Are company cars "appreciated by all"?

I was intrigued by David Cameron's reference to company cars in an interview published in the Sunday Times. He was drawing an analogy between what the Government is doing and the methodical turnaround of a failing business. It was making a lot of sense to me.

Then about half way through he noted that:

"the next step for the spending review is to identify the spending I'd describe as "acceptable in the good times, unaffordable in the bad times". To continue the business analogy, employee benefits such as company cars might fall into that category. They are appreciated by all, but if you're suffering losses for the third quarter in a row, you've got to drop them."

In principle I can follow the logic although keeping employees onside is also crucial. Indeed the analogy breaks down as cutting the provision of company cars would actually represent a cut in the employment costs of the business. If the failing business cannot afford to remunerate its workforce it should not simply cut one element of the remuneration package.

My second concern with the PM's statement was how out of date is the sentiment behind it. I thought most employers had stopped providing company cars as a perk/benefit some years back.

It was 1994 when the basis for the tax charge was changed to focus on the list price of the car (and will often be set by reference to 35% of that figure). As the increased tax charges hit employees' pockets so company cars ceased to be an attractive employment 'benefit'. The system changed again in 2002 to focus on the CO2 emissions of the car. And these days few employees appreciate the provision of company cars as a perk, once they understand the associated tax charge - other than perhaps those employees with very low CO2 emission vehicles.

The benefit in kind charge for a company car is a set % of the 'list price' ranging from 10% for cars with emissions upto 120g/km, upto a maximum of 35% for cars with emissions of 230g/km. The relevant % will be applied to the full 'list price' including including all the manufacturer options and any other extras. Thus, as the vehicle cost increases so does the tax liability.

I'd be interested to know if many people still value the old company car perk. Please let me know.

In the meantime, you can find the the CO2 emissions for most cars using the SMMT website. Another useful site for finding out the changing tax charges on company cars is UK Carline.

Is there any future for tax amnesties in the UK?

It seems that only 5% of those doctors and dentists, targeted by the amnesty dubbed a 'Tax Health Plan' (THP), actually came forwards to voluntarily settle any outstanding tax liabilities.

The BBC has recently reported that:

Tax officials have harvested £9m in unpaid tax from 1,500 medical professionals, although 30,000 were approached in a disclosure campaign.

Pockets of the medical profession are accused of failing to declare payments for consultations, medicals and other fees, backed by details of payments that HMRC has received from sources such as National Health Service trusts, private hospitals and medical insurance companies. So what can we surmise from this development?

Medical professionals have either been unaware of this 'tax amnesty' or have ignored the facility. Or maybe they have been advised to do so by their accountants.

The situation is just as bad, if not worse, for offshore disclosures where the reported takeup is again very low. The first such 'facility' was announced in April 2007. Over 3 years ago. Since then has there been any publicity given to tax fraudsters who failed to play ball? More recently we've had the ODF and the LDF.

Amnesties only work if people think they are seriously at risk of penalty if they fail to comply. Does anyone really believe that HMRC have the resources to pursue more than a small fraction of the remaining medical professionals who have not come forward voluntarily? Or all the holders of offshore accounts? Maybe most of them have nothing to hide and thus nothing to fear? Maybe some of those targeted by the 'amnesties' have simply put their house in order and hope thereby to escape attention in the future.

Do people make a reasoned judgment over the odds of being caught? And of the consequences?

In my view there are 3 possible reasons for the failure of recent tax amnesties:

1- HMRC over-estimating the scale of the problem. Maybe the typical sums unreported by medical professionals are too small per head. Rather than 'fess up' the taxpayers simply get it right going forwards. Maybe much of the interest on the offshore accounts has been properly reported or is legitimately not subject to UK tax.

2- Inadequate PR. Has HMRC relied too heavily on accountants and tax advisers to tell their clients, the majority of whom are already compliant? Where were the radio and tv adverts encouraging people to comply - like the ones that are broadcast re tax credit claimants and benefit fraudsters?

3- Insufficient numbers of HMRC staff. Gordon Brown's disastrous plan to decimate HMRC staff numbers means there is a tide of departing investigation officers. They cannot easily be replaced. Most were experienced, able and fair. Without them many advisers consider HMRC's threats to be empty. Here's the latest - again only in the professional press. Accountancy Age reports a spokesman from HMRC who has issued a "stark ultimatum":

“We’re only 50 yards into a marathon. Those who don’t come forward will face naming and shaming and in the most extreme cases will be prosecuted.We always win in the end.”

My inclination is to respond: "If only that were true". What's your view?

Tax Directors say iXBRL will drive takeup of corporate tax software

Over 60% of Tax Directors who responded to a recent survey anticipate making greater use of corporate tax software due to new iXBRL obligations.

This is one of the conclusions from Winmark’s third benchmarking survey of in-house Tax Directors.

Out of over 100 respondents to the Tax Director Network survey, 15% said that they do not currently use corporate tax software and a further 12% said they use such software only to a very limited degree. When asked whether they anticipate that their departments will make greater use of corporate tax software in the coming year, 60% said “yes, due to the new iXBRL efiling obligations”.

The move to iXBRL is clearly fueling greater interest in the benefits of corporate tax software. A surprising number of organisations still seem to rely on spreadsheets although this may be due to perceived constraints in the currently available software.

Clearly the requirement for consistent iXBRL tagging will mean that more organisations will be using corporate tax software by this time next year.

Copies of the executive summary of the survey report are available on request from Winmark Research. The full report will only be available to members of the Tax Director Network and to others who completed the survey.

The end of IHT avoidance schemes?

For some reason Inheritance Tax (IHT) avoidance seems to be considered even more of a sport than efforts to avoid other taxes. Actually there are probably 3 reasons for this:

1. Some people consider the tax to be unfair in principle (unlike for example income tax and capital gains tax);
2. There is an even longer lead time between IHT planning and the time when anyone can be certain as to how effective (or ineffective) was the effort to reduce the IHT bill; and linked to this point
3. The fact that IHT avoidance schemes have not, to date, been covered by the Disclosure regime (DOTAS).

This is about to change. HM Treasury and HMRC are aware that tax avoidance schemes are being used to avoid the IHT charge that arises when property is transferred into trust. FA 2010 included legislation to close down two such specific schemes. The concern, however, is that the full extent of such activity in this area is not known. And the time lag already mentioned means it can be many years before schemes become known to HMRC.

Including IHT in the DOTAS regime should help HMRC identify schemes and users at an early stage. I doubt this will reduce the number of adverts in the weekend money pages to 'reduce your IHT bill'. But it may mean that IHT planning has to become more bespoke and specialist. Nevertheless I am sure that the 'sport' will continue for many years to come. Don't you?

A tax scheme in two tweets

Full marks to Gareth Hughes of the Hughes Partnership in Solihull He managed to tell me about a tax scheme and what he thought of it in just two tweets (on twitter) last week.

I've edited out the name of the promoter:

• I went to an eye opening seminar a few weeks back re tax strategies.

• They all centred round the loan concept (post Dextra) & charge commercial interest that is never actually paid. Commercial?!

Reminded me of a blog post here last April: "Have a look at this scheme and tell me what you think"