§ Mr. Nigel JonesTo ask the Chancellor of the Exchequer if, given the provision in Finance Act 1994, extending relief from a deemed benefit in kind to include sole traders as well as partnerships, the Inland Revenue will not be seeking tax on any open assessments under this section where, had the new rules applied, there would be no liability.
§ Sir George YoungThe changes in the 1994 Finance Act to the taxation of beneficial loan arrangements take effect from the tax year 1994–95. It is not proper for the Inland Revenue to anticipate those changes in any assessments for earlier years which happen still to be open. Such discretion would result in some taxpayers being more favourably treated than others, simply because they had more open assessment.
§ Mr. Nigel JonesTo ask the Chancellor of the Exchequer what factors were taken into account when
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Direct effects of illustrative changes in income tax1 £million Full year cost/yield Receipts cost/yield 1995–96 1995–96 1996–97 Rates Change lower rate by Ip2 520 800 650 Change basic rate by Ip 1,900 1,700 2,000 Change higher rate by Ip 460 290 470 Allowances Change personal allowance by £100 600 490 620 Change age-related personal allowance by £1003 60 45 60 Change married couple's allowance by £1004 150 120 150 Change age-related married couple's allowance by £1003 14 11 14 Change aged income limit by £500 14 7 13 Change all personal allowances by 1 per cent.5 240 190 250 Change all personal allowances by 10 per cent.5 2,350 1,900 2,450 Change married couple's and related allowances by I per cent.5 30 25 30 Change married couple's and related allowances by 10 per cent.5 290 230 300 Lower rate band Increase lower rate band by 10 per cent. 330 260 330 deciding to extend relief from a deemed benefit in kind to include sole traders as well as partnerships as provided for in the Finance Act 1994.
§ Sir George YoungWhere an employee obtains a cheap or interest-free loan from his employer, he is taxed on the value of the benefit. The amount of the taxable benefit is the interest, or extra interest, he would have paid if the loan had been on ordinary commercial terms. But if the loan is used for a purpose which would have enabled commercial interest on it to qualify for tax relief, the extra tax payable on the benefit may be reduced or cancelled out. The purpose of giving relief in this way is so that an employee with a cheap loan used for a qualifying purpose pays the same amount of tax as one who is paid extra salary to meet the interest he is charged on a commercial loan used for the same purpose. Before the Finance Act 1994, this was not always achieved. Where an employee used a cheap or interest-free loan provided by his employer in a separate business in which he was a partner, tax relief was normally available, but there was no tax relief where the loan was used in a business in which the employee was the sole proprietor.
The 1994 Finance Act amended the rules for taxing cheap or interest-free loans. From 6 April 1994, tax relief is available for cheap or interest-free loans used by an employee in a separate business, whether he is a partner or the sole proprietor. This brought into line the treatment of all cheap or interest-free loans, so that tax relief is available in the same way as for interest on loans used for other purposes such as home loans.
§ Mr. MilburnTo ask the Chancellor of the Exchequer if he will update the figures in tables 6, 7 and 10 of the "Tax Ready Reckoner" and "Tax Reliefs", published in July 1994 to take account of the Budget and subsequent financial statement; and if he will include the equivalent full-year costs or yields.
§ Sir George YoungUpdated versions of the ready-reckoners are in the tables. The changes are from a base incorporating the levels of tax allowances and so on for 1995–96 announced in the November 1994 Budget. Updated estimates of the costs of tax expenditure and structural reliefs are not available. They will be included in the next edition of the "Tax Ready-Reckoner and Tax Reliefs" booklet to he published in the summer.
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Direct effects of illustrative changes in income tax1 £million Full year cost/yield Receipts cost/yield 1995–96 1995–96 1996–97 Basic rate limit Change basic rate limit by 1 per cent.5 90 65 90 Change basic rate limit by 10 per cent.5increase (cost) 810 570 820 decrease (yield) 1,000 730 1,050 Allowances, lower rate band and basic rate limit Change all main allowances, lower rate band and basic rate limit 1 per cent.5 390 310 400 Change all main allowances, lower rate band and basic rate limit by 10 per cent.5 increase (cost) 3,800 2,950 3,900 decrease (yield) 4,200 3,250 4,300 Note:
1 The estimates are rounded. The extent of rounding reflects the desire to avoid undue compounding of its effects when numbers are pro-rated, rather than the accuracy of the estimates. The figures include consequential effects on the yield of capital gains tax. Changes are assumed to take effect from April 1995.
2 Including the effects of the change on receipts of ACT and on consequential liability to mainstream corporation tax.
3 Allowances for those aged 65–74 and aged 75 and over.
4 Figures include revenue effects of changing the additional personal allowance and widow's bereavement allowance by £100.
5 Percentage changes are calculated with reference to 1994–95 levels, except for the married couple's allowance and related allowances, where they are calculated with reference to the 1995–96 levels announced in the November 1993 Budget.
Direct effects of illustrative changes in other direct taxes and national insurance contributions1 £ million Full year cost/yield Receipts cost/yield 1995–96 1995–96 1996–97 Corporation tax2 Change full rate by 1 percentage point 800 570 890 Change small companies' rate by 1 percentage point3 120 80 130 Capital gains tax Increase annual exempt amount by £500 for individuals and £250 for trustees 5 0 3 Inheritance tax Change rate by 1 percentage point 38 16 33 Increase threshold by £5000 38 16 32 National Insurance Contributions Change employee rate by 1 percentage point 2,020 1,810 2,070 Change main employer rate by 1 percentage point 2,530 2,270 2,620 Change all lower employer rates by 1 percentage point 440 390 430 Change Class 2 rate4 by £1 110 70 100 Change Class 4 rate5 by 1 percentage point 120 50 110 1 The estimated revenue effects of the changes are rounded. The extent of rounding reflects the desire to avoid undue compounding of its effects when numbers are pro-rated, rather than the accuracy of the estimates. Changes are assumed to take effect from April 1995, except where otherwise specified. 2 Assessment to corporation tax normally relates to the preceding year. These estimates are the changes to revenue that would occur if the changed rates were applied to profits from 1 April 1994. 3 These figures ignore effects arising from the imputation system. 4 Flat rate contributions payable by the self-employed with earnings above the small earnings exemption rate (£3,200). 5 Profit related contributions payable by the self employed.