Always nice to get away from things for a while.  Islay gives you a different perspective.

Tax has only featured in three conversations here and as each also mentioned whisky I felt that made it acceptable.  The general sentiment seemed to be: “Islay gives a lot to the UK Exchequer every year and we get very little back in return”.

One person I spoke to told me that: “Islay’s whisky industry contributes approximately £100 million a year to the UK government in excise duty and value-added tax.”  To put that into context, and if that figure is correct,  that is about £30,000 for every man, woman and child on the island.

The main tax stories of the past week have a familiar feel to them.

The debate over devolving complete control over corporation tax to the Scottish Parliament has continued.  This week saw HM Treasury predicting doom and gloom if such a thing were to come to pass.  More ammunition for those wanting to see a Scottish Exchequer.

In a connected issue, Scotland’s First Minister said that the oil industry should be consulted on any new changes to offshore taxation.  The background to this is the proposal by the UK government to increase the supplementary charge on oil production from 20 to 32 per cent.

The other major political tax debate also rumbles on.  That being the top rate of income tax.  This still feels like a “phoney war” but you also get the feeling that a formal start to hostilities might just be round the corner.  The main warring parties in this case being the coalition partners of the UK Government.

This week saw twenty economists (makes you wonder what a group of economists is called), in a letter to the Financial Times, urging the UK Government to drop the top 50p tax rate.  They claim it is doing “lasting damage” to the UK economy.   The top rate is paid at 50p for each pound earned over £150,000 and affects around 310,000 people.  Opponents say cutting the top rate at a time of cuts would be “monstrously unfair” and “phenomenally immoral”.  UK Government Ministers continue to hedge their bets by saying that the 50p rate is temporary and that their policy is to first increase the income tax threshold to £10,000.

Although not as widely reported as the two issues above, I did like the council tax news item from the Courier.  The report explained how funds raised by increasing the council tax on second homes had helped to pay for affordable housing projects across the Perth and Kinross Council area.

In February 2005 Perth and Kinross Council agreed that additional money collected by reducing the council tax discount on second homes and long-term empty properties could be used to support the development of affordable housing.   The Council  reduced the 50% second home discount to 10%.  The reduction covers around 1,800 properties.

Back to the mainland tomorrow!

A week that saw HMRC step up pressure on Rangers FC, calls for a tax on “junk food” in The Lancet and reports on how Bonn uses a  meter to tax its prostitutes.  I did like the argument put forward against the use of this meter by a prostitutes’ rights activist: “double taxation”.

The Liberal Democrats are making almost all of the running on tax ideas and policy just now.  The debate, for debate read argument, over whether to retain the present top rate of income tax and/or introduce a “mansion tax” continues between the partners in the UK coalition government.  In addition the Liberals are calling for a proper examination of how a “land tax” might work.

Attendees of last night’s annual CBI Scotland dinner heard, in between the odd constitutional reference, its UK President Sir Roger Carr, criticise the UK’s “punitive” tax regime and HM Treasury’s “misguided” levy on North Sea oil production.

Not surprised to hear of HMRC’s role in the “Mortgage Verification Scheme” and that it is to start scaling back its “time to pay policy”.  That is a scheme that allows a businesses additional time to pay its tax bill.

Surprised that those calling for a reduced rate of VAT on home repairs and renovations are not making more use of the fact that the Isle of Man has negotiated such an agreement with HM Treasury.

Not a dull week.

It was reported in The Lancet last week that an international group of researchers are recommending that “junk food” should be taxed.

Watching a piece on the news last night on this issue it seemed that this proposal will follow what I see as the “usual pattern”.  Recent examples include: “transient guest” or bed tax, minimum price for alcohol, plastic bag levy, European transaction tax, bank levy, carbon tax and non-doms charge.

An organisation or government suggests a tax or charge.  The press report it.  A debate begins on whether the tax is to change behaviour or raise funds.  Often the proposer suggesting the tax is not sure or fails to make clear that the answer is both.  That often provides its opponents an easy line of attack.  In most cases no thought has been given to what rate the tax will be charged at or how and by whom it will be collected or even how much is likely to be raised.  Again if the proposers have not thought of this its opponents have an easy line of attack.

In some cases, such as when environmental taxes were being suggested, a cynical person might have concluded that the “change behaviour” argument was used by some backers when in fact they really just wanted the revenue.

Then the appropriate trade body argues that taxation is not the answer and some form of voluntary agreement will do just as well.  A trade body is used as individual companies do not want to be seen directly arguing about the matter in question.  If the proposal is by one government and affects a second government then a similar argument is likely to be used.

Then politics takes over!

A report from the BBC on taxing “junk food” can be found here and The Lancet here.

More debate on the top rate of income tax.  John Mason, former MP and now SNP MSP, suggested that the top rate of income tax is increased when the power to vary income tax rates is passed to the Scottish Parliament.  This proposal was given short shrift by the First Minister.   Eric Pickles, UK Community Secretary, wants to slash the top rate of income tax and thinks that imposing a “mansion tax” would be a mistake.

The UK Government’s deal with the Swiss banks got a mixed reaction.  The Swiss government has agreed to tax money held by UK taxpayers in Swiss bank accounts for the first time, while still hiding their identity.  The mixed reaction is because the amount of tax likely to be paid will be just a fraction of what is actually owed.

The campaign to reduce the rate of VAT on domestic property repairs and improvements has continued.  One point that as yet has not received much coverage is the fact that the Isle of Man has already negotiated such a reduced rate with HM Treasury.  More on this can be found here.

The fact that the French and German governments are pressing for a unified rate of corporation tax for the Euro zone countries has received a fair bit of coverage particularly in Ireland.  I suspect the fact that the same governments are also again, and with a fair bit of urgency, pressing for a European “financial transaction tax” will receive increased coverage.  This is also known as the “tobin tax”.

There has been an increasing number of stories on the action HMRC is taking on VAT and other forms of tax fraud.  This makes sense given the cutting of HMRC’s budget.

Interested to see that this campaign resurfaced this week.

Main protagonists appear to be the Scottish Building Federation, Federation of Small Businesses and the Scottish Government.

I was though surprised to see no reference to the Isle of Man when this was being reported.  This was because the Isle of Man reached an agreement with HM Treasury last December to make permanent its 5% VAT rate on repairs or refurbishment of domestic property.

More information on this can be found here.   An article on this from the Scotsman can also be found here.

It is now clear that there are two different tax debates going on within the UK and a further European debate just to complicate matters.

Firstly there is the debate over the top rate of income tax.  The various press leaks and briefings show how important the UK coalition parties view this issue.  The Tories are laying the groundwork for its removal.  The Liberals are fighting a rearguard action.  Think of the Treasury Secretary’s “cloud cuckoo land comment.   The Liberals are also briefing on its own “mansion tax” policy.  If the top rate is abolished they want it replaced by a mansion tax.  The SNP and Labour are arguing for the top rate to be retained.

Then there is the devolution of tax powers to the Scottish Parliament.  My blog on this last Sunday can be found here.   The Scottish Government published its paper on corporation tax this week.   The paper can be found here.  As I said last Sunday, it is not what is being discused that I find most interesting but rather what is not being discussed.   I suspect that the real battle on this has still to start.

Then there is the European dimension and in particular the pressure being placed on Ireland by France and Germany over its low rate of corporation tax.   This issue also impacts on the UK tax debate as it poses the question: why is tax competition within the European Union a good thing but not within the UK?   As I said, an interesting week in tax land.

Another example of how much work, and how effective, HMRC can be when targeting specific groups.

Five plumbers have been arrested and around 600 are under civil investigation by HMRC for failing to pay the right amount of tax.

More information can be found here.

Glad to see ICAS contributing to the fiscal powers debate.   This follows on from PWC last week.

I have not yet had a chance to read what they have said in any great detail but have outlined some general thoughts below.

1. How can the power to vary a rate of tax be looked at in isolation?

The comments by ICAS concern devolving the right to vary the rate of corporation tax to the Scottish Parliament.  The background to this is that the Northern Ireland Assembly is likely to be given the right to vary the rate at which corporation tax is charged on companies located in the Province.

What is the point of just devolving the right to vary the rate or rates at which corporation tax is charged without devolving underlying or connection legislation?  What about the rest of the corporation tax legislation?  What about company legislation?  The tax rate is only one issue for companies.  What about tax reliefs?  What about company administration?  If this is a serious debate about giving the Scottish Parliament increased fiscal levers why are these points not being discussed?

Secondly.  If we are serious in the need for increasing the number of economic levers the Scottish Parliament has at its proposal what about stamp duty and stamp duty reserve tax?  Taxes do not apply in isolation.  It is rare to only have to consider one tax when advising a business.  As these taxes are being charged on share dealings these should be looked at along with corporation tax.

Also business does not just consider the headline rate of tax when deciding  where to locate.  Many others factors are looked at and not just tax.

My second point about “connected taxes” applies equally to property matters.  In that case stamp duty land tax and capital gains tax.

Also I still find it odd that we are discussing income tax in the context of the Scotland Bill and corporation tax due to what is happening in Northern Ireland.  A more sensible approach would have been to look at areas already devolved to the Scottish Parliament and match up the taxes that apply to these powers.  For example.  Inheritance tax as succession law is already devolved.  Or the environmental taxes as the environment is a devolved responsibility.  Tobacco and alcohol duties as health is devolved or the various car taxes as transport is devolved.   That would give the Scottish Parliament a series number of economic levers and also the chance to learn what to do with them.

2. Institutions.  Scotland is soon to have its own tax system.  That is true even under the Scotland Bill proposals.  The Scottish Parliament although not having control over a complete range of taxes will have control over a number of taxes and have some form of borrowing powers.   The Scottish Government’s Finance Department needs to become an Exchequer, i.e. a body that deals with matters presently the preserve HMRC and HM Treasury.  Why is this issue not being debated?

Again on institutions.  Scotland is a relatively small country.  Much smaller than the rest of the UK.  Do we need our own separate HMRC and HM Treasury?  Why not combine them?  In simple terms HMRC is simply there to administer and collect our taxes.   Does Scotland need its own Companies  House, Registers of Scotland or Stamp Office?  Of course not.  One tax, law and registration body could deal with these and many other functions.   Again why is this issue not being debated?

3.  I was intrigued by the following comment by Elspeth Orcharton, assistant director of tax at ICAS: “Devolving tax powers is contrary to the goal of simplifying tax legislation and stability at a UK level, and you could question whether such a move would make the UK as a whole less competitive on the international stage.”

That sounds as if the starting point for ICAS is what is good for the UK not Scotland.  Also is ICAS saying that no powers should be devolved ever?   I suspect not.

Devolving taxes may actually simplify the present system.  For example when SDLT is devolved there will be no need for the present guidance and forms to explain the differences in Scotland and England due to our different systems of property law.   Also whenever I have discussed the devolving of SDLT one issue has almost certainly been raised.  How can we simplify it.

The last point of the above comment is also also telling.  I, for example, look at this issue from the viewpoint of how can I make Scotland more competitive.  I suspect that many views on devolving fiscal powers may be decided simply by where that person’s starting point is: Edinburgh, Cardiff or Belfast or London.

I am also not sure what is meant “stability”.   I suspect it may be a reference to tax competition.   If it is then that horse has left the stable.  Once taxes are devolved tax competition will soon become the norm.  I for one do not see that as a bad thing.

The term ” tax simplification” in a UK context does also make me smile.   Why is devolving taxes contrary to the principle of tax simplification?  If we in Scotland do not think we can improve on what we have presently then what is the point in having this debate.

What people forget is that the UK does not have a unitary legal system.  Although the tax system applies English law there is on occasion conflict with connected legislation.  For example the introduction of SDLT in Scotland is generally regarded as being a shambles.  HMRC did not take into account Scottish property law.  The conflict there was tax law based on English legal principles and Scottish property law.

Anyway, just a few thoughts on a quiet Sunday afternoon.

More on this from the Scotsman can be found here.

HMRC publish latest list of sports clubs qualifying for Community Amateur  Sports Club status.   Good to see an increasing number of Scottish clubs listed.

The list can be found here.

More information on CASC status can be found here.