9 on “Forecast revenue from anti-avoidance measures” is particularly revealing.

Now to the fiscal powers debate.  I was disappointed to see that Peter de Vink has been deselected by the Scottish Conservatives.  Peter was hoping to be elected to Midlothian Council in May.  As far as the fiscal powers debate is concerned this shows that there are some on the centre right in Scotland who can see the opportunities that fiscal autonomy or independence could bring.  Peter’s article in the Herald can be found here.

The First Minister has announced the setting up of a “Fiscal Commission Working Group” to establish a fiscal framework for an independent Scotland.  The group will include former World Bank Chief Economist and Nobel Prize winner Jospeh Stiglitz of Columbia University.  My only slight concern relating to this group is that it comprises four economists, albeit eminent economists.  This group needs to ensure it has an understanding of the underlying law and legal framework that is crucial to creating a new fiscal framework for Scotland.  That includes the creation of a Scottish Exchequer.  I will once again reiterate my call for a review of all government tax, law and registration services in Scotland.  A Scottish Government press release on this can be found here.

I was also interested to read about a report by the David Hume Institute which claimed that an independent Scotland would be liable for around £100bn of debts and liabilities.  In particular I was interested to see one of the first references to the “other side of the balance sheet”.  The report says that the UK has approximately £821bn of “assets”. The £100bn figure comes from deducting £69bn of assets from approximately £152bn to £171bn of debts and liabilities.  A Scotland on Sunday article on this story can be found here.  This particular part of the fiscal powers debate has a long way to go.

In advance of May’s local government elections, Reform Scotland has called for non-domestic rates to be devolved in full to local authorities.  This would mean a variable business rate in different areas of Scotland.  The Reform Scotland paper can be found here.  Non-domestic rates is one of two tax powers presently devolved to the Scottish Parliament, the other being council tax.  Although these taxes are administered by the local authorities control rests with the Scottish Parliament.

The proposal would also mean that local authorities would keep the revenue they collect from business rates.  At the moment this revenue is handed back to the Scottish Government.  The Scottish Government then redistribute it as part of its grant to each local authority.  The Reform Scotland proposal could also be used as a framework for when control over the Crown Estate is devolved to the Scottish Parliament.

According to a study carried out by accountancy firm UHY Hacker Young, Edinburgh businesses contribute more to the UK economy per head of population than any other major city in the UK.  The main reason given is that Edinburgh wasn’t hit as hard by the financial crisis as London.  In addition, oil-rich Aberdeen was the only major UK city to see its economy grow during the recession.  This is excellent news for the Scottish economy.  An article from the Scotsman on this can be found here.

Now to corporation tax.  The Financial Times recently reported on how 15 multinational companies are considering locating substantial operations in Britain as a result of UK corporate tax reforms.  What I found most interesting about this report is when tax competition is discussed in a UK context it is a positive thing.  Contrast this with the tone of the debate over devolving control over corporation tax to the Scottish Parliament.

Continuing on the corporation tax theme.  It is not just the headline rate of tax that is important.  The underlying law which deals with, for example, reliefs is just as important.  Further evidence for this is shown by a recent statement by the European Commission.  The European Commission are claiming that the UK is breaking European law by imposing an immediate capital gains tax charge on companies that relocate to another EU member country.  The Commission has requested that the UK abolish this exit tax within two months, or be referred to the European Court of Justice.  I await the reaction to this by the UK Government with interest.  The statement from the European Commission can be found here.

The Unoccupied Properties Bill has been introduced at Holyrood.  At the moment empty and unfurnished residential properties are exempt from council tax for the first six months.  After that period, they qualify for a 10% discount.  Under this Bill local authorities will be given the power to charge up to twice as much council tax on residential properties that are empty and unfurnished.  It is hoped this will act as an incentive for home owners to bring their empty houses back into use.  The Scottish government has also announced a new loan fund which will be specifically targeted at projects bringing properties into use for affordable housing.

The new bill will also controversially reduce the non-domestic business rates discount for some empty commercial properties from 50% to 10%.  The argument put forward is that this will encourage owners to bring boarded-up shops back into use.  A report from the BBC news website on this can be found here.

Now to England.  Over 85% of local authorities have accepted the UK Government’s offer to freeze council tax rates.  This is contrast to the agreement reached between the Scottish Government and all of Scotland’s local authorities.  England’s local authorities were offered a one-off grant worth 2.5% of their budget if they agreed to the freeze.  More on this can be found here.

Let’s end with Wales and the news that the Welsh Government has started to consult on whether Wales should be a separate legal jurisdiction.  The Welsh government will ask the judiciary, lawyers and members of the public whether they want a jurisdiction along the lines of those found in Scotland and Northern Ireland.  An article from the Law Society Gazette on this matter can be found here.

Have a good weekend.

As with any Budget statement, it is best to take a few days before passing judgement.  That said, and even before all of the detail has been analysed, there are a number of issues that stand out even just 24 hours after the Chancellor sat down.

The first concerns the debate, for “debate” read “leak everything”, that has surrounded a large number of Budget issues over the last few months.  We have a come a long way from the days when Gordon Brown did not even tell Tony Blair what was going to be in the Budget statement.

The proposed reduction in the top rate of income tax has dominated the political news coverage over the last few months.  The debate over how much it has raised will not end with the Budget statement.  There is no doubt it has led to a great deal of tax avoidance, aggressive tax avoidance.  That was to be expected.

The changes to the personal allowance and tax rate thresholds, has already begun to dominate the news coverage.  The coalition government must be hoping that the news coverage concentrates on the increase in the personal allowance and not the 300,000 more people who will be drawn into the 40% income tax rate from 2013/14.  To put this in context.  In the 1980’s approximately 5% of people were higher rate taxpayers.  Now it is 15%.

The freezing of age related allowances is also likely to cause problems for the coalition government.  Somehow they need to show that this is a good example of tax simplification.

The claim that does stand out is that by reducing the top rate of income tax, combined with other avoidance measures, five times more tax will be raised from the richest.  The Institute of Fiscal Studies noted today that that this is the third worst Budget statement for measures relating to tax avoidance.  This is measured on how much tax the avoidance measures to be introduced are likely to save.

Now to an old Budget favourite, stamp duty and Stamp Duty Land Tax (SDLT).  The SDLT changes were not unexpected especially for anyone who buys a Sunday newspaper.  The Chancellor announced that the level of stamp duty on residential properties over £2m which were bought via a company would increase to 15% with immediate effect.  In addition, overseas companies that already own UK residential property worth more than £2m will be subject to capital gains tax (CGT) from April 2013.  The CGT point was less expected but nonetheless welcome.  This though should have been dealt with many years ago.  The Chancellor also made it very clear if avoidance of this kind continues, further measures would be introduced without warning which have retrospective effect.

That though is not the main issue with SDLT in Scotland.  In Scotland only around 10 properties a year are sold that are worth over £2m.  The jump from 1% to 3% of SDLT at £250,001 is a much bigger issue.  Hopefully that will be one of the first issues dealt with when this tax is finally under the control of the Scottish Parliament.

One change I was hoping to see, in vain I might add, was a targeted VAT reduction for home repairs and renovations.    

Now to the fiscal powers debate.

The UK and Scottish Governments have agreed a number of changes to the Scotland Bill.  Both Governments will now recommend that their respective Parliaments support the Bill.  A number of minor changes have been agreed.  The Scottish Government has secured changes to the sections of the Bill dealing with borrowing powers and the Supreme Court.  It was also agreed that the measures contained in the Scotland Bill would only be implemented with the agreement of the Scottish Parliament.

The proposed reservations of insolvency procedures and regulation of health professions will also be removed preserving the Scottish Parliament’s existing legislative competence for these areas.  More on this can be found on the Scottish Government’s website which can be found here.  The list of proposed amendments agreed by both the present, and previous, Scottish Parliament Scotland Bill committees is also listed.  These lists show how few changes have been made to this Bill.  A report from the BBC news website on this matter can be found here.

The House of Commons Scottish Affairs Committee has said that the Crown Estate’s control of 50% of Scotland’s coast and almost all the seabed should be devolved to Scotland’s local authorities.  The Scottish Affairs Committee said management of the marine environment lacked transparency and public consultation.  It is now difficult to find someone who is opposed to devolving this power.  Does that mean the Scotland Bill will be further amended to include this power?  I suspect not.  More on this can be found on a report on the BBC news website which can be found here.

I was intrigued to see the Secretary State for Scotland, Michael Moore, asking for tax clarity from the Scottish Government and in relation to the independence referendum.  There is a simple answer to this question, and which would provide a degree of certainty for individuals and businesses alike.  There should be no major changes for two or even three years to the tax legislation, and system of administration, that the Scottish Government inherits in the event of a “yes” vote.

I was not surprised to read that the Scottish Government is struggling to persuade HM Treasury that the new Scottish police and fire services should be exempt from VAT.  This is likely to mean an annual VAT cost of between £22 and £36m.  Under the current structure police forces are treated like local authorities and are exempt from VAT.  However, if they merge they may be subject to VAT.  A report on this from the BBC news website can be found here.  My earlier blog on this can also be found here.

The new definition of a charity will apply to all UK charity tax reliefs from April 2012.  More information on this can be found here.  I still find it odd that when it seems that everyone is talking about tax simplification, that bodies wishing to become a charity have to meet various conditions set by OSCR (Office of the Scottish Charity Regulator) and then by HMRC.  The reason for this is that the definition of a charity in Scotland is different from that used in England and Wales.  HMRC apply English and Welsh law.  This means if Scottish charities wish to claim the various UK charity tax reliefs then they also have to submit an application to HMRC.  What utter nonsense.  If the UK Government were serious about tax simplification, the fact that you are registered as a Scottish charity should be enough to allow a charity to claim the various UK tax reliefs.  The same issue applies in Northern Ireland as it now has its own charity regulator.

I was interested to see that the European Parliament has finally voted to approve the cross border inheritance law proposed by the European Commission to clarify which jurisdiction’s succession law should govern an international estate. The UK and Ireland remain opted out of the regulation.  A report on this from the BBC news website can be found here.

François Hollande, the Socialist candidate for the French presidency, has provided more detail of his plan for a 75% top rate of income tax.  He now says there will be a ceiling on the total tax paid by an individual in one year; and that the rate will be only temporary until the public sector budget is balanced.

Finally to Greece and some encouraging news.  The head of the European Union’s Greek task force, Horst Reichenbach, has reported the collection of almost €1bn (£830m) in back taxes.  Almost double the target figure.  A good start but still a fraction of the amount outstanding as they believe there is around €8bn in uncollected tax revenues.  More on this from a report on the BBC news website can be found here.

Have a good weekend.

I would like to start with an observation.  Over the last few weeks I have attended a number of tax and law update seminars.  Without exception the speakers have commented on the constitutional debate.  Why should that surprise me?  Even a few months ago this would not have happened.  There might have been the odd mention of the Scotland Bill but even that would just be in passing.  As one of the few lawyers who were willing to discuss tax issues in a constitutional context over the last few years I find this a welcome development.  You never know someone may even listen to my call for a review if all government tax, law and registration services in Scotland.

Most Scottish local authorities will by now have sent out their 2012/13 council tax bills.  This is of course an unusual bill as we know in advance that it will be the same as last year.  One notable exception is Stirling Council which it seems almost by accident reduced its council tax.  Although I get the sense that the council tax “freeze” is being taken for granted it cannot go on forever.  It is obviously important politically and not just because we are just a few weeks away from our local elections.  That said, at some point there needs to be a new review of how we finance local government.  As someone who believes that our councils should have a degree of choice in this matter I would like to see this review begin as soon as possible.

The fiscal powers debate had a fairly quiet week.  No new “commissions” have been announced which is a relief.  An old favourite of those who oppose devolution and independence did though rear its head again.  Ruth Davidson talked about giving Scotland something called “real devolution”.  For “real devolution” read “no more powers for the Scottish Parliament”.  Ruth Davidson said: “I want to talk about devolution – not devo max or devo plus, or devo mix, or I can’t believe it’s not devo – but real devolution from Holyrood to people and communities across Scotland.”  This in my opinion is   similar to the argument that the Scottish Parliament already has lots of fiscal powers that it simply fails to use.  That particular argument is rarely seen outwith the opinion pages of the Scotsman.

An example of this type of thinking was given recently when the UK  Government decided not to devolve control over the Crown Estate to the Scottish Parliament.  Instead the UK Government passed some control over Crown Estate revenue to the National Lottery.  A decision that I think it is fair to say was unexpected.  More on Ruth Davidson’s statement can be found here.  I will ignore the fact that Ruth Davidson appears to be at odds with what the Prime Minister said on his recent visit.

I have been following with interest the debate on introducing a “minimum price” for alcohol.  This is a rare example of a policy where the aim is clearly to change behaviour and not just raise revenue.  I have written before on how policy makers sometimes disingenuously argue that a policy is to change behaviour rather than increase revenue or vice versa.  Personally I have struggled to understand the opposition to this policy.  That said, do I think that a policy of minimum pricing on its own is enough?  Of course not, nor does the Scottish Government and the myriad of health professionals who support this policy.

Do I think that an even better policy could be developed if powers over alcohol duty were to be devolved to the Scottish Parliament?  Yes I do.  This was also pointed out in the Scottish Government’s paper on “Devolving Excise Duty in the Scotland Bill”.  Specifically this would allow the Scottish Government to “align the revenue benefit with the public spending costs of alcohol consumption.”  This would also ensure that the main downside of a minimum price policy, extra revenue for the retailers of alcohol, can be balanced out.  Lastly devolution, as I often say, is complicated.  It makes sense to devolve those tax powers that are clearly connected with already devolved areas of responsibility such as health.  The Scottish Government paper can be found here.  A report from the BBC news website on this issue can also be found here.

The UK coalition government are clearly worried as to how they are being perceived on the now rather unfortunate phrase: “we are all in this together“.  The Deputy Prime Minister is reportedly softening his proposals on a so called “tycoon tax”.  I am not sure why this idea is being called a “tycoon tax” as this is simply a minimum net tax rate for a person’s total income.  In a speech to the Liberal Democrat conference on Sunday he made no mention of a minimum tax rate less than 48 hours after announcing it.  This idea is not a new idea.  Most recently it has been advocated by President Obama.  It is also has the advantage of a being a fairly simple idea.  The Deputy Prime Minister has suggested a 20% rate.  President Obama a 30% rate.  The Obama proposal appeared shortly after it was reported that Republican candidate Mitt Romney, a multimillionaire, had a net tax rate of around 13%.  More on this can be found here.

Let’s finish with London.  Ken Livingstone has denied claims that he has not paid the “correct” amount of tax on his income.  Livingstone also claims that he is the victim of a “smear campaign”.  This story has some similarities with the furore that greeted the news that highly paid public officials were being paid via a company.  My earlier blog on this can be found here.  I have to admit to some sympathy with Livingstone on this one.  Yes there is an element of hypocrisy here but Livingstone is not an elected politician, albeit a candidate, nor is he is a public official.  An article from the Guardian on this can be found here.

Have a good weekend and let’s hope for some good news from Rome.

Let’s start with “GERS”.  No not the blue half of Glasgow but the: “Government and Expenditure Revenue Scotland 2010-11”, or GERS for short.

The latest GERS report was published this week and shows that Scotland contributed 9.6% of UK public sector revenue and received 9.3% of total UK public sector expenditure.  These figures include a per capita share of UK debt interest payments.  Scotland’s population is 8.4% of the UK total.  Scotland’s estimated current budget balance in 2010-11, which is primarily day to day expenditure, was a deficit of £6.4 billion, or 4.4% of GDP.  These figures include a geographical share of North Sea revenues.  The corresponding UK figures were a deficit of £97.8 billion or 6.6% of GDP for the same year.  That includes 100% of North Sea revenues.

As is usually the case with statistics, and probably even more so with those which are used as ammunition in the fiscal powers debate, economists and other commentators will argue back and forth on what these facts and figures tell us.  That is why I agree with Reform Scotland’s call for the Office for Budget Responsibility to provide forecasts for all taxes raised in Scotland and not just those that might be devolved by the Scotland Bill.  Reform Scotland’s press release can be found here.  More on GERS can be found here.

Now to the fiscal powers debate.  This week it was Labour’s turn to announce a “commission that will look at how devolution should change and what further powers should be devolved to the Scottish Parliament.”  This means that none of the main political parties are arguing for the status quo or even just the Scotland Bill.  The Liberal Democrats have already announced their own commission and the Conservatives, or rather the UK Conservatives by way off the Prime Minister, have said that they will consider devolving further powers if Scotland votes no in 2014.

The announcement of yet another commission received quite a lot of media of coverage.  The fact that Labour think a second referendum will be required if Scotland votes “no” in 2014 was less commented upon.  I suspect that this will also be the view of both the Liberals and the Conservatives.  That clearly conflicts with the argument that Scotland needs an early referendum to stop “uncertainty”.  An article on this from the STV news website can be found here.

Aberdeen City Council is expected to apply for more than £90m of tax incremental funding (TIF) following a ‘yes’ vote in the Union Terrace Gardens referendum.  A report on this from the STV news website can be found here.  I have written before on why I support TIF and the type of thinking behind this type of idea.  The one caveat I have concerns the number of these projects. As was found in the United States, if too many projects are approved the ability to fund both old and future projects gets harder.  The Scottish Futures Trust is though well aware of what happened in places such as Illinois, where I worked as an attorney, and first came across TIF.  More on TIF can be found here.

I was not surprised to read that a last minute bid to stop the Scottish Government’s plan to levy a tax on supermarkets and large shops has been defeated.  The “Tesco tax”, as this proposal has been termed, will see retailers which sell alcohol and tobacco pay an extra £95m in business rates over the next three years.  A BBC news website piece on this can be found here.

Sometimes when you read a story about the workings of government, local or national, you just sigh.  This is one such story.  Whitehall departments have been criticised for overspending by £500m on schemes that were actually intended to save money.  The National Audit Office found that UK ministers failed to offer clear management for the setting up of pooled resource centres.  The aim was to stop costs being duplicated.  The ever excellent Labour MP Margaret Hodge, who chairs the House of Commons Public Accounts Committee, said that the overall figures provided: “a shockingly familiar story of spiralling costs and poor value for money”.  Will anyone be brought to account?  Will a gong have to be returned or a bonus forfeited?  I suspect not.  A BBC news website piece on this can be found here.

Now to the Budget debate.  For “debate” read “battle between and briefing against your coalition partners.”  There are a number of fronts in this battle.  These include how quickly to increase the personal allowance limit, whether to reduce higher rate pension tax relief, the possible introduction of a “Mansion” tax and whether to retain the 50p top rate of income tax.  Is it worth speculating as to the outcome of these battles?  Not really.  Fun though that would be this is a political game pure and simple.  The “winner” will be the side who at that moment has the most power not necessarily who has the best ideas.  It was ever thus.

The more interesting debate, and this has just really begun, concerns whether and to what extent wealth as opposed to income should be taxed.  That is where the debate is going.  I will come back to this issue after the UK Budget.

One final point on the so called “Mansion tax”.  I do find the lack of commentary on the fact that local taxation is devolved to the Scottish Parliament amusing.  Can you imagine the Scottish Parliament’s reaction to the UK Government interfering with one of the few tax powers it has?  Let’s call that a rhetorical question.  We do know how the UK Government reacts if the Scottish Parliament or the Scottish Government dares to do something that touches on a reserved matter.  Here are a few examples: free personal and nursing care, local income tax and minimum pricing for alcohol.

As with last week’s blog I will end with the French presidential election and news that Francois Hollande, the Socialist candidate, has announced plans to raise the top rate of income tax to 75 per cent on “indecent” annual incomes above €1 million. The use of the word “indecent” says it all.

Good luck to all our teams in action in Ireland this weekend.

I think I will start with VAT and the proposed new Scottish national police force.

It was reported this week that the proposed new Scottish police force may face an annual VAT bill of £22 million.  Under the current structure police forces are treated like local authorities and are exempt from VAT.  However if they merge they may be subject to VAT.  The Scottish Government is currently in talks with HM Treasury to eliminate or minimise this potential financial liability.

I suspect that the Northern Ireland police force will be mentioned during these talks and in particular the fact that it has VAT exempt status.   So what is the problem you might ask.  The same exempt status will surely apply to the new Scottish police force.

The “just because it happens in Northern Ireland” argument does not always work with HMRC and HM Treasury.  Northern Ireland already has borrowing  and welfare powers.  Anyone involved in the Scotland Bill deliberations knows how hard HMRC and HM Treasury resisted calls for borrowing powers to be included.  They succeeded in ensuring that only restricted powers were included.  Welfare powers were not even seriously considered.  Northern Ireland is also to get partial control over air passenger duty and also possibly corporation tax.

In addition it seems that HMRC and HM Treasury cannot help but react negatively to any policy proposed by the Scottish Parliament that deviates from or impinges on reserved matters.  Examples include free personal and nursing care, local income tax, the Scottish Futures Trust and minimum alcohol pricing.  A report from the BBC news website on this issue can be found here.

Now to a surprise cut in council tax.  Stirling Council has become the only local authority in Scotland to reduce its council tax after councillors passed a budget on their second attempt.  The 1% cut, effective from 1 April, will see Band D council tax go down £12 from £1,209 to £1,197 a year.  Labour and Conservative councillors voted the measure through in an “alternative” budget after rejecting the minority SNP administration’s proposals.  More on this can be found on a BBC news website report which can be found here.

An article from the Evening News reports that The City of Edinburgh Council wants to investigate the idea of creating a “business improvement district” for Edinburgh’s tourism industry.  This would involve businesses making contributions to promote the city.  The article from the Evening News can be found here.  This is the latest in a series of revenue raising ideas from Edinburgh Council and of which I have written about previously.  See for example my blog of 9 December 2011.

Now to the fiscal powers debate and the latest group to enter the fray.  “Devo Plus” is a creation of the think tank Reform Scotland.  I should declare an interest as a former trustee of Reform Scotland and one of the authors of Reform Scotland’s “Devolution plus” fiscal powers paper.  I am though not involved in this campaign.  The position taken by the Devo Plus group is that they are opposed to “devo max” and independence and do not think the Scotland Bill goes far enough.  Instead they argue that the Scottish Parliament should be able to raise an amount roughly equal to what it is responsible for spending.  VAT and national insurance would remain in the hands of HM Treasury to ensure that Westminster was also accountable for its spending in Scotland.  It will be interesting to see what impact this campaign has in the coming weeks.  More on Devo Plus can be found here.

Now to the debate over the top rate of income tax.  Those arguing for the abolition of the top rate of income tax will be analysing preliminary UK Government statistics which suggest that the 50 per cent top rate of income tax has not raised any extra revenue.  A press release from Grant Thornton on this can be found here.

The “fuel duty discount pilot scheme for remote island communities” comes into operation today.  I was not surprised to see a report on the BBC news website of how HM Treasury had warned oil suppliers against attempting to profiteer from this scheme.  The report also notes that over the past week rises in the cost of fuel supplied to Orkney, Shetland and the Western Isles have been greater than the proposed discount.  Petrol and diesel at island pumps can be 20p more expensive than mainland prices.  I also read this week that the UK has the highest fuel tax burden in Europe with 60 per cent of the cost of unleaded petrol and 58 per cent of diesel made up of fuel duty and VAT.  I will resist the urge to make an ironic comment about North Sea oil.  The BBC news website report can be found here.

The BBC has reported that Barclays Bank has been ordered by HM Treasury to pay half a billion pounds in tax which it had tried to avoid.  Barclays was accused by HMRC of designing and using two schemes that were intended to avoid substantial amounts of tax.  The schemes, described as “highly abusive”, enabled the bank in question to avoid paying corporation tax on the profits it made from buying back its own debts, and to reclaim tax credits from HMRC on certain investment funds. The BBC website news report can be found here.

Now to a good idea.  A new “Assurance Commissioner” is to be appointed by HMRC following criticism from the House of Commons Public Accounts Select Committee about the relationship between HMRC and big businesses.  The following is from an article in the Telegraph and nicely sums up this matter: “In a move that amounts to a humbling mea culpa, HMRC is set to admit it needs to improve “transparency, scrutiny and accountability” after being publicly lambasted by the Parliamentary Public Acounts Committee over deals with Goldman Sachs and Vodafone.”  The article from the Telegraph can be found here.

I think I will end with France.  I will resist the urge to talk about last weekend’s game and instead mention a report by Reuters.  According to Reuters there has been a sudden rise in the number of French residents asking their wealth advisers about tax exile. They fear that the socialist party’s candidate Francois Hollande may win the forthcoming presidential election and increase wealth taxes.  I have heard similar claims many times before.  I have often wondered how many people actually leave.  I suspect not that many and, of those who leave, many regret doing so.

Have a good weekend.

Hanson v HMRC [2012] UKFTT 95 (TC) 

The First-tier Tax Tribunal has held that when determining whether a farmhouse qualifies for agricultural property relief (APR) from inheritance tax, the farmhouse and the land to which it is of a “character appropriate” must be in the same occupation, but need not be in the same ownership.

A reminder of where “character appropriate” comes from:

Agricultural property” is defined for APR purposes in section 115(2) of IHTA 1984 as meaning:

• Agricultural land or pasture.
• Woodlands occupied with (but ancillary to) agricultural land or pasture.
• Buildings used in connection with the intensive rearing of livestock or fish, provided the buildings are occupied with (but ancillary to) agricultural land or pasture.
• Farmhouses, cottages and farm buildings, and the land occupied with them (such as garden or grounds), that are of a character appropriate to the property described above.

Some background

Immediately before his death in December 2002 Joseph Charles Hanson was the life tenant of a trust created by his father in 1957.  The trust held a property that both parties in this matter agreed was a “farmhouse” for APR purposes and had an open market value in December 2002 of £450,000.

Mr Hanson’s son lived in the farmhouse which he had occupied since 1978 under a rent free licence. From there the son farmed 215 acres of land of which 128 acres was owned by the son and 25 acres was part owned by Mr Hanson.  The remainder of the 215 acres comprised 20 acres rented by the son from a third party and a further 42 acres whose ownership was unspecified.

The only land in common ownership and common occupation with the farmhouse was the 25 acres part owned by Mr Hanson and farmed by the son.

Following Mr Hanson’s death his executors claimed APR on the value of his interest in the farmhouse.  HMRC denied the relief on the basis that there was insufficient agricultural land in both common ownership and common occupation with the farmhouse for the farmhouse to pass the “character appropriate” test.

The son appealed the decision in his capacity as sole trustee of the trust arguing that common occupation was the only connecting factor required between the farmhouse and the agricultural land to which it was of a character appropriate.  The Tribunal agreed with the son.

This decision may be of significance in situations where a downsizing farmer has moved out of the farmhouse and gives away much of the agricultural land.

This decision is likely to be appealed by HMRC.

The full judgment is available here.

I think I will start with the fiscal powers debate.

There have been two more important contributions during the last week.  Both the Prime Minister and the former UK Chancellor, Alistair Darling, have said that devolving further tax and fiscal powers should be considered if Scotland votes “no” in 2014.  These announcements are only the latest in a series of high profile statements on this issue. In fact the Scottish electorate is in danger of being crushed in the stampede of former opponents of serious fiscal autonomy announcing their very own Damascus type conversion.

What though of the friendless Scotland Bill?  There is an obvious opportunity here for those who are against independence but in favour of greater tax and fiscal powers.  There is time to amend the Scotland Bill and to give a clearer idea of how much power they believe should be devolved.  That would also mean that the PM would have to give us some idea of which additional powers should be devolved rather than simply refusing to answer the question as he did this week.  There could even be a clause in the Bill saying that the provisions do not come into force until after the referendum.

If this is not done, and there is a no vote in the referendum, we will have years of further debate on this issue.

Now to HMRC’s latest targeted tax avoidance campaign.  The contrast to how HMRC and HM Treasury, albeit with Ministerial approval, have helped dozens of high earners employed by the public sector reduce their tax bills, is a stark one.

As a former electrician, long story, I was interested to see that the top dogs in the world of tradesmen are next to be offered a partial tax amnesty by HMRC.  Those who accept will be charged penalties of only 10 to 20% of the tax owed rather than the 100% maximum available penalty.  A similar campaign concerning plumbers has so far led to ten arrests and thousands of investigations.  I have resisted the urge to explain the main difference between an electrician and a joiner.  More on this offer can be found here.  Worth looking at even for an example of HMRC humour which is found in the title.

Let’s stick with HMRC.  HMRC is about to start issuing penalty notices for 850,000 late self assessment income tax returns.  HMRC have also reported that a record 90.4% of taxpayers filed on time this year.  I do though look forward to reading some of the fantastic excuses that people have used to explain why their return was not returned on time.

Now to the UK Budget which is less than a month away.  Lots of rumours regarding tax relief on pensions and what the Liberal Democrats are “demanding”.  I expect to see more “stories”, for stories read “briefing against my fellow Ministers”, on the cost of bringing forward the planned increase to the personal allowance.  I also expect to see more calls for a reduction in business taxes and simpler labour laws from sources in the Conservative party.  For “sources” read “Liam Fox”.

To put the tax cut debate into context the UK has borrowed £93.5bn so far this tax year.  That is down from £109.14bn in 2010/11.  Tax receipts are though likely to be back to pre-crash levels this year.   As is usually the way with statistics both sides can quote these figures to back up their arguments.

Now to a warning by the body who regulates solicitors in England & Wales.  Practitioners who help clients reduce their stamp duty land tax liabilities may be risking disciplinary sanctions. The Solicitors Regulation Authority is especially concerned about residential property schemes.  More on this can be found here.  I will be interested to see if the Law Society of Scotland decides to issue a similar warning.

I liked the following from a story in the Herald: “Gangster tax”.  Strathclyde Chief Constable Stephen House believes that police should be allowed to keep a share of the ever growing haul of underworld assets seized under the Proceeds of Crime legislation.  This legislation allows for the civil recovery and confiscation of money, goods and property earned through illegal means.  The Herald article can be found here although registration is required.

Now to Europe.  Europe’s Tax Commissioner Algirdas Semeta has given a speech assuring the City of London that it will benefit from a European Union financial transactions tax.  Good to see the Telegraph covering both sides of this debate.  I was particularly interested in one point made by Semeta.  Semeta challenges the claim that ordinary citizens and businesses would bear the brunt of the tax.  Semeta is quoted in the Telegraph article that day-to-day financial activities will not be included and that 85% of the transactions take place purely between financial institutions.  The article from the Telegraph can be found here.

Now to Japan.  A piece on the BBC news website reports that the Japanese cabinet has passed a plan to double sales taxes in an attempt to control the soaring costs of public debts.  The plan, which needs the approval of Japan’s parliament, will see taxes raised from the current 5 to 8% in April 2014 and then up to 10% by October 2015.  The reason for this is that Japan’s social security costs are expected to rise by 1tn yen (£8bn) a year as its population ages.  It estimates 40% of the population will be of retirement age by 2060.  The BBC news website article can be found here.

Lastly I was disappointed to find out that there is no longer a Stamp Office presence at Registers of Scotland.  It we cannot even join up these two bodies then it is clear there is no appetite amongst either the politicians or the civil servants, whether of a Scottish or UK ilk, to review and hopefully consolidate the numerous tax, law and registration services that currently exist in Scotland.  Given the relatively small size of our country and the likelihood of greater tax and fiscal powers being devolved then this is clearly a case of sticking one’s head in the sand.

Have a good weekend.

More information on the new contact details for the Edinburgh Stamp Office can be found here.

There is no longer a Stamp Office presence at the Registers of Scotland.