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Budget
PN 07
A package of reforms to tackle tax fraud and avoidance was unveiled in Budget 2003 today. The reforms will produce additional revenue, deliver significant savings and ensure that the burden of tax does not fall unfairly on taxpayers who play by the rules.
Central to today's reform is the launch of a new compliance and enforcement package for direct tax and national insurance contributions (NICs). The package involves investment of £66 million over the next three years, and is expected to produce at least an additional revenue totalling £1.6 billion over the same period. The package is the first step in a new strategic approach for Inland Revenue compliance work, and is part of the Government's ongoing commitment to create a modern and fair tax system. The additional resources will be deployed in three areas:
Commenting on the compliance and enforcement package, Paymaster General Dawn Primarolo said:
"We want to make sure that the burden of tax does not fall unfairly on taxpayers who play by the rules and pay their fair share. This package is the first step in a new strategic approach to compliance work, designed to modernise the way risks to revenue are assessed and managed by the Inland Revenue. It identifies areas of the tax system where the potential loss of revenue is high and targets resources and compliance activity accordingly; and creates a more stable framework upon which to plan public investment".
To complement this package, Budget 2003 also announces a range of further measures to tackle instances of direct tax avoidance, protecting around £250 million per annum in future years, including:
Rapid financial market and regulatory changes are leading to the development of innovative debt instruments that are economically equivalent to equity. This creates particular challenges for the tax system. The Government will continue to monitor the market for these innovative debt instruments and, if appropriate, will consider with the industry any changes to their tax treatment needed to protect revenues.
Budget 2003 also restores the tax treatment of capital gains and losses on the exercise of options to that which was generally understood to apply before the judgement in the case of Mansworth v Jelley. The change will apply to options exercised on or after 10 April.
These measures complement the Government's strategy for protecting indirect tax revenues, details of which were published alongside the 2002 Pre-Budget Report. To consolidate and build upon these existing strategies, Budget 2003 announces that the Government will:
The compliance and enforcement package for the Inland Revenue, announced in the Budget today, is the first step in a new strategic approach being developed by the Inland Revenue to manage the risks of non-compliance. The aim is to ensure that such risks are analysed systematically and high-risk areas clearly identified, that Inland Revenue responses are tailored to address them, that expected outcomes are clearly identified from the start, and that these are effectively monitored and evaluated.
To complement the compliance and enforcement package, the Government is taking action to close a number of direct tax loopholes. In addition to those already outlined above, these include:
To protect indirect tax revenue, the Government is introducing new VAT anti-fraud measures designed to:
Budget 2003 introduces VAT anti-avoidance measures designed to:
An additional £66 million is being provided to the Inland Revenue over the next three years to support the compliance and enforcement package. The package is expected to produce at least an additional revenue totalling £1.6 billion over the same period, but in line with the Government's cautious approach to the public finances a lower total figure of under £1.4 billion has been included in the forecast over these three years. The Comptroller and Auditor General has audited the projections and has concluded that they are based on a reasonable approach and incorporate caution.
The Government published Protecting indirect tax revenue alongside the 2002 Pre-Budget Report. This set out the Government's estimates of revenue losses within the VAT system and its strategy for tackling them. The strategy is designed to produce more than £2 billion a year in additional revenue by 2005-06. It explained that, of total VAT losses, VAT Missing Trader Intra-Community (MTIC) fraud is estimated to have cost between £1.7 and £2.75 billion in 2001-02; and the Government would consider further legislative steps to tackle the problem if required. The Government also allocated extra resources to identify and tackle abusive tax avoidance schemes, including tightening up legislation where necessary.
Further details of these measures can be found in the Budget Notes published today.
HM TREASURY PRESS OFFICE
Press enquiries: 020 7270 5238
Non-media enquiries: 020 7270 4558
INLAND REVENUE PRESS OFFICE
Press enquiries: 020 7438 6692 / 6706 / 7327
(out of hours: 07860 359544)
Non-media enquiries: 020 7944 3000
(office hours only)
HM CUSTOMS AND EXCISE PRESS OFFICE
Press enquiries: 020 7865 4775 / 5472
(out of hours:020 7620 1313)
Non-media enquiries: 0845 010 9000 (National Advice Service)
GOVERNMENT DEPARTMENT INTERNET SITES
Further information and all published documents relating to the Budget may also be found on the following sites:
Inland Revenue http://www.inlandrevenue.gov.uk/
HM Customs and Excise http://www.hmce.gov.uk/
