The proposed ‘cap’ on income tax reliefs is ‘more of a blunderbuss’ and will hit people in business with modest incomes as well as high earners, a leading tax body has warned.
The Chartered Institute of Taxation suggested that, as currently framed, the cap could hit providers of professional services ‘particularly hard’ and could have a far wider impact than countering tax avoidance by the ‘few individuals’ who misuse reliefs.
The ICAEW Tax Faculty warned earlier this month that the plans represented ‘another tax’ on business. ‘The real losers will be ordinary small and medium sized businesses … It is hard believe that this is the government’s intention. For small businesses, tax is an important element of cash flow. Many such businesses are currently on a knife edge, just coping with their level of borrowing and are likely to falter or even fail if interest rates rise or cash flow stalls,’ it said.
CIOT president Patrick Stevens said last week: ‘The chancellor is understandably keen to ensure that those on high incomes pay a fair amount of tax ... However, the proposed cap will also affect many business scenarios that we don’t think the government wanted to catch. These are where a person’s business interests are fragmented for commercial or regulatory purposes. Currently, these are effectively aggregated and the person is taxed on the net income from all activities. The cap will prevent this happening in many cases, taxing many in business on more than they earn.’
The effect of the cap for individual business owners was largely missed when media attention was focused on the potential impact of the cap on charitable donations, Stevens explained. George Osborne announced in May, in response to criticism from philanthropists, charities and others, that the cap proposed at Budget 2012 would not apply to donations to charity.
The CIOT said last week that the types of cases affected by the cap would include:
a farmer who has diversified his farm business activities to remain self-sufficient;
a partner in a professional services group of firms who is required on a global basis to take a share of worldwide losses and profits;
a sole trader or partner retiring from the business – where the final year loss including “overlap profits” brought forward from previous years of UK double taxation may be lost; and
arts and music industry partnerships.
In its formal response to the consultation, dated 5 October, the CIOT said it believed it was possible to ‘target the cap to those individuals on very high incomes that exploit uncapped reliefs’ while protecting genuine business enterprises.
It made a number of suggestions to minimise the effect on business and the economy, and said avoidance could be targeted through existing provisions.
The proposed ‘cap’ on income tax reliefs is ‘more of a blunderbuss’ and will hit people in business with modest incomes as well as high earners, a leading tax body has warned.
The Chartered Institute of Taxation suggested that, as currently framed, the cap could hit providers of professional services ‘particularly hard’ and could have a far wider impact than countering tax avoidance by the ‘few individuals’ who misuse reliefs.
The ICAEW Tax Faculty warned earlier this month that the plans represented ‘another tax’ on business. ‘The real losers will be ordinary small and medium sized businesses … It is hard believe that this is the government’s intention. For small businesses, tax is an important element of cash flow. Many such businesses are currently on a knife edge, just coping with their level of borrowing and are likely to falter or even fail if interest rates rise or cash flow stalls,’ it said.
CIOT president Patrick Stevens said last week: ‘The chancellor is understandably keen to ensure that those on high incomes pay a fair amount of tax ... However, the proposed cap will also affect many business scenarios that we don’t think the government wanted to catch. These are where a person’s business interests are fragmented for commercial or regulatory purposes. Currently, these are effectively aggregated and the person is taxed on the net income from all activities. The cap will prevent this happening in many cases, taxing many in business on more than they earn.’
The effect of the cap for individual business owners was largely missed when media attention was focused on the potential impact of the cap on charitable donations, Stevens explained. George Osborne announced in May, in response to criticism from philanthropists, charities and others, that the cap proposed at Budget 2012 would not apply to donations to charity.
The CIOT said last week that the types of cases affected by the cap would include:
a farmer who has diversified his farm business activities to remain self-sufficient;
a partner in a professional services group of firms who is required on a global basis to take a share of worldwide losses and profits;
a sole trader or partner retiring from the business – where the final year loss including “overlap profits” brought forward from previous years of UK double taxation may be lost; and
arts and music industry partnerships.
In its formal response to the consultation, dated 5 October, the CIOT said it believed it was possible to ‘target the cap to those individuals on very high incomes that exploit uncapped reliefs’ while protecting genuine business enterprises.
It made a number of suggestions to minimise the effect on business and the economy, and said avoidance could be targeted through existing provisions.
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