LBTT rates and bands

John Swinney has announced the proposed rates and bands for the Land and Buildings Transaction Tax (LBTT) as part of the Draft Budget.

LBTT will replace Stamp Duty Land Tax (SDLT) in Scotland on 1 April 2015.  The new tax will have a progressive structure to bands and rates (i.e. tax is charged on the proportion of the price exceeding the threshold (like income tax) rather than charging the higher rate of tax on the whole price (per SDLT). This approach is intended to remove the distortions in house prices which may result from the bunching of sales around the thresholds that can occur with SDLT. 

Residential Purchases
The rates and bands which apply to the purchase of residential properties are as follows: 

Purchase price LBTT rate
Up to £135,000     0%
Above £135,000 to £250,000    2%
Above £250,000 to £1,000,000    10%
Above £1,000,000    12%


Non-Residential Purchases
The rates and bands which apply to the purchase of non-residential properties are as follows:

Purchase price   LBTT rate
Up to £150,000    0%
Above £150,000 to £350,000    3%
Above £350,000    4.5%


Non-Residential Leases
The rates and bands which apply to non-residential leases are as follows (as with SDLT, the rates are applied to the Net Present Value (or NPV) of the rent payable under the lease):

NPV of rent payable   Rate of tax to apply
Up to £150,000   0%
Over £150,000   1%


The following tax rates and bands will also be applied to any premium payable under the lease:

Premium   Rate of tax to apply
Up to £150,000    0%
Above £150,000 to £350,000    3%
Above £350,000    4.5%


Further information and tax calculators are available from the Scottish Government here.
A summary of the Land and Buildings Transaction Tax (Scotland) Act 2013 is available here.

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SDLT guidance updated

HMRC’s guidance for completing paper Stamp Duty Land Tax  returns has been updated.  The updated guidance can be found here. 

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Land and Buildings Transaction Tax (Scotland) Act 2013– a quick summary

The Land and Buildings Transaction Tax (Scotland) Act was passed on 25 June and received royal assent on 1 August 2013. Some points of note:

  • The new tax will to come into effect in April 2015 (when SDLT ceases to apply in Scotland);
  • the Act is the first of three- a Landfill Tax Act and Tax Management Act will follow;
  • the Scottish Ministers are the tax authority (s54) but the authority can be changed by order (a new body, Revenue Scotland has been established for that purpose);
  • the tax authority can delegate administration and collection of the tax to Registers of Scotland (s55) (an idea first suggested by my colleague James Aitken);
  • the tax will be progressive, i.e. tax is charged on the proportion of the price exceeding the threshold (like income tax) rather than charging the higher rate of tax on the whole price (per SDLT)(ss24-26)
  • like SDLT, LBTT will be charged on VAT (para 2, Schedule 2)
  • the Act contains a number of targeted anti-avoidance rules applying to specific exemptions and reliefs. The Scottish Government has consulted on the introduction of a general anti-avoidance rule (“GAAR”) and it is likely that a GAAR will be included in the Tax Management Act;
  • LBTT on commercial leases will (like SDLT) be based on net present value of the rent payable (s52 and Schedule 19) but the Act also makes provision for a return to be made every three years (and for additional payments or refunds) throughout the whole term of the lease so that the tax will reflect the actual rent paid;
  • residential leases are exempt (s16 and para 3, Schedule 1);
  • licences to occupy are exempt (s16 and para 3, Schedule 1) but “prescribed non-residential licences” which are to be prescribed in future regulations will be taxed; and
  • the Act replicates existing SDLT provisions on partnerships (s49 and Schedule 17) & trusts (s50 and Schedule 18). However, the Scottish Government may make changes to these provisions (in the interests of greater clarity) before LBTT comes into effect.
  • The rates and bands can be seen here.

The full Act is available here.


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An interesting few weeks in “tax land”

Let’s start with the independence debate.  I would normally refer to this as the “fiscal powers” debate but there seems little point as that ship appears to have sailed.  Some things are becoming clearer.  There is not going to be a second question.  The likelihood of serious additional fiscal powers being devolved to the Scottish Parliament if Scotland votes ‘No’ also now seems increasingly unlikely.

It is not difficult to imagine the appetite for even listening to arguments for additional fiscal powers at Westminster in that event.  That is where the Devo Plus campaign has got it wrong.  And I say this as one of the authors of the Reform Scotland Fiscal Powers papers on which their proposal is based.  Devo Plus are arguing for a ‘No’ vote and also that there should not be a second question.  Do they really think Westminster will seriously consider devolving further powers to the Scottish Parliament if Scotland votes ‘No’?  An article by Jeremy Purvis who leads the Devo Plus campaign can be found here.  On a personal note it is disappointing to see that Reform Scotland have now taken a stance on Scotland’s constitutional question by its support for Devo Plus.

The fact that only the Liberal Democrats are going to have a further devolution proposal by the time the referendum takes place reinforces this argument.

So if there is not to be a second question, what do those who have supported devo max previously do?  The impact and importance of Jim McColl’s announcement in favour of independence should not be under estimated.  A BBC news website report on this can be found here.

Now to taxing the wealthy.  Just now politicians seem to talk of little else.  Let’s ignore for now what actually constitutes wealth.

Let’s start with an article by George Kerevan on the Scotsman.  Kerevan argues against taxing the wealthy, believing that it is arbitrary, complicated to administer, and does not raise enough money relative to the trouble it takes to collect it.   His article can be found here.

Nick Clegg wants to ensure that the rich “pay their fair share”.  He has vowed to block further welfare cuts until a mansion tax is agreed with his Tory coalition partners. Vince Cable has also spoken out against tax havens and non-domiciles.  Then there is Danny Alexander.  He has promised tax investigations for all those who own assets worth more than £1 million.  The cynic in me says: I have heard a lot of this before and not just on tax reform.  What about the banks.  Has anything of substance actually been done?

Then there is the evolving love in between Ed Balls and Nick Clegg.  Ed Balls told the Independent newspaper that a future Labour UK Government could impose an annual levy on expensive properties, unlike Nick Clegg though, he favours a permanent rather than temporary wealth tax.  The article in the Independent can be found here.  This does seem more like mischief making than serious policy making given how long the last UK Labour Government were in power.

One reason for my cynicism is a claim made by the SNP this week.  The claim is that there are fewer, not more, tax inspectors.  I have blogged before on how HMRC’s budget has been reduced and of the large number of HMRC redundancies.  If we are serious about tackling tax evasion then you need a properly resourced tax collection agency.  Transparency would not go a miss either.  How about publishing tax returns?  The SNP press release on this can be found here.

So what can be done?  HMRC’s High Net Worth Unit has brought in £500 million in extra tax from the UK’s 5,000 wealthiest people since it launched three years ago. The amount collected is well over the original target of £100 million a year.  A press release from HMRC on this can be found here.  And of course this was achieved in a time where HMRC’s budget has been cut.

Finally on this issue, an excellent article by Iain MacWhirter in the Herald.  MacWhirter points to the relative insignificance of the cost of the so called “free services” as compared with the salaries and pensions of the higher-earning public sector workers.  The article in the Herald can be found here.

These services are of course not “free”.  They are paid for by taxation.  Taxation is simply a series of political choices.

The introduction of a 15% rate of stamp duty land tax on corporate buyers in this year’s UK Budget, it is claimed, has had a dramatic impact on the high-value London property market.  The article from the online STEP journal can be found here here.  I must admit to struggling to see why this is a bad thing.

About 60% of all taxpayers’ complaints against HMRC are upheld on appeal, according to figures from Pinsent Masons. Some 58,110 complaints were made last year, of which more than 33,000 were accepted either by an internal HMRC review or by the Adjudicator’s Office.  A report on this can be found here.

Barclays Bank is to cut back on its UK tax planning unit, after a dispute with the tax authorities over ‘aggressive’ schemes tarnished its public image.  A report on this can be found here.

Now to matters slightly further afield.

Firstly to America and the never ending saga of Mitt Romney’s tax affairs.  Romney has at last published his 2011 tax return.  It turns out Romney and his wife paid $1.936 million in taxes on gross income of $13.7 million.  That is a tax rate of 14.1%.  The article from the online STEP journal can be found here.  I suspect that this is not the end of this matter.

Francois Hollande has revealed details of his 75% top rate of income tax for France’s wealthiest citizens.  Newspaper reports suggest there are likely to be concessions for married couples, performers and sports stars.  Meanwhile the richest man in France, Bernard Arnault, has applied for Belgian nationality to escape the tax.  An article on this from the Guardian can be found here.  Again, I suspect that this is an issue that is going to run and run.

A Spanish newspaper has reported that the country is about to double capital gains tax on short term gains to 52%.  This gives a sense of the level of problems now faced by Spain.  An article on this can be found here.

Have a good weekend.

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SDLT tax planning victory for HMRC

HMRC has won what might turn out to be a very significant victory in a case involving Stamp Duty Land Tax planning and in particular sub-sale relief. 

A report on this from STEP on-line Journal can be found here.

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Back to reality in “tax land” after a great Olympics

Let’s start with Gordon Brown’s comments and in particular his claim that devolving tax and fiscal powers to the Scottish Parliament automatically means a “race to the bottom” for tax rates and in particular business tax rates.  There are a number of problems with this statement.  I will simply point out two.  Tax competition already exists.  Not just within the European Union but throughout the world.  Then there is the fact that the underlying law, for example tax reliefs, are just as important as tax rates to business.  Creating a Scottish tax system is also a once in a generation chance to create a simpler and more progressive tax system.  This opportunity is not available to the UK.  Evidence that the present Scottish Government is already putting this opportunity into practice is shown by its excellent consultation on a Land and Buildings Transaction Tax.  My earlier blog on this can be found here

Again on tax powers for the Scottish Parliament.  I was disappointed, but sadly not surprised, to see another patronising picture accompanying an article in Tax Adviser on the subject of the tax powers being devolved to the Scottish Parliament.  First we had a man in a kilt holding a whisky bottle and this month a scene from the movie Braveheart.    

Now to some incredible news.  HM Treasury is going to employ someone in Scotland.  I wonder if this has anything to with a certain referendum.  Of course it does.  An article on this from the BBC news website can be found here.  I did find it amusing that the position ends shortly after the proposed referendum date.  I should not be so cynical.  It is good that HM Treasury is going to try and find someone to appease the natives.  I suspect they have run out of gunboats. 

Now to HMRC.  HMRC is clearly under strain.  In addition to having to deal with numerous devolution issues its budget is being reduced by 15% whilst having to increase tax revenues brought in by compliance activity by £7bn per year by 2014/15.  Not surprisingly HMRC staff have begun “working to rule” to highlight ‘problems caused by the job and budget cuts. 

I was also interested to see that HMRC has published a draft code of governance for resolving tax disputes.  This follows the controversy surrounding some corporate tax disputes of which it was accused of agreeing over-generous resolutions.  An article on this issue can be found here.  

Clearly the UK Government is keen to show it is clamping down on tax evasion.  HMRC has paid out more than £1m in rewards to tax evasion informants since the start of the financial crisis.  An article on this can be found here.  And just to reinforce the point HMRC has published its rogues gallery of tax evaders and fraudsters.  An article on this from the BBC news website can be found here.

Now to an issue I have blogged on recently.  The Office of the Scottish Charity Regulator is reportedly to investigate 50 private schools to see if they meet the “benefit to the public” criteria in order to maintain their charitable status.  An article on this from the Sunday Herald can be found here.  This is an issue that still needs to properly debated.     

Now to the strange world of caravans and an article from the Herald.  It seems that a little-known tax loophole is set to cost Scotland’s councils millions of pounds a year in revenue.  Each caravan in a caravan park can apply for rates relief, which in turn cuts the overall bill for the park considerably.  It seems that few people knew about this loophole until the owners of caravans in the Rosneath Castle Caravan Park, near Helensburgh, first began using it. The 300 caravan owners at the park have now bombarded the Clydebank business ratings assessors’ office with letters and phone calls, each seeking to save a few hundred pounds per year in council rates.  The article from the Herald can be found here

Now to the USA and news that the Democrats are split over estate tax reform.  Democratic Party members of the US Senate have rejected President Obama’s proposal for a 45% top rate of federal estate tax on individual estates worth more than $3.5m.  The tax will rise sharply at the end of this year if Congress fails to agree on reform.  An article on this from Bloomberg can be found here.

Tax is also an issue in the Presidential election.  The Democrats have succeeded in turning the finances of Republican presidential candidate Mitt Romney into a lead news story.  Pressure is growing on Romney to reveal tax returns.  There are accusations that he failed to disclose a Swiss bank account, and even that he participated in the US Internal Revenue Service’s 2009 offshore tax amnesty.  An article on this from Forbes can be found here.

Let’s finish with an old favourite.  It seems that there have been some financial transaction tax stirrings in both Korea and France.  In order to bring the taxation of derivatives in line with other earned income and introduce another revenue source, the Korean Government has announced plans to impose a transaction tax on index options and futures.  France has also partially implanted its own financial transaction tax.  Although a small start, covering only shares in larger companies, and at 0.2%, it’s still lower than UK stamp duty on which it is modelled. Articles on the Korean proposal can be found here and the French proposal here.

Have a good weekend.

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Orsman v HMRC 2012 TC 01921 – Stamp Duty Land Tax

The “slab” basis of Stamp Duty Land Tax on occasion encourages purchasers to try and include part of the purchase price in the exempt “fixtures and fittings” category.  This was just such a case.  HMRC are of course well aware of this ploy

This case concerned whether £800 worth of fitted units in a garage were “land” and therefore subject to SDLT.   If included as land the SDLT bill increased from £2,500 to £7,524.

The Tribunal concluded “that both the worktop and the units were land.  The worktop was fixed to the house and made it possible to use that part of the garage as a working area.   The units had a small degree of affixation but were in place to make the garage a useful storage and work area — a facility which enhanced the house.”

The full report from the First-tier Tribunal can be found here

Hopefully this will be one of the issues dealt with by the introduction of a Scottish Land and Buildings Tax in 2015.   

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Another week in “tax land”

Let’s start with “Land Reform”.  The First Minister has set up a group of experts to look at this issue.  The First Minister wants the group “to deliver radical change” for both rural and urban areas.  It will be chaired by former Moderator of the General Assembly of the Church of Scotland, Dr Alison Elliot.  More information on the review can be found here.  One factor that is noticeable by its absence is taxation.  This should also be a review of how we tax our land and property.  If not included this is an opportunity missed.

Who is to blame for the state of the economy?  You would have though bankers might be high up on any list.  However, it seems there is another favoured suspect, tradesmen.  David Gauke, Exchequer Secretary at the UK Treasury, called people who pay tradesmen in cash “morally wrong”.  He has also claimed that the UK Government has missed out on about £2bn on taxes on these “off the books” transactions.

In response the regularly excellent Ian Bell wrote an article titled “Plumbers dodging VAT aren’t to blame for economic mess”.  His article in the Herald article can be found here.  This is one of the best articles I have read recently.

Gauke was also not helped when it transpired that Boris Johnson, David Cameron and Nick Clegg have engaged in the practice of paying tradesmen cash.  Gauke’s full speech can be found here.

The tradesmen issue aside, there were many good things in Gauke’s speech.  This includes a new UK Treasury consultation paper on giving HMRC new powers to force tax firms to disclose clients who are using tax avoidance schemes.  A report on this from the BBC news website can be found here.  More information on this consultation can be found here.  It is though still surprising that the UK Treasury has taken so long to even consider measures such as this.

It is always worth putting figures in context.  A new study for the lobbying group Tax Justice Network claims that wealthy individuals worldwide are holding at least $21 trillion in bank accounts in low-tax jurisdictions.  This dwarfs the £2bn figure mentioned above.  A report on this from the STEP Journal can be found here.

Now to the Scottish Government’s consultation on its proposed Land and Buildings Transaction Tax.  The consultation can be found here.  The Land and Buildings Transaction Tax will replace the current UK Stamp Duty Land Tax from April 2015.  This is important as it is effectively the beginning of a Scottish tax system.  The consultation is also of a standard that we will now expect.   Previous papers on corporation tax and excise duty, although not consultations, were simply not good enough.  Lessons clearly have been learned.  The consultation ends on 30 August 2012.

Now to the North Sea.  George Osborne has pledged £500m in tax breaks for companies developing the Cygnus gas field in the North Sea.  In addition two Chinese firms announced major acquisitions worth over £10bn in North Sea oil firms.  More on these stories can be found on BBC news website here and the Press & Journal here.  It seems that there is a great deal of life left in the North Sea and not just in Scottish waters.

One of the most important art objects ever donated to Scotland’s national collection in lieu of inheritance tax has gone on display. The Hamilton-Rothschild Tazza, a Byzantine sardonyx bowl mounted on a 16th-century gold stand, came from the estate of Edmund de Rothschild, who died in 2009, under the “Acceptance in Lieu scheme”.  A report on this from the STV website can be found here.

Now to an issue I have blogged about before.  An investigation for the Sunday Herald has shown that due to the charitable status of fee-paying schools in Scotland, while local authority schools have to pay full non-domestic rates, because many fee-paying schools are charities they receive an 80 per cent discount on their rates.  The investigation suggests the discount has saved private schools in the six local authority areas investigated £10m over three years. An article on this issue from the Sunday Herald article can be found here.

This issue shows how complicated devolution can be.  Non-domestic rates and charitable status are devolved matters.  Tax relief for charities is a reserved matter even under the provisions of the 2012 Scotland Act. 

Interestingly in the same week Stephen Twigg, Shadow UK Education Secretary, has said that Labour may remove the charitable status of some private schools.  Twigg warned that a UK Labour Government could enact legislation so that private schools not serving the community would lose their charitable status.

The UK Government has finally confirmed that fuel duty, air passenger duty and road tax are not environmental taxes.  This means that they are “revenue raisers” pure and simple.  The UK Treasury now defines an environmental tax as a charge which is explicitly linked to Westminster’s environmental aims, aimed at promoting behaviour change and is structured so that people pay more based on the potential damage caused to the environment.  An article on this from Holyrood can be found here.

I think I will finish with China and its attempt to attract more foreign investment.  China has slashed from 10% to 5% the withholding taxes it levies on profits repatriated by foreign companies, and on dividends paid to foreign shareholders of Chinese-quoted shares. The concessions apply only to companies based in double tax treaty partner countries, excluding the US.  A FT China article on this can be found here.

Have a good weekend.

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Taking forward a Scottish Land and Buildings Transaction Tax

The Scottish Government consultation can be found here.  The consultation paper seeks views on the Scottish Government’s proposals for a Land and Buildings Transaction Tax for Scotland to replace the current UK Stamp Duty Land Tax from April 2015.

This is important as it is effectively the beginning of a Scottish tax system.  

The consultation is also of a standard that we will now expect.   Previsous papers on corporation tax and excise duty, although not consultations, were simply not good enough.  Lessons clearly have been learned. 

The consultation ends on 30 August 2012. 






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Another week in “tax land”

Time for another “tax land”.

Where to start?  Jersey seems as good a place as any.  Jersey is also considering its constitutional options.  This is not new news.  I was in Jersey a couple of years ago and independence was also being discussed amongst the lawyers I was meeting.  Jersey is in a different position to Scotland as it is for all intents and purposes already fiscally autonomous and is a British Crown dependency.  An article on this from the Guardian can be found here.  This is from the Guardian article:

“A barrage of regulatory clampdowns and political attacks on the Channel Islands’ controversial financial industry has prompted one of Jersey’s most senior politicians to call for preparations to be made to break the “thrall of Whitehall” and declare independence from the UK.  Sir Philip Bailhache, the island’s assistant chief minister, said: “I feel that we get a raw deal. I feel it’s not fair.  I think that the duty of Jersey politicians now is to try to explain what the island is doing and not to take things lying down.  The island should be prepared to stand up for itself and should be ready to become independent if it were necessary in Jersey’s interest to do so.”

It seems that the constitutional genie is well and truly out: Scotland, Falkland Islands, Jersey and now it seems on UK membership of the European Union.

Now to the announcement by the Scottish Government of its intention to create its own tax administration and collection agency, to be called Revenue Scotland.  Its main job initially will be to administer the two new Scottish taxes devolved under the Scotland Act.  The fact that it is to work closely with Registers of Scotland and the Scottish Environment Protection Agency, also makes sense.  These new taxes, a Scottish Stamp Duty Land Tax and a Landfill Tax, will be directly linked to the work done by these organisations.  A press release from the Scottish Government on this can be found here.

As regular readers of this blog will know I have been writing about this issue for many years now.  Whilst I welcome this announcement I still think we need to be more radical.  We need to review all government tax, law and registration services.

I was not surprised to see some negative comments about the Revenue Scotland announcement. However, if Scotland has its own tax system it needs its own tax administration and collection agency.  That applies just as much under the Scotland Act as independence.  That though is not the only reason.

Let’s not forget the fact that UK tax law is based on English legal principles, or how HMRC and HM Treasury dealt with the introduction of Stamp Duty Land Tax in Scotland, or the inheritance tax changes to trusts, or the proposed planning-gain supplement, or the Scottish Government’s local income tax proposal or VAT and the new Scottish police and fire services.  All good reasons for welcoming Revenue Scotland.

The Scottish Government is in no doubt that Revenue Scotland will be able to administer the new Scottish taxes at a lower cost than HMRC.  I agree with that.  I have also noticed that no-one seems to remember one of the more ridiculous claims made when the Calman Commission proposals were being debated.  The Scotland Office claimed that the cost of administering a separate Scottish tax system would be the same as the present UK system.   Complete and utter nonsense.  The Scotland Office paper can be found here.

One last point on Revenue Scotland.  I met with a number of Scottish Government officials just before the 2011 Scottish election on this issue.  It was quite clear that they wanted nothing to do with this idea and only met with me at the insistence of a Scottish Minister.  Thank you Jim Mather.  I wonder if their attitude has changed in any way?  Let’s hope so as this is just the start.

The Scottish Government has also published its consultation on a Land and Buildings Transaction Tax.  This will replace Stamp Duty Land Tax.  The consultation for Scotland’s replacement to Landfill tax will follow later this year.  I use the word “summer” advisedly.  The consultation can be found here.

And there’s more.  The Scottish Government has finally published its consultation in a “plastic bag tax”.  The consultation can be found here and a press release from the Scottish Government here.

Even the UK Government is playing its part.  The UK Government is consulting on whether to allow the Scottish Government the power to issue its own bonds.  The move would potentially allow Scottish Ministers to raise hundreds of millions of pounds.  A provision in the Scotland Act 2012 has already enabled the UK government to amend the way in which Scottish Ministers can borrow from 2015-16.  An article on this from the BBC news website can be found here.  The consultation can be found here.

One last point on fiscal powers.  The UK government is reportedly considering proposals to devolve complete control of income tax if Scotland votes ‘no’ in the independence referendum.  This sums up nicely what is wrong with the UK Government’s approach to this debate.  If the UK Government has a serious proposal to make, make it.  If not be quiet.

Now to tax and morality.  David Cameron branded comedian Jimmy Carr “morally wrong” for seeking to avoid paying his fair share of tax.  Mr Carr is understood to use an aggressive, though legal, tax avoidance scheme which enables members to pay income tax as low as 1%.  This is dangerous territory for David Cameron.  Already the press have published the names of many others who are involved in similar schemes.  If David Cameron seriously wants to tackle this issue he must act against all those who seek to evade tax.  Has he considered the public disclosure of all tax returns or a minimum percentage of tax that must be paid?  I suspect not.

This is not just a UK Government issue.  The Herald discovered that Transport Initiatives Edinburgh used tax loopholes to allow directors to avoid paying income tax rates on £1 million in fees and bonuses. The company, which closed last year due to its handling of the trams project, paid directors and consultants through their firms.  As a result, they were subject to 20% corporation tax rather than 40% income tax.  The article from the Herald can be found here.

The evidence that the “rules” do not apply to everyone is growing.  Whether it is the 3,000 UK civil servants being paid through a company, or the payments made to those who were partially responsible for the trams fiasco in Edinburgh or the celebrities avoiding tax.  I am resisting the urge to say it was ever thus but in times such as this it does seem even more reprehensible.

One last point.  I often am quite critical of HMRC.  I would argue for good reason.  That said, is it really time to cut 10,000 jobs?  An article on this and the proposed strike by HMRC staff can be found on the BBC news website here.

Have a good week.

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