This year’s Finance Bill is close to gaining Royal Assent and the Chartered Institute of Taxation (CIOT) has already submitted its “wish list” for the 2009 Budget. One of the suggestions put forward is that income tax and National Insurance Contributions (NIC) should be merged into one tax. Failing that “radical” change, the CIOT suggests that there should be further alignment between the two taxes.

The wish list forms part of a submission by the CIOT to Dave Hartnet the acting head of HM Revenue & Customs. Other items on the wish list include:

• A Statutory Residence Test,
• A small benefits exemption (£25) so that trivial employee benefits are tax free and need not be reported,
• An “Elderly Care Vouchers” exemption based on the current Child Care Vouchers system,
• An extension of the Gift Aid system to include non-UK charities, and a similar extension for inheritance tax purposes, and
• A suggestion that the proposed “income shifting” provisions, currently postponed until next year should be “quietly dropped”.
  

Full details of the CIOT’s submission can be found here

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Under current rules taxpayers generally have up to five years and ten months, after a particular tax year, to correct errors and make claims that may have been overlooked. Similarly, except when there is fraud or neglect, HM Revenue & Customs (HMRC) can only raise assessments for outstanding tax for a period of six years after the year in question. Buried deep in the Finance Bill are proposals to reduce and align these limits to only four years in both cases.

Where there has been “fraudulent or negligent conduct” under the current rules HMRC can raise assessment for up to twenty years. The proposals are that where there is a “loss of tax brought about carelessly” the limit will be reduced to six years but will remain at twenty years where this is “deliberate”

Whilst the general shortening of the time limits are welcome the Low Income Tax Reform Group has picked up on the point that there are many cases where HMRC have been “careless” with a taxpayer’s affairs and will have six years to recover any tax. However HMRC will only make repayments going back four years.

The proposals are due to be debated in Parliament in the coming weeks and, if they remain unchanged, will form part of the Finance Act which should receive Royal Assent later this summer. The rule changes will come into effect once the Treasury issue the relevant Statutory Instrument which could be soon after Royal Assent.

This means that any outstanding claims for the tax year 2002/2003 and 2003/2004 which are currently “in-date” will become “out of date” overnight (unless some transitional rules are also introduced). Such claims might include:

• Age related personal allowances (including married couple’s allowance)
• Blind person’s allowances
• Pension contributions
• Qualifying loan interest
• Capital losses.

If there are any outstanding claims for these years it would be prudent to consider these sooner rather than later.

There is one situation where the proposal is to increase the time limit. In the case where someone dies HMRC currently only have three years and ten months after the year of death to raise an assessment and this will be extended to four years.

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