Wednesday, September 17, 2014


BLOG 154

I have recently returned from my annual trip to Chicago.  It’s not just that its my favourite City.  I go every year for the Midwest Accounting show and stay over for the Chicago Jazz Festival.

The Accounting Show is really more of a conference with show stands rather than simply a show.  It is a two-day event and you get to choose your seminar sessions from a large menu.  The Show is my annual update on what is happening in the US tax world.

However I also listen to other talks.  This year there was a presentation on the state of the Illinois economy.  Unsurprisingly the speaker was upbeat.  Some of the statistics impressed me, particularly that Chicago is number two in the US for attracting foreign investment.  Some were less impressive, such as Chicago accounts for 93% of all Illinois exports, whereas in 2009 it accounted for only 55% (which suggests that the rest of Illinois is struggling) and that it ranks only 31st in tax-friendly States.

But what stuck in my mind is that none of the speakers mentioned the number of graduates from Illinois’ eight universities.  They referred only to STEM graduates.  I had never heard of a STEM graduate before.  STEM degrees are apparently degrees in Science, Technology, Engineering and Maths.  Illinois has had a 42% increase in STEM graduates over the last 10 years, but local businesses such as Microsoft are worried that there are not enough.  Currently when looking to invest, Chicago is Microsoft’s fourth choice (after California, Seattle and New York).  The problem is that there is a shortage of qualified labour.  Some Chicago businesses are introducing scholarships in engineering at High School level to encourage pupils to study STEM subjects in university.

Foreign nationals who study at Chicago universities are five times more likely to invest in Chicago than elsewhere.

This contrasts with the UK where we seem to be interested primarily in turning out graduates full-stop.  English graduates, History graduates, Media Studies graduates, we seem to value them exactly the same as STEM graduates.  And yet, like Chicago, the UK has a lot of unemployment and a lack of skilled labour so we are having to bring in the skilled labour from overseas.  Wouldn’t it be a lot more sensible to take the Chicago route and concentrate on producing STEM graduates rather than anything graduates, particularly if the Chicago experience is that it is the STEM graduates who later in life are the people who decide where to locate branches of the businesses they join.

While in the States I read a press release from Rep Kowalko of Delaware.  He wants Congress to stop criminals from hiding behind Delaware companies!  He explains that Delaware “is a leader in incorporation”.  He doesn’t point out that this is because of a combination of non-disclosure laws and the absence of State corporate tax.  He thinks that labels such as “US Shell Corporation Capital”, “corporate tax haven” and “the new Cayman Islands”, “besmirch Delaware’s image”.  He does not want that to be Delaware’s reputation or Delaware’s reality”.  However he accepts that when fraudsters “take advantage of Delaware’s laws to create anonymous shell companies to launder money for illegal purposes, our state has a real problem that needs to be addressed”.

His solution?  Don’t expect Delaware to do anything about it!  We value our competitive advantage!  Instead Congress should force all 50 States “to require companies from all 50 States to disclose their real, living and breathing beneficial owners when they incorporate and keep this information up to date”.  Not of course to make this information public, as roughly 47 of the 50 States already do, but so that “law enforcement could subpoena information about the natural person (or persons) behind a company without tipping off that company or running into a dead end”.

How’s that for bare-faced cheek!

Most people outside Delaware think that, as the US and other G20 countries increasingly pressurise small islands to disclose more and more information to developed countries against the threat of economic sanctions by the G20, Delaware is fast becoming the only place in the world where secrecy is guaranteed.  That’s a little bit unfair to Delaware as I keep getting e-mails from a company in Wyoming telling me that Wyoming is even more secretive than Delaware!


Monday, September 08, 2014


BLOG 153

The government frequently talks about simplifying tax.  So what does simplification mean?  In June HMRC issued a consultation document, “Employee Benefits and Expenses – Trivial Benefits Exemption”.

This proposes a new exemption for trivial benefits.  Well, that sounds like simplification doesn’t it?  It explains that examples of benefits in kind that “HMRC accepts as trivial include a small gift (such as a bouquet of flowers) given to an employee to celebrate a personal event, such as the birth of a child, or small items, such as a box of chocolates, given to an employee at Christmas”.

I don’t want to encourage tax evasion, but I suspect that before the issue of this document, most employers would not have dreamt that a bouquet of flowers sent to an employee on the event of her baby’s birth is a benefit in kind.  It was held by the Upper Tribunal in HMRC v Apollo Fuels Ltd that the benefits provisions apply not where a person makes a payment in relation to an employee but only where the employee actually receives a benefit.  I doubt that anyone feels they have benefitted from a bouquet of flowers from the office.  It is nice to know that they are thinking of you (or not, if you regard it as a reminder that they expect you to come back to work) but that is surely not a benefit, so it is doubtful whether it is legally a taxable benefit at all.

Nevertheless, if the government want to formally exempt things that in practice most people probably already regard as exempt, surely no one is going to complain.

But the government does not propose to exempt trivial benefits; it proposes to exempt them only up to a limit.  It believes (presumably) that if it simply exempts them, employers will start to send bouquets of flowers all over the place – they will not only send a bouquet for the birth of a baby, but will send a bouquet on its every birthday, on the employee’s anniversary of starting work, on the employee’s own birthday and wedding anniversary, on her return from holiday and on myriad other occasions.  If the government were to simply exempt trivial benefits, the whole country could quickly become overwhelmed with flowers.  Clearly firm government is needed to prevent this happening.  The desire for tax simplification needs to be balanced against the risk of civil unrest that would be bound to ensue if some employees were to receive more flowers than others because they have more anniversaries than the norm.

The document tells us that “the government believes that employers and employees will welcome the certainty and transparency that the inclusion of a monetary limit in the definition of a trivial Bik will provide and therefore intends to set such a limit”.  So it is your fault!  Somehow you have convinced the government that is what you want! (It’s not my fault because I am neither an employer nor an employee).

HMRC have put forward two possible ways to meet your wish.

Annual exemption
1.      The employer decides whether a benefit is trivial.
2.      He records the cost of every trivial benefit that he provides (not just flowers but anything of small value (other than cash and items already exempted from tax)).
3.      He keeps a running total of that cost for each individual employee.
4.      The trivial benefit that breaches the annual exemption – perhaps £75 – will be taxable as will any subsequent benefits that would breach it.

Number of trivial benefits
1.      The employer decides whether a benefit is trivial.
2.      He records for each employee that fact that he has provided a trivial benefit.
3.      He keeps a running total of the number of benefits for each individual employee.
4.      A benefit that breaches the allowable number (HMRC suggest 2 must be a reasonable number) is taxable.

Which of these methods did you have in mind when welcoming certainty and transparency?

Both seem to me to involve a lot of work for employers.  But perhaps simplification is really about reducing the burdens on HMRC rather than reducing burdens on business.

Obviously, to further deter avoidance the government intend to define what is trivial.  They don’t want to create a list of trivial items.  It will be principles based.  The law will set out a number of principles.  In that way, each time an employer provides a trivial benefit (HMRC seem to have in mind something costing £30 or less – although I doubt that you can get a decent bouquet for £30) he can consider these principles and decide whether or not the benefit is a trivial one.  He will of course face a penalty if he gets it wrong unless he can show that he exercised reasonable care in giving proper consideration to the guiding principles.

But if that is what employers and employees both want, far be it for me to seek to interfere with the fulfilment of this desire.