Osborne Reduces Pension Allowances

Chancellor George Osborne released his Autumn Statement last month. The most significant item in the Finance Bill will be the change in allowances for pensions.

From 2014/15 the annual pension allowance will be reduced to £50,000 to £40,000, this allowance was previously £100,000. The standard lifetime allowance will reduce from £1.5m to £1.25m.

Another measure is the annual levy on properties worth more than the £2m and owned by non-domiciled individuals. Osborne continues to get tough on stamp duty and has introduced annual charges of up to £140,000 and capital gains tax for luxury homes owned by companies.

Facebook’s Tax Affairs Under Scrutiny

Facebook is the latest global organization to come under scrutiny from the HMRC regarding its tax affairs after reportedly channeling £440 million into an offshore company in order to avoid making tax payments in the United Kingdom. Facebook reported profits in excess of £800 million in 2011 but only paid £2.9 million corporation tax, including less than £240,000 in Britain, according to The Sunday Times.

The Group’s overseas headquarters are situated in Ireland which serves to reduce their taxable profits in the UK. Profits are also channeled through a subsidiary in the Cayman Islands. Both countries have a lower rate of tax than in the UK. Similar practices have been used by Google, Apple and Starbucks.

In October, Starbucks was criticized heavily in the media for paying only £8.6 million tax on more than £3 billion sales in 14 years of trading in Britain. Starbucks reportedly paid no tax in the UK over the past 3 years. Starbucks subsequently announced its intentions to pay approximately £10 million corporation tax in each of the next 2 years in order to restore its image with the public.

Chancellor George Osborne said the Government was clamping down on corporate tax avoidance in his Autumn Statement earlier in December. The Chancellor has indicated that more resources will be put into place ensuring multinational companies ‘pay their proper share of taxes’. Over £154million has been earmarked to tackle the problem of tax avoidance and evasion, with HMRC hiring another 2,500 tax inspectors to target the high earners who avoid tax.

The HMRC clampdown on multinationals is unlikely to generate significant income for the Chancellor as big businesses are able to hire top lawyers and advisors in their defense. Given the major budget deficit in the UK, it is likely that attention will be directed towards smaller individuals and businesses who are easier targets. UK contractors and small businesses are advised to ensure their financial affairs are in order. Individuals with offshore structures are more likely to be exposed to any new policies adopted by the Exchequer.

Belsize Accountancy do not employ offshore structuring. We believe that there is no longer a significant difference between effective UK tax planning and offshore alternatives. Contractors operating through effective UK structures will be able to reduce their marginal rate of tax without having to worry about the uncertainty of locating their business offshore.

Large Companies Continue to Stockpile Cash

News that President Barack Obama won the US election was met with a fall in the value of the US dollar together with a minor boost to equities. Many companies in both the US and Europe have been stockpiling cash whilst there has been uncertainty in the market. Spending was boosted following the removal of any uncertainty over the US Presidency. The economic boost was noticed in London due to increased recruitment activity in November, particularly for UK contractors as companies gave the go ahead to pursue projects they may have been holding back.

There remains a significant amount of cash stockpiled in both the US and Europe despite this minor surge in activity as companies continue to monitor the events in Europe and the Global economy. We believe that there is potential for significant stimulus to be added to the markets once this economic uncertainty is removed. Unfortunately, there have been no signs as to when this may occur. Current projections suggest that the economic outlook for 2013 will be poor with little or no growth expected in the US and Europe. However, we advise our clients to watch out for a trigger that could give rise to significant investment opportunities should the large corporations be given the confidence to invest their cash reserves.