CIOT: Tax experts surprised over few changes to proposed reliefs cap

Tax experts are surprised that the Government is pressing ahead with its proposed cap on income tax reliefs, subject only to a few technical changes. During the recent consultation representative bodies warned the Government that the proposals, as framed, were anti-business and would hit some with modest net incomes, leading to them being taxed on more income than they actually receive.

The Chartered Institute of Taxation (CIOT) reiterates its concerns around the cap now included in the draft Finance Bill clauses issued today1.

Commenting, CIOT President Patrick Stevens said:

“We appreciate that the Chancellor is keen to ensure that those on high incomes pay a significant amount of tax. However, the proposed cap goes well beyond that. It will affect some ordinary business scenarios that we really cannot imagine the Government wants to catch.

“We welcome the changes to the original proposals to exclude both share loss relief for shares qualifying for EIS or SEIS2 and also overlap relief from the cap. These were highlighted during the consultation and it is good to see that the Government listened on these points.

“However it is very disappointing that the other changes were not made to make the proposals more business friendly. Restricting the ability to offset genuine business losses and interest relief could suppress UK entrepreneurship. It is not uncommon to fragment business interests for commercial or regulatory purposes; the results are currently effectively aggregated for tax purposes and the person is taxed on the net income from all activities. The cap as drafted will prevent this happening in many cases, taxing many in business on more than they earn.

“The cap is likely to have a significant negative impact on economic growth and employment.

“We hope that the Government will continue to listen to concerns and reconsider the decision to include those on modest net incomes, such a farmer who has diversified his farm business activities to remain self-sufficient and incurs losses in one business due to investing in machinery and claiming the recently proposed higher annual investment allowance.”

The CIOT’s key recommendation is that business profits and losses, including relief for interest on a loan to the business, should be capable of being offset against each other before considering if the cap applies. As a minimum, the small number of individuals with gross income under £150,000 that claim significant loss relief should be excluded from the provisions.

Notes to editors

1.       At Budget 2012 the Government announced the introduction of a limit on currently uncapped income tax reliefs to have effect from April 2013. From next year anyone seeking to claim these reliefs will have a cap set at £50,000 or 25 per cent of their income, if higher. The proposals have been included in the draft legislation issued today with only two significant and welcome changes around share relief and overlap relief.

2.       The EIS is the Enterprise Investment Scheme. The SEIS is the Seed Enterprise Investment Scheme.

3.       The CIOT’s response to the original consultation, including further recommendations, can be read at:

4.       The Chartered Institute of Taxation (CIOT) is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives  can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries.  The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 16,500 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

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George Crozier
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