Archive for the international tax advice Category

UK – VAT(Value Added Tax) is 40 Today a brief history

Posted in Economics, international tax advice, international tax planning, International Trusts, offshore banking, offshore company formations, offshore trusts, Tax Avoidance on April 1, 2013 by John

Value Added Tax (VAT) is a tax on consumption levied in the United Kingdom by the national government. It was introduced in 1973 and is the third largest source of government revenue after income tax and National Insurance. It is administered and collected by HM Revenue and Customs.

VAT is levied on most goods and services provided by registered businesses in the UK and some goods and services imported from outside the European Union. There are complex regulations for goods and services imported from within the EU. The default VAT rate is the standard rate, 20% since 4 January 2011. Some goods and services are subject to VAT at a reduced rate of 5% (such as domestic fuel) or 0% (such as most food and children’s clothing). Others are exempt from VAT or outside the system altogether. Under EU law, the standard rate of VAT in any EU state cannot be lower than 15%. Each state may have up to two reduced rates of at least 5% for restricted list of goods
and services. The European Council must approve any temporary reduction of VAT in the public interest. VAT is an indirect tax because the tax is paid to the government by the seller (the business) rather than the person who ultimately bears the economic burden of the tax (the consumer). It is also a regressive tax: the poorest people spend a higher proportion of their disposable income on VAT than the richest people.

History Prior to 1973:

The UK had a consumption tax called “Purchase Tax” which was levied at different rates depending on the goods’ luxuriousness. On 1 January 1973 the UK joined the European Economic Community and as a consequence “Purchase Tax” was replaced by “Value Added Tax” on 1 April 1973. The then Conservative Chancellor Lord Barber set a single VAT rate (10%) on most goods and services. In July 1974, Labour Chancellor Denis Healey
reduced the standard rate of VAT from 10% to 8% but introduced a new higher rate of 12.5% for petrol and some luxury goods. In November 1974 Healey doubled the higher rate of VAT to 25%. Healey reduced the higher rate back to 12.5% in April 1976. Conservative Chancellor Geoffrey Howe increased the standard rate of VAT from 8% to 15% and abolished the higher rate in June 1979. The rate remained unchanged until 1991, when Conservative Chancellor Norman Lamont increased it from 15% to 17.5%. The additional revenue was used to pay for a reduction in the hugely unpopular community charge. During the 1992 general election the Conservatives promised not to extend the scope of VAT, but, in March 1993, Lamont announced that domestic fuel and power, which had previously been zero-rated, would have VAT levied at 8% from April 1994 and the full 17.5% from April 1995. The planned introduction of VAT on domestic fuel
and power went ahead in April 1994, but the
increase from 8% to 17.5% in April 1995 was
scuppered in December 1994, after the
government lost the vote in parliament.
In its 1997 general election manifesto, the Labour Party pledged to reduce VAT on
domestic fuel and power to 5%. After gaining power, the new Labour Chancellor
Gordon Brown announced in June 1997 that the lower rate of VAT on domestic fuel and
power would be reduced from 8% to 5% with effect from 1 September 1997. In November 1997, Brown announced that the VAT on installation of energy saving materials would be reduced from 17.5% to 8% from 1 July 1998. Brown subsequently reduced VAT
from 17.5% to 8% on sanitary protection products (from 1 January 2001); children’s
car seats (from 1 April 2001); conversion and renovation of certain residential properties (from 12 May 2001);
contraceptives (from 1 July 2006); and smoking cessation products (from 1 July
2007)

In response to the late-2000s recession, Labour Chancellor Alistair Darling announced in November 2008 that the standard rate of VAT would be reduced from 17.5% to 15% with effect from 1 December 2008. In December 2009, Darling announced that the standard rate of VAT would return to 17.5% with effect from 1 January 2010. In the run up to the 2010 general election there were reports that the Conservatives would raise VAT if they gained power. The party denied the reports. Following the election in May 2010, the Conservatives formed a coalition government with the Liberal Democrats and in June 2010 Conservative Chancellor George Osborne announced that the standard rate of VAT would increase from 17.5% to 20% with effect from 4 January 2011.

Operation:
All businesses that provide “taxable” goods and services and whose taxable turnover exceeds the threshold must register for VAT. The threshold has been £77,000 since April 2012. It is by far the highest VAT registration threshold in the world. Businesses may choose to register even if their turnover is less than that amount. All registered businesses must charge VAT on the full sale price of the goods or services that they provide unless exempted or outside the VAT system. The default VAT rate is the standard rate, currently 20%. Some goods and services are charged lower rates
(reduced or zero). Registered businesses must pay over to HMRC the VAT they have charged on their goods or service (known as output tax) but they may offset this with the VAT they have incurred on goods or services they have purchased (known as input tax).

A separate scheme, called The Flat Rate Scheme is also run by HMRC. This scheme allows a VAT registered business with a turnover of less than £150,000 per annum to pay a fixed percentage of its turnover to HMRC every 3 months. The scheme is designed to reduce red tape for small business and allow new companies to keep some of the VAT they charge to their customers.

Businesses that sell exempt goods or supplies, such as banks, may not register for VAT or reclaim VAT that they have incurred on purchases. Businesses that sell some exempt goods or supplies may not be able to reclaim the VAT on all of their purchases. However, businesses that sell zero-rated goods or supplies, such as food producers or bookseller, may reclaim all the VAT they have incurred on purchases.

Rates:
There are currently three rates of VAT:
standard (20%), reduced (5%) and zero
(0%).In addition some goods and
services are exempt from VAT or outside the
VAT system.[1]
The following are the rates applicable to
some common goods and services:
Standard Rated
Alcoholic
drinks
Biscuits
(chocolate
covered only)
Bottled water
(inc. mineral
water)
Calendars &
diaries
Carbonated
(fizzy) drinks
CDs, DVDs &
tapes
Cereal bars
Chocolate
Clothes &
footwear (not
for children
under 14)
Confectionery/
sweets
Delivery
charges
(postage &
packaging)
Electrical
goods
Electricity,
gas, heating
oil & solid fuel
(business)
Food & drinks
supplied for
consumption
on the
premises (at
restaurants,
cafes etc)
Hot take-away
food & drinks
(inc. burgers,
hot dogs,
toasted
sandwiches)
Ice cream
Fruit juice &
other cold
drinks (not
milk)
Nuts (shelled,
roasted/
salted)
Potato crisps
Prams &
pushchairs
Road fuel
(petrol/diesel)
Salt (non-
culinary)
Stationery
Taxi fares
Tolls for
bridges,
tunnels &
roads
(privately
operated)
Water
(industrial)

Reduced Rated:

Children’s car
seats
Electricity,
gas, heating
oil & solid
fuel
(domestic/
residential/
charity non-
business)
Energy
saving
materials
(permanently
installed in
residential/
charity
premises)
Maternity
pads
Mobility aids
for the
elderly
Sanitary
protection
products
Smoking
cessation
products

Zero Rated:

Aircraft (sale
charter)
Bicycle &
motorcycle
helmets
Biscuits (not
chocolate
covered)
Books, maps
& charts (no
ebooks)
Bread, rolls,
baps & pita
bread
Brochures,
leaflets &
pamphlets
Building
services for
disabled
people
Cakes
(including,
Jaffa Cakes)
Canned &
frozen food
(not ice
cream)
Cereals
Chilled/froze
ready meals,
convenience
foods
Clothes &
footwear (for
children
under 14
only)
Construction
& sale of new
domestic
buildings
Cooking oil
Donated
goods sold a
charity shop
Eggs
Equipment
for disabled
people (inc.
blind/partiall
sighted)
Fish (inc. liv
fish)
Fruit &
vegetables
Live animals
for human
consumptio
Meat &
poultry
Milk, butter,
cheese
Newspapers,
magazines &
journals
Nuts & pulse
(raw for
human
consumptio
Prescription
medicine
Protective
boots &
helmets
(industrial)
Public
transport
fares (bus,
train & tube)
Salt
(culinary)
Sandwiches
(cold)
Sewerage
(domestic &
industrial)
Shipbuilding
(15 tonnes o
over)
Tea, coffee &
cocoa
Transport in
vehicle, boat
or aircraft
(not fewer
than ten
passengers)
Water
(household)

Revenue

VAT revenue since 1978/79 as a percentage
of total government revenue:[27]
Year VAT
(£bn)
% Year VAT
(£bn)
1978/79 4.9 7.02% 1988/89 27.2 13.
1979/80 8.0 9.41% 1989/90 29.6 14.
1980/81 11.1 11.00% 1990/91 30.9 13.
1981/82 11.9 9.95% 1991/92 35.3 15.
1982/83 13.8 10.63% 1992/93 37.2 16.
1983/84 15.3 11.09% 1993/94 39.2 16.
1984/85 18.6 12.59% 1994/95 41.7 16.
1985/86 19.4 12.29% 1995/96 43.1 15.
1986/87 21.3 12.94% 1996/97 46.6 16.
1987/88 24.2 13.53% 1997/98 50.6 16.
Estimated Avoidance:

Evasion and fraud

The UK government loses billions in revenue each year due to VAT avoidance, evasion and fraud. In 2006 the loss was estimated to be between £13bn and £18bn, equivalent to £1 for every £6 of VAT due. The bulk of the lost revenue, about £1 in every £8 of VAT due, is due to evasion.[29] Evasion, which is illegal, occurs when registered businesses pay over to HMRC less than they should. This can be done by understating sales or overstating purchases. Evasion also occurs when businesses do not charge VAT on goods and services they provide even though they are legally obliged to. Cash-in-hand jobs by tradesmen may indicate VAT evasion.

In recent years carousel fraud (also known as missing trader fraud) has increased. Criminal gangs trade goods, such as mobile phones, across EU countries. They do not have to pay VAT, as imports from the EU are exempt. The fraud occurs when the criminals sell the goods with VAT in the UK but fail to pass the VAT to HMRC. The goods are often repeatedly shipped round EU countries by criminal gang networks, hence the “carousel” name. According to the HMRC, between £1.1bn and £1.9bn tax revenue was lost in 2004/05 due to carousel fraud.

The European Union Emission Trading Scheme has been plagued by carousel fraud. A loophole in VAT law – the Low Value Consignment Relief (LVCR) – means that goods imported from outside the EU and costing less than a set amount are not subject to VAT. When the LVCR was introduced in 1983 it was set at about £5 but gradually rose to £18. In March 2011 the government announced that the LVCR would reduce from £18 to £15 from 1November 2011.The LVCR has allowed online retailers of DVDs and CDs to avoid VAT by importing the goods from the Channel Islands, which are not part of the EU.
Major retailers involved in this tax avoidance include Amazon, Asda, HMV, Play.com, Tesco, W H Smith and Woolworths. The tax avoided each year due to LVCR was estimated to be £85m in 2005, £110m in 2008, £130m in 2010 and£140m in 2011.
The government has announced plans to close the loophole

Criticism:

Opponents of VAT claim VAT is regressive and is paid by all consumers whether they be rich or poor, young or old The poorest also spend a higher proportion of their disposable income on VAT than richest.

An Office for National Statistics report showed that in 2009/10 the poorest 20% spent 8.7% of their gross income on VAT whereas the richest 20% spent only 4.0% of their gross income on VAT. Similarly, the poorest 20% spent 9.7% of their disposable income on VAT whereas the richest 20% spent only 5.2% of their disposable income on VAT. Supporters of VAT claim VAT is progressive as consumers who spend more pay more VAT. The zero rating of food and allowing businesses to reclaim input VAT means that the government in effect subsidises the food industry. Critics also argue that VAT is double taxation as consumers pay for goods and services using income that has already
been taxed. It is also argued that VAT is an inefficient tax due to the numerous
exemptions and concessions.
It could also be argued that, compared to its predecessor Purchase Tax, VAT has encouraged the “throwaway society”.Purchase Tax imposed high rates on
new goods (especially luxury goods) but did not apply to repair services.VAT has
increased the cost of repairs and encouraged consumers to replace goods rather than
have them repaired.VAT also covers second- hand goods (which Purchase Tax did not)
and has discouraged the re-use of goods through the second-hand market

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HMRC offers tax planning amnesty

Posted in international tax advice, international tax planning, Private wealth management., Tax Avoidance, Tax Planning on January 7, 2013 by John

HMRC offers tax planning amnesty

7 January 2013

HMRC has issued an invitation to participants in certain tax-planning schemes to settle without going to litigation. Initially the offer only covers a very limited number of schemes.

The category of schemes includes the use of General Accepted Accounting Practice (GAAP) by companies, sole traders or partnerships to create asset depreciation costs and reduce their taxable profits. Other schemes subject to the amnesty are those relying on film production expenditure relief, and those that create partnership losses from first year allowance reliefs, restrictive covenant payments, and certain capital allowances.

Similar arrangements may be extended in future to participants in film partnership sale-and-leaseback schemes, and interest relief schemes based on S353(1) ICTA 88, though HMRC has not yet decided. HMRC says its aim is to restrict relief so that expenditure which is not part of the real economic cost borne by the participants will be excluded when calculating losses or capital allowances. Only amounts equivalent to the actual cash contribution funded by the participant and expended in the claimed trade will be allowed when computing losses or capital allowances.

Reliefs will probably not be allowed where the scheme participants have paid fees for tax advice or litigation protection. Some specific schemes that fall into the above categories are, however, expressly excluded from the amnesty. The offer has been prompted by HMRC’s successes in some recent litigation, notably Tower MCashback, and the film partnership cases Eclipse no.35, Icebreaker no.1, Samarkand and Alchemist. HMRC plans to contact all eligible individuals by the end of January, and says it is prepared to settle with individual partners in a scheme even if the partnership as a whole declines the offer.

Those who decline to settle will see the agency ‘increase the pace of our investigations and accelerate disputes into litigation,’ it said, though no specific deadline has been set.

Tax haven UK is alive – and prospering on the back of corruption

Posted in Economics, fiduciary, international tax advice, international tax planning, nominee services, offshore banking, offshore company formations, offshore tax planning, Tax Avoidance, Trustees on September 3, 2012 by John

Tax haven UK is alive – and prospering on the back of corruption

 
The FT reports this morning

A £38bn development boom in London’s most expensive neighbourhoods has been spurred by rampant demand from European and Asian buyers seeking safe investments away from turbulent Eurozone economies.

The pipeline of upmarket housing projects in planning or already under construction in the UK capital has increased more than two-thirds during the past year, with 15,500 units slated for delivery by 2021, even as building work in other parts of the country remains stagnant.

That’s one version of the story. The Guardian offers another (in a compelling story that deserves to be read in full). They report:

Britain has allowed key members of Egypt’s toppled dictatorship to retain millions of pounds of suspected property and business assets in the UK, potentially violating a globally-agreed set of sanctions.

The situation has led to accusations that ministers are more interested in preserving the City of London’s cosy relationship with the Arab financial sector than in securing justice.

I and the Tax Justice Network have long argued there is an economy within an economy n the UK – which is that of tax haven UK. Boith these reports are clear signs of this.

Of course money floods to the UK – but that is because our domicile rule makes the UK a perfect tax haven. But these people who come do not add value: they simply distort our housing markets, destroy the balance in our society, encourage more financial services which imbalance our economy and have no role to play in our democratic and other processes. It’s worse than that though: as the second report shows, far too much of this money is illicit and the UK has a willingness to turn a blind eye to such funding that is reflected in the behaviour of our banks who all to knowingly it seems do just the same thing.

This is tax haven UK at work, like a cancer within our country, destroying it from within

Russian Mini Economic Boom in 2012

Posted in Asset Protection & Tax Planning., Economics, Financial Freedom, international tax advice, international tax planning, International Trusts, Private wealth management. with tags on December 28, 2011 by John

It’s not easy being contrary. But it is where profits are often found.

Take Russia, for instance. It’s a market that has been on a downward slope for much of the year as global investors fret about what’s to come with new elections – now that former-President Vladimir Putin is looking for another tour of duty.

That kindles bad memories of iron-fisted Russian premieres of the old Soviet Union.

And just this month, protestors began taking to the streets of Moscow and St. Petersburg and clashing with police in the aftermath of questionable parliamentary elections.

It’s in moments like these, when non-economic turmoil upsets markets, that you often find the best opportunities.

Russia is the cheapest of all the so-called BRIC nations today. It’s benefiting from what I call “micro booms” – this one in the consumer and in resources and this micro boom means that 2012 will be a good year for Russian stocks.

I was sitting in a small conference room in Zurich, talking with Alex, the former head of private banking in Moscow for a major Swiss bank. Having spent years living and travelling in Russia, he has a knowledge base of the country as deep as Russia’s winter freeze.

Today, Alex still invests in Russia for ultra-high net worth private clients from his office in Switzerland. I searched him out because I wanted a non-American view of Russia.

It’s very easy for American equity analysts to allow cultural prejudices to color their thinking about Russia, especially because of all we’ve gone through with the Great Bear during the Cold War and beyond.

Indeed, Americans like to cut-and-paste their own Western economic and political values and apply them to the rest of the world. That leads them to miss opportunities, because they’re looking at the country through a distorted lens.

Europeans see Russia from a different perspective. And Alex’s take is that “Russia is cheap.”

Back in my hotel overlooking Lake Zurich, I pulled up a list of major Russian stocks to gauge their valuations and see just how cheap they might actually be. And they are cheap – by any measure … and ridiculously so.

I found gads of stocks with P/E ratios in the low- and mid-single digits. The MSCI Russia index, which tracks the market as whole, is now trading nearly 50% below the 10-year average. That’s the kind of cheap that presumes everything in Russia is headed in the wrong direction … but that’s not the case.

Russia is in a pretty good position, economically. Its economy is deeply reliant on oil, and oil-price movements exert big influence on its stock market. At the moment, there are worries about recession in Europe and whether that flows through America and, ultimately, through oil prices.
but that’s the short-sighted view.
America and Europe are busy increasing their money supply, and oil prices will move higher, relative to the dollar – since the two tend to move in opposite directions. And that, ultimately, is good news for the Russian economy and its stock market. 

By Jeff D. Opdyke, Investment Director,

The Sovereign Individual

“This report is a damning indictment of HMRC and the way its senior officials handle tax disputes with large corporations”

Posted in Economics, Financial Freedom, international tax advice, international tax planning, Tax Avoidance, Tax Planning on December 20, 2011 by John

The Commons Public Accounts Committee publishes its 61st Report of the Session which, on the basis of evidence from the Cabinet Office and HM Revenue and Customs (HMRC), examined tax disputes.

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:

“This report is a damning indictment of HMRC and the way its senior officials handle tax disputes with large corporations. We uncovered both specific and systemic failures which must be addressed.

There is more than £25 billion outstanding in unresolved tax bills and it is essential that there should be proper accountability to Parliament for the settlements reached by HMRC.

Having looked at the two cases in the public domain, we are concerned that many millions of pounds may be lost to the public purse.

It is extremely disappointing that senior HMRC officials were not prepared to cooperate with our inquiry in a spirit of openness. We accept that there is a need for confidentiality to protect individual taxpayers, but this must not be used as a cloak to protect the Department from scrutiny.

It is absurd that we had to rely on the media and the actions of a whistleblower to find out about the details of individual settlements. Parliament and the public have legitimate concerns that large companies are being treated more favourably than ordinary taxpayers, whether they be small businesses or hard-working families.

The Department’s working practices must be seen by the taxpaying public to be absolutely impartial. The impression being given at the moment is quite the opposite, of far too cosy a relationship between HMRC and large companies.

In several cases, HMRC chose to depart from its normal governance procedures. It is extraordinary that the same officials who negotiated deals also approved them. In one instance, a mistake led to a potential £20 million of interest on a tax liability not being collected. Parliament and the public must be assured that settlements do not short-change the Exchequer.”

Margaret Hodge was speaking as the committee published its 61st Report of this Session which, on the basis of evidence from the Cabinet Secretary and HM Revenue & Customs (the Department), examined tax disputes.

At 31 March 2011 HM Revenue & Customs (the Department) was seeking to resolve tax issues valued at over £25 billion with large companies, some of which included disputes over outstanding tax. The Department must collect as much outstanding tax as possible and be held properly to account for how it resolves tax disputes. We have serious concerns about how the Department handled some cases involving large settlements, where governance arrangements were bypassed or overlooked until it was too late. In some cases the same officials negotiated and approved the settlements, which is clearly unacceptable.

Investigation of these specific cases has led to serious concern about systemic issues which must be addressed with the utmost urgency. There needs to be proper separation between the negotiation of tax settlements and the authorization of such settlements. And the Department must address issues of accountability so that Parliament and the public can be satisfied that best value is secured.

The Department has made matters worse by trying to avoid scrutiny of these settlements and has consistently failed to give straight answers to our questions about specific cases, which has severely hampered our ability to hold it to account for the settlements reached.

The Department has insisted on keeping confidential the details of specific settlements with large companies, even where there have been legitimate concerns about the handling of cases. Details of some cases only reached the public domain because the press secured the details. We recognise the general intention of the legislation is to keep taxpayers’ details confidential, but there is a provision which allows the Commissioners to authorise disclosure in certain circumstances. Furthermore, HMRC has a clear duty to assist Parliament in its work to establish value for money and detailed information can be necessary if Parliament is to properly meet its obligations. Given the public interest in these very large settlements, it is not unreasonable that they should be subject to more specific scrutiny. As it stands, the Department’s decision to withhold details from us reduces transparency and makes it impossible for Parliament to hold Commissioners to account. This situation is entirely unacceptable.

We discovered that the Department’s governance processes for large settlements were not applied consistently. In one case, a mistake was not picked up until too late because the Department failed to follow its own governance procedures. The C&AG told us that this resulted in a loss of up to £8 million in interest forgone. We have since received evidence from a whistleblower that the total value of interest payable in respect of this particular settlement could be as high as £20 million. Our understanding of how this case was settled is inhibited by the imprecise, inconsistent and potentially misleading answers given to us by senior departmental officials, including the Permanent Secretary for Tax. In particular, his evidence to the Treasury Select Committee on his relationship with Goldman Sachs is less than clear given his evidence to us that he facilitated a settlement with the company over their tax dispute. We expect far greater candour from public officials involved in administering such an important area of government, especially when there is a question about whether HMRC acted within the law and within its protocols. We are concerned that whistleblowers using the provisions of the Public Interest Disclosure Act 1998 face threats of dismissal for providing important and relevant information.

The Department accepts that its governance arrangements have not provided sufficient assurance and that independent scrutiny of large settlements is needed. It has appointed two new Commissioners with tax expertise, and plans to introduce a new assessor role to permit independent review of large settlements before they are finalised. The Cabinet Secretary assured us that proposals would be submitted to the Public Accounts Committee by Christmas. We welcome these measures, but they will not by themselves guarantee proper accountability. In future, the Department needs to ensure it follows its own governance procedures and checks without exception. In particular, it needs to make sure that in all cases there is a clear separation between the roles of those negotiating and those signing off settlements.
We saw little evidence of a culture of personal accountability within the Department. We were told that one individual was held accountable for the mistake which led to a loss of the interest due to the Department. However, those at the top of the Department also need to take responsibility for how the overall system has been designed and operated, since that is the context in which mistakes have occurred.

We have serious concerns that large companies are treated more favourably by the Department than other taxpayers. We were told by the Cabinet Secretary that the relationship management approach adopted for large companies had been very successful in terms of tax collection. But for the public to have confidence in this approach, the Department’s working practices must be seen to be absolutely impartial. The Department has left itself open to suspicion that its relationships with large companies are too cosy. We are also concerned that large companies appear to receive preferential treatment compared to small businesses and individuals – for example, in settling the totals due at less than the sum claimed by HMRC and in the time they are allowed to pay their tax liabilities without incurring interest charges. In order to maintain public confidence, the Department must ensure it avoids any perception of undue leniency in its dealings with large companies and must be seen to treat every taxpayer equally before the law.

We welcome the Comptroller and Auditor General’s proposal to conduct further work to consider the reasonableness of the settlements reached in the specific cases where normal governance processes were not followed, and to report on whether proper legal advice was secured in a timely manner and that HMRC complied with its own published procedures and protocols. The Department has agreed to co-operate fully with this inquiry and with any subsequent hearings we hold.

Sourced from:

  • Report: HM Revenue and Customs 2010-11 Accounts: tax disputes
  • Falling Dollar – Russian National News Report (English Subtitles)

    Posted in Asset Protection & Tax Planning., Financial Freedom, international tax advice, international tax planning, Russian trust contract with tags on March 31, 2010 by John

    Russian & International Tax Expert Tatiana Bulakh of Formcos-russia.eu, talks about the falling Dollar and the possibility of new regional “super currencies” similar to the Euro-zone