Aggressive Tax Planning

  • by Graham Bond
  • 07 Apr, 2017

A tax planning clampdown on aggressive tax schemes have been announced by Theresa May’s new Government. It is estimated that each year Billions of pounds of tax revenue that should be paid is lost due to complicated and aggressive tax planning schemes.

The Government has tightened up on tax evasion over the last few years and a number of “Celebrity Tax evasion” cases have received a lot of press coverage.

The Treasury has invested £1 Billion over the last few years addressing tax evasion, however they felt that this needed to go further.

In an announcement yesterday, the Financial Secretary to the Treasury, Jane Ellison confirmed that:

“People who peddle tax avoidance schemes deny the country of vital tax revenue and this government is determined to make sure they pay. The vast majority of their schemes don’t work and can land their users in court facing large tax bills and other costs. These tough new sanctions will make would-be enablers think twice and in turn reduce the number of schemes on the market.”

Making Accountants, Tax Planners an Advisers accountable

Up until now businesses promoting this advice have not received any recourse or comeback in relation to this type of tax evasion. High fees and commission were normal on this type of arrangement with the client bearing the cost. The aim of the consultation is to deter Tax advisers, accountants and financial advisers from encouraging clients to invest into complicated and risky schemes that are specifically designed to avoid tax.

Part of the plan is to levy penalties on advisers that recommend such schemes. The penalty could be up to 100% of the tax that should have been paid.

The Government has confirmed that the majority of advisers do not recommend these types of arrangements, but a minority still operate in this area. After the 2015 budget the Government recommended that the regulatory bodies responsible for tax and accountancy should raise standards in this area. Since then the industry has been working hard by strengthening their professional conduct standards in relation to taxation. In addition, a code of practice on taxation for banks was introduced in 2009.

Traditional tax planning still acceptable

The government has confirmed that traditional and proven tax planning methods such as Pensions, Individual savings accounts and trust planning will still be acceptable. This is good news for clients and reassuring, as it gives advisers an outline of the types of planning that is not classed as tax evasion.

Our view and Stance

We have been aware of the HMRC’s concerns over these types of schemes for a number of years. The Revenues disclosure of tax avoidance schemes legislation (DOTAS) has highlighted the issue and an impending tax planning clampdown in the area. We have always believed in the long run that ultimately it would be the clients of these schemes that would suffer financial loss and penalties.

As a consequence, we have never recommended these type of arrangements to our clients.

More information

The government has produced a consultation paper on the proposed penalties for accountants and tax advisers. A copy of the paper can be accessed under the   www.gov.uk   website under   strengthens tax avoidance measures

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by Graham Bond 27 Sep, 2017

By now, you’ve probably heard the news: Your own behavioural biases are often the greatest threat to your financial well-being. As investors, we leap before we look. We stay when we should go. We cringe at the very risks that are expected to generate our greatest rewards. All the while, we rush into nearly every move, only to fret and regret them long after the deed is done.

by Graham Bond 13 Sep, 2017

August is traditionally a quiet month as people go on holiday, factories close and parliament takes a break. Sadly, this year was dominated by terrorist atrocities in Barcelona, and by an increasingly combative rhetoric from North Korea that culminated in the firing of a missile over Japan. This brought about a heightened demand for perceived “safe-haven” assets, whilst the price of gold surged to an eleven-month high and reached its highest level since President Trump’s election in November 2016.

Weather has dominated the headlines, with Tropical Storm Harvey hammering Texas and the US Gulf Coast. This was followed by Hurricane Irma, bringing devastation to the Caribbean, Florida and beyond. Jose and Katia are the latest to bring havoc of what is still the beginning of the tropical season.

UK

The FTSE 100 Index rose by 0.8% during August. The only real change we may see to the pound over the coming months, is the removal of the old circular coin in mid-October! it continues to struggle again the EURO and USD.

UK equity markets rose over July, although the overall performance of large companies was eclipsed by that of mid-caps. While the blue-chip FTSE 100 Index rose by 0.8%, the FTSE 250 Index rebounded from a poor June to end July 2.3% higher.

Royal Bank of Scotland (RBS) reached an agreement with the US Federal Housing Finance Agency over the mis-selling in the US of high-risk mortgage products before the financial crisis. RBS will pay US$4.75 billion to settle the case. Elsewhere, payment processor and fellow FTSE 100 constituent Worldpay confirmed that it was to be taken over by US payment processor Vantiv.

The UK economy posted quarterly growth of 0.3% for the second quarter of the year, compared with first-quarter growth of 0.2%. Growth in the services sector was boosted by a strong contribution from the UK retailing and film industries. The International Monetary Fund (IMF) downgraded its forecast for UK economic growth in 2017 from 2% to 1.7%, citing “weaker-than-expected activity” in the first quarter.

Having fallen by 1.2% in May, retail sales volumes rebounded in June, rising at a monthly rate of 0.6%. Sports retailer Sports Direct revealed a drop of almost 59% in full-year profits, which were weighed down by a period of bad publicity and the effects of the pound’s weakness. Sterling rallied to its highest level against the US dollar since September 2016 during July.

Supermarket retailers Sainsbury’s reported a stronger-than-expected sales increase during its first quarter, but sounded a warning note over the impact of mounting inflationary pressures. The UK’s annualised rate of consumer price inflation eased unexpectedly in June, falling from 2.9% in May – its highest level since June 2013 – to 2.6%, and posting its first drop since October 2016. The decline was primarily caused by a fall in motor fuel prices, and the news went some way towards alleviating pressure on the Bank of England (BoE) to consider tightening monetary policy.

The rate of unemployment in the UK fell to its lowest level since 1975 in the three months to May, declining to 4.5%. However, wage growth continued to lag inflation: average earnings (excluding bonuses) rose at an annualised rate of 2%. Moreover, once inflation was stripped out, real weekly wages fell at an annualised rate of 0.5%, stoking concerns about the possible impact on economic growth.

UK equity indices generally rose during July, although medium-sized companies generally performed better than their larger counterparts. Over the month, the FTSE 250 Index rose by 2.3%, while the blue-chip FTSE 100 Index climbed by 0.8%. Meanwhile, the FTSE 250 Index’s yield fell from 2.71% to 2.65% during July, and the yield on the FTSE 100 Index eased from 3.84% to 3.80%. In comparison, the yield on the ten-year gilt edged down from 1.33% to 1.29% over the month.

Support services and construction firm Carillion issued a profit warning and announced the suspension of its dividend pay-out. Elsewhere, HSBC Holdings announced a new share buyback of up to US$2 billion, taking its buyback total to US$5.5 billion. According to HSBC’s CEO, Stuart Gulliver, the company has paid “more in dividends than any other European or American bank” over the past 12 months.

UK Investment dividend pay-outs hit a new second-quarter record in 2017, according to Capita Asset Services’ quarterly UK Dividend Monitor, reaching a total of £33.3 billion. Dividends were boosted by a strong contribution from companies in a “resurgent” mining sector, where second-quarter pay-outs rose at an annualised rate of 73%. During July, miner Anglo American revealed stronger-than-expected half-year results and a sharp decline in debt, and announced the early reinstatement of its dividend pay-out. Its dividend policy will target a pay-out of 40% of underlying earnings. Anglo American announced the cancellation of its dividend pay-out in December 2015 as part of a restructuring programme designed to address a downturn in commodity prices.

Total underlying dividend payments of £28.6 billion were augmented in the second quarter by special dividends totalling £4.6 billion. Sterling’s weakness continued to flatter pay-outs from UK companies: underlying growth in the second quarter was 12.6%; however, when the currency effects were stripped out, underlying growth was a slightly more modest 7.8%. Looking ahead, although the second half of the year is expected to be quieter than the first half in terms of dividends, Capita still expects 2017 to be a record year.

EUROPE

Uncertainties surrounding Brexit continue. The UK will "soon regret" leaving the EU, European Commission President Jean-Claude Juncker has said. Inflation hit 2.9%, ahead of the Bank of England’s target of 2%....ongoing concerns of a rise in interest rates continue.

The euro rose to its highest level against the US dollar since January 2015 during August, driven up by concerns over the impact of Tropical Storm Harvey in the US, and by the strengthening European economy. The eurozone’s economy expanded at an annualised rate of 2.2% during the second quarter.

 The euro’s appreciation generated some apprehension about the impact on corporate earnings in the region. Over August, the Dax Index fell by 0.5%, while the CAC 40 Index edged 0.2% lower.

European Central Bank (ECB) President Mario Draghi played down speculation that the central bank intends to start winding down its programme of economic stimulus measures soon. Mr Draghi said: “The last thing that the Governing Council may want is actually an unwanted tightening of the financing conditions that either slows down this process or may even jeopardise it”. Mr Draghi hailed the measures as successful, citing “all the economic sentiment indicators (and) survey indicators (which) are either at all-time highs or close to that”. The euro rose to its highest level against the US dollar since the beginning of 2015; meanwhile, the Dax Index fell by 1.7% and the CAC 40 Index dropped by 0.5% over the month.

Mr Draghi issued a cautionary note, however, warning that underlying inflation remains subdued and has not yet demonstrated “convincing signs of a pick-up”. The annualised rate of inflation in the euro area remained unchanged at 1.3% during June, remaining below the ECB’s 2% target. A survey undertaken by the ECB found that expectations for inflation in the euro area have deteriorated, highlighting the problems faced by the central bank. The survey found that the rate of inflation expected to remain below target in 2017, 2018 and 2019.

Economic sentiment in the eurozone rose in July to its highest level for ten years. Sentiment was boosted by stronger confidence in the services sector. The eurozone’s rate of unemployment fell to 9.1% during June, reaching its lowest level since February 2009. The International Monetary Fund (IMF) expects economic expansion in the eurozone to be stronger than previously predicted, and upgraded its forecast for 2017 from 1.7% to 1.9%, citing better-than-expected momentum in domestic demand. The IMF also upgraded its economic forecasts for several major European countries, including Spain – which is expected to expand this year by 3.1% - and Italy, which is forecast to grow by 1.3%.

Following a surge in demand for European equity funds in April and May, investors ’ appetite for funds in the Europe excluding UK sector declined during June, according to the Investment Association (IA). Nevertheless, in absolute terms, demand remained relatively robust and the sector experienced net inflows of £188 million during the month. Similarly, although demand for funds in the European Smaller Companies sector waned in June, net retail sales remained in positive territory.

USA

The US economy expanded at an annualised rate of 3% during the second quarter of 2017, compared with an earlier growth estimate of 2.6%. The Dow Jones Industrial Average Index edged 0.3% higher over August.

The hurricane season is still playing havoc with the production of oil, refining activity, demand and distribution. Prices rocketed in August, early September and it is very unstable.

Credit ratings agency Moody’s reported that, of the US$1.84 billion cash pile held by US non-financial companies, 87% of the pile is held by investment-grade companies, and the top-five cash hoarders can all be found in the technology sector, led by Apple.

Despite a backdrop of persistently low inflation, speculation over the likelihood of tighter monetary policy continued to put pressure on global bond and currency markets during July. The US Federal Reserve is expected to begin cutting back its balance sheet soon; meanwhile, the European Central Bank is trying to curb speculation that it intends to wind down its programme of economic stimulus measures.

EMERGING MARKETS

China’s economy posted annualised growth of 6.9% during the second quarter of 2017, having alsoexpanded by 6.9% during the first three months of the year. This growth exceeded the Chinese government’s official annual economic growth target of around 6.5%. Although the news was generally well received, it did not manage to allay broader concerns over the impact of China’s mounting debt burden, excess capacity in the manufacturing sector, and worries over a bubble in the property sector. The Shanghai Composite Index rose by 2.6% during July.

The International Monetary Fund (IMF) upgraded its forecast for China’s economic growth in 2017 from 6.6% to 6.7%, and in 2018 from 6.2% to 6.4%, citing the country’s “policy easing and supply-side reforms”. China’s industrial output rebounded in June, rising at an annualised rate of 7.6%; meanwhile, imports grew at an annualised rate of 18.9% during June, while exports rose by 8.5%. Elsewhere, retail sales increased to their highest level for more than a year during June, rising at an annualised rate of 11%. During July, China’s authorities launched a new programme – Bond Connect – which is designed to open the country’s bond market and make it easier for foreign investors to buy and sell Chinese bonds.

In India, pressure on central bank policymakers continued to intensify amid calls to cut interest rates. The Reserve Bank of India’s (RBI’s) key interest rate currently stands at 6.25%. Disappointing inflation figures were compounded by lacklustre industrial production data in July. Annualised consumer price inflation fell from 2.18% in May to 1.54% during June, while the rate of wholesale price inflation dropped from 2.17% to 0.9%. The CNX Nifty Index rose by 5.8% during July.

Brazil’s economic growth is likely to remain weak for a prolonged period, according to a report by the World Trade Organisation (WTO), although the WTO expects the country to begin a gradual recovery over 2017. The WTO believes that, although Brazil’s fundamentals are generally solid, the economy remains vulnerable to fresh political uncertainties and delays in tackling fiscal imbalances and structural reforms. Meanwhile, the International Monetary Fund (IMF) believes that Brazil’s economy is reaching a “turning point”; nevertheless, like the WTO, the IMF remains concerned about the impact of political instability. Over July, the benchmark Bovespa Index posted a rise of 4.8%.


A PDF version of the commentary is available here

by Graham Bond 05 Jul, 2017

Time and time again forecaster try to predict what will happen in the future to Stock Markets. In reality, nobody knows what Markets will do next.

The Wall Street Journal in the US recently published an article about the performance of Global Stocks and Shares. The article was called, “ Global Stocks Post Strongest First Half in Years, Worrying Investors .”

“The question for stocks and shares investors is whether the strong first six months of 2017 heralds a choppier second half or the start of a multiyear upswing. The data on global rallies offers a mixed record.”

In plain English, this means:

 “It’s impossible to predict whether markets will go up or down for the latter half of the year. Markets could go up or down or even trade sideways.”

The newspaper article also reported that: “Most of the major stock Market Indexes, 26 in total have risen in value so far in 2017. The last time this happened was in 2009.

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