Oggy, oggy, oggy

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Cornish pasties advertised outside pub
Image credit

There I was again last Wednesday lunchtime, listening to the Budget speech.  A bit of a groundhog moment, really, as nearly everything had been leaked to the press beforehand.  The Chancellor still delivered a few surprises though.

In case you haven’t heard, the 50% tax rate is being reduced to 45% from April 2013.  This means that all those who avoided the 50% rate first time round by bringing forward income to an earlier tax year now have the opportunity to avoid it again by deferring income to a later year.  (Well done, George).

Stamp Duty Land Tax on residential property costing over £2 million purchased by a company is being increased to 15% from 21 March 2012.  SDLT on residential property costing over £2 million is being increased from 5% to 7% from the same date.

It has undoubtedly been common practice to avoid SDLT by using a special purpose company as a ‘wrapper’ for expensive residential property.  Once the property has been acquired, any later sale of the company (and therefore, indirectly, of the property) would attract UK stamp duty on the company’s shares at 0.5% (in the case of a UK incorporated company), or nil (in the case of a foreign company), but no SDLT.

The use of a non-UK company in this way started out as an inheritance tax ruse for non-UK domiciled individuals well before SDLT was introduced in 2003.  So, after 2003, it was simply a case of killing two birds with one stone.

Now Frank, who used to share my office but has recently flown the nest, is convinced that the Chancellor was inspired to make these changes by an article he (Frank) wrote for Tax Adviser magazine suggesting that this would prevent avoidance.

Is he delusional I wonder? (Frank, not George.  Although on reflection…)

If it was worth the effort of avoiding SDLT at 5%, how much more so at 7% or 15%?  It seems to me that the SDLT avoidance industry has been given a shot in the arm, not a kick in the teeth.

Be that as it may, George has definitely been reading my blogs, as VAT is being introduced from 1st October on, amongst other things:

Hairdressers’ chair rental the issue that prompted that memorable Guardian headline ‘Are salons really at the cutting edge of tax avoidance?

Hot takeaway food

VAT at the standard rate will be chargeable on all food (other than freshly-baked bread) which is above ambient air temperature when provided to the customer.

This change, which has rapidly become known as the ‘pasty tax’, has galvanised a nation of erstwhile couch potatoes into action.  An e-petition against the measure has been launched on the Direct Gov website, and, if the petition reaches 100,0000 signatures the topic will be considered for a full debate in the House of Commons.  Those of like mind can join a ‘Say NO to pasty tax’ group on Facebook.  In addition, there is an HMRC consultation which ends on 18th May so you’ve got plenty of opportunity to have your say.

The Cornish, meanwhile, are up in arms and the MP for St Austell and Newquay raised the matter in the Budget debates. The shades of Poldark are abroad.  Has George bitten off more than he can chew?

To compound matters, the Chancellor has been quoted as saying those on a tight budget could always avoid the price increase by buying cold pasties.  Really, George, haven’t you heard what happened to Marie Antoinette?

 

*** UPDATE – August 2013 ***

Unbelievable scenes in June 2012! Forget Poldark!  Were we on the stage of Les Mis?

Two HMRC officials were lured to a Greggs shop near Whitehall to see how quickly its freshly baked products cooled to ambient air temperature or below. A Greggs spokesman said the officials were attentive, but didn’t eat anything. I suppose it makes a change from sitting outside Chinese takeaways counting foil containers.

Bakers marched on Downing Street and a debate took place in the House of Commons on the proposed Budget changes to the VAT treatment of hot takeaway food. George then admitted defeat and scrapped the pasty tax. Humble pie, George?

Shares in Greggs jumped 7% at the news. The amended proposals mean that hot food, such as sausage rolls or pasties, which is cooling down after being cooked (rather than being kept hot) will remain zero-rated. There is a handy table on the BBC News website to help you establish whether your munchie of choice is taxable. Hardly simplification, methinks.

But the temperature continued to rise. Following George’s U-turn Subway decided to take action on the 20% VAT on its toasted subs, and, apparently, commenced proceedings in the High Court on 23 July 2012. Subway see themselves as being penalised as competitors can provide similar items without incurring any VAT liability provided that their product is not marketed as hot, is not heated to order or for the purpose of enabling it to be consumed hot,and is hot because it is cooling down, rather than because it has been kept hot in any way, including by the use of heat-retaining packaging. The pasty tax would, in Subway’s view, have provided a level playing field as all suppliers of baked or toasted goods which were warm at the time of sale, for whatever reason, would have been treated in the same way for VAT purposes.

In August 2013 the Telegraph published an article with the headline ‘Companies and banks defer £1.7 bn of bonuses to avoid tax’.

What did I tell you, George?

Take a look at Ann’s free resource for SDLT. This resource has numerous queries in a question and answer format taken from real client questions that Ann has answered. To view please click here.

Tax lawyer specialising in business tax, SDLT and VAT

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