Concern over loophole that allows the wealthy to reduce their tax bill

Chancellor George Osborne announced in his Budget statement that he was “shocked” at the extent of tax avoidance by millionaires who are able to reduce their tax bill to less than 10% of earnings. In certain circumstances, tax planning has enabled some wealthy taxpayers to reduce their tax bill to close to zero. By loophole, we presume that he is referring to the fact that individuals are able to reduce their tax liability by offsetting business losses against their income through the use of Limited Liability Partnerships (or LLP’s). 

Offsetting losses is a common method used to reduce an individual’s taxable income and is essential for entrepreneurs who suffer start up losses in establishing their business. Partnership rules enable members to offset their business losses against other personal income and are often the structure of choice for wealthy individuals. 

The chancellor has responded by introducing a cap on tax reliefs available to taxpayers equal to the greater of £50,000 or 25% of income.

Hollande Wins French Presidential Election

Francois Hollande narrowly defeated Nicolas Sarkozy to become elected as the French president. Mr Hollande comes from a socialist background and has called for an EU wide push for growth as opposed to following Germany by means of increased austerity. The EU markets may not take well to the election of Mr Hollande who will be pushing against the norm. Mr Hollande is committed to cutting the French deficit and has proposed increased taxes of up to 75% on the rich.

Top civil servants paying themselves through personal service companies

Approximately 2,000 public sector officials are under investigation over their payroll arrangements. The civil servants were found to be paying themselves through the use of their own personal service companies as a tax efficient method to reduce their tax bill. The service contracts of the officials will be examined to identify whether they are self employed or not. If they are found to be employees, they will be required to pay the required tax and national insurance and will face fines. It is unclear as to whether the officials have employed effective tax avoidance measures. A number of the individuals have actually declared the use of their personal service companies and were given clearance by the HMRC before they were set up.