Nine former ministers today rounded on Gordon Brown’s plans to cut childcare, warning the prime minister that he is threatening marginal Labour seats in the runup to the election by axing popular support for hard-working parents.

The warning came from normally loyal former ministers – including Patricia Hewitt, Estelle Morris, Hilary Armstrong, Beverley Hughes and Caroline Flint – who say the plans to cut childcare vouchers for more than 340,000 parents are “greatly unfair” and “mark the undoing of one of Labour’s landmark achievements”.

Brown announced he was removing tax relief for employer-based childcare vouchers, arguing that too much of the money was going to the middle classes. He has outlined plans to switch the money to provide 10 hours of free childcare for 250,000 two-year-olds by 2015. But removing vouchers, which are thought to save parents up to £2,400 a year on the cost of nurseries, nannies or childminders, would strip “effective and popular childcare support from hard-working parents”, the former ministers said.

In their letter to Downing Street, the former ministers, including former women’s minister Meg Munn, urge the government to review the decision: “Carefully considering the full impact of removing the tax relief on parents, employers and the childcare sector.”

“Surely this is not the time for us to remove a key support from hard-working families at the very point we need them at their most engaged and productive to fuel the recovery from recession. Crucially, in the runup to an election, it will remove support for working parents and for businesses in key marginal constituencies.”

More than 70,000 people have signed a petition on the Downing Street website criticising Brown’s decision and urging him to reconsider. Some of the signatories to the letter have likened the revolt to the way the government was caught on the hop over opposition to the abolition of the 10p tax band.

The authors, notably Hewitt, believe the Treasury has mistakenly seen the childcare voucher as a middle-class perk.

The letter said: “Childcare vouchers are an essential support to over 340,000 parents enabling more than 33,000 employers to help their employees, especially women, balance family and work responsibilities. It added: “Withdrawing them will penalise a significant number of lower-rate taxpayers, reduce the overall amount of funding available for childcare, reduce parental choice and impact negatively on the economy as the UK moves towards recovery.”

The vouchers can be used to offset the cost of childcare from Ofsted-registered providers, saving higher-rate taxpayers £1,195 and basic-rate taxpayers £962 a year. Both parents can use the vouchers, potentially saving couples £2,390 a year.

The government maintains that existing beneficiaries of the tax break will not lose out, and that the current scheme is badly targeted by providing too much relief to higher-rate taxpayers.

Downing Street said it would look at the criticisms carefully in advance of the pre-budget report. The critics said the government’s belief that the relief is regressive was based on out-of-date figures, and that the latest surveys suggested 74% of the users of the scheme are basic-rate taxpayers. Other signatories include the former Scotland Office minister David Cairns, former Europe minister Denis MacShane, and the former international development minister Sally Keeble.

Guardian Online

Speaking to the House of Commons, Austin Mitchell MP declared a need to stop consultancy and IT suppliers targeting the public purse as a source of easy profits.

He explained that, since 1997, such consultancies have “grown fat” off the taxpayer, partly thanks to “impulsive gestures” and “idealistic” thinking by the government.

But the member of the Public Accounts Committee said the other cause was state officials being taken in too easily by the IT sector’s sales and marketing teams.

“All too often, departments seem incapable of dealing with the wily stratagems and sales patter of consultancy salesmen,” the Labour MP for Grimsby said last week.

These salesmen, particularly those at the big IT consultancies, “over-praise” their product or service and “forecast that it can do more than it actually can,” he said.

It is not the first attack on IT’s drive for business by a Labour MP. Targeting EDS for its C-Nomis project, Jack Straw said officials were victim to “snake oil salesmen.”

But Mitchell believes the “failure” is actually on both sides of the contract – on the part of the IT supplier’s sales team and the government body engaging that supplier.

He said: “Departments…try to set too many objectives to be accomplished, which always leads to failure in IT contracts. When we try to do more with an IT system than it can bear, it inevitably breaks down and performs inadequately.”

To evidence his claim, he pointed out that the MoD’s defence information infrastructure programme was running 18 months late, and that the NHS care records system was also behind schedule, by four years.

He believes government departments need better advice to “put them on a more secure and effective platform for controlling the suppliers of IT systems they deal with.”

He added: “No taxpayer pound should be the source of easy profit. That is an absolute maxim. However, in consultancy and IT services, the taxpayer pound has been a source of far-too-easy profits.

“We need to control that, exact penalties where necessary and blacklist firms that are over-selling in that fashion to see that they do not make the same profits and mistakes in future.”

Part of Mitchell’s vision includes giving the Office of Government Commerce a stronger and more effective role than that of an advice service, allowing it to push its choices for IT contracts.

“It should have an audit and control role over those contracts, and it should ensure that performance is adequate,” he said. “If it is not, it should demand sanctions and penalties.”

Contractor UK

How does the new allowance work?
ISA’s come in many shapes and sizes; there are cash deposit based accounts or those that invest in a myriad of different assets including stocks and shares, corporate bonds, government debt and property.

You are currently free to invest up to £7200 pa across both ISA types which includes a maximum £3600 in cash but with the new annual subscription limit, over 50’s will soon be able to invest £5,100 in cash and up to £10,200 overall.

Clients need to be aware that you are allowed to open only one cash ISA and one stocks and shares ISA each tax year so if you haven’t already opened one then you can invest up to the new limit. If you have an existing ISA then you may need to take care not to disrupt your existing investment. Some cash ISA providers limit the amount that you can invest in your ISA in a given period of time and if you have already reached that limit then they may not now allow you to take advantage of the new allowance. Some institutions may also decide not to allow their investors the opportunity to benefit from the increased allowance at all but if either scenario applies to you all is not lost.

It is possible to transfer your ISA to another provider to take advantage of the increase, but it is vital that you do not simply close your existing ISA account to open another. Simply closing an existing account without formally transferring your balance in the old ISA will mean that the existing funds are looked on as new money and reinvestment will be counted against your allowance for this year.

This means that if, for example, you have built up a substantial savings pot in your exiting cash ISA of what could be as much as £30,000 and then close this account trying to re-invest in a new cash ISA, you will only be able to receive the tax benefits on £5100 of this money. Instead, you must transfer the balance using an ISA transfer form so that any pre-existing investment remains protected by the tax wrapper.

It is also important to check the terms and conditions that your ISA provider is offering on investment up to the new limit. It may be that a different rate or charges apply to investments over the existing limit of £7,200 and up to the new £10,200 limit and you should be especially wary of this if you have a fixed rate ISA.

How can I best take advantage of the increased allowance?
It’s all about risk versus reward. The cash ISA option carries less risk than a stocks and shares ISA but interest rates on deposits are currently low whilst equities have bounced back very strongly of late.

If you are tempted to invest in stocks and shares but you are put off by the risk then you could consider drip feeding money into your ISA to spread the risk. This is advisable for any form of investment but is especially useful for Stocks and Shares ISA savers as it allows you to minimise the effects of short term fluctuations in the stock market.

The advisers at RedegoFinancials can help you to maximise your investment potential by advising you on the best ISA for your needs. If you decide to opt for a stocks and shares ISA then our adviser will recommend a suitable spread of stocks and shares to suit your attitude to risk and they are on hand to help you transfer your ISA if your current provider won’t allow you to take advantage of the new limit.

Contractor Financials

Dave Hartnett, HM Revenue & Customs’ Permanent Secretary for Tax, appears in a hard-hitting two-minute video warning that people “fiddling” their taxes could face jail.

It is the first time that HMRC has used social media to communicate with the public. Previously it has run television campaigns to encourage people to file their tax returns on time and to collect their tax credits.

A spokesman said: “We are looking to use social media, alongside more traditional communications to reach as wide an audience as possible. YouTube is clearly a popular platform for brief, to-the-point communications and that is why we have decided to post the video there.”

Mr Hartnett, who masterminded this crackdown on offshore savers, said that his message was “blunt”. “For some people, offshore bank accounts and tax havens typically conjure up images of exotic and faraway places, well out of the reach of the taxman at home,” he said.

“Well, life’s just not like that any more. And here’s a blunt message from HM Revenue and Customs: times have changed. The taxman now has more powers and more information … If you evade tax on your offshore assets, you’ll be found out and you could be prosecuted.”

He urged savers to take advantage of HMRC’s tax amnesty launched in July this year, which limits the penalties for those who come forward to notify the Revenue before November 30 that they have offshore interests.

Under the terms of the New Disclosure Opportunity (NDO), those who declare that they have savings or other income from overseas, for example from renting out property, will pay all the tax they owe plus a 10 per cent penalty.

Savers who notify HMRC by phone or in writing must pay the tax and penalty by January 31. Those who alert the Revenue online have until March next year to settle their bill. Those who fail to come forward face penalties of up to 100 per cent of the tax they owe and could face prosecution.

This is the second such amnesty that has been offered by the taxman, but HMRC says that it will be the last.

The initial disclosure regime, which closed in 2007, raised £400 million for the Treasury coffers after 45,000 savers came forward.

At that time, HMRC had obtained details of all Britons holding money offshore from five leading banks. Since then HMRC has collected information on thousands more British savers from hundreds of smaller banks. Accountants say that the taxman could have details of as many as 100,000 people. HMRC would not reveal how many people had come forward under the NDO, but it said that it expected a flood of disclosures ahead of the November deadline.

A spokesman said: “We do not expect to have a full picture of the amount of tax, interest and penalties recovered until the deadline for payment has passed in March 2010.”

Appealing to savers’ consciences, the video points out that “by fiddling your tax, you’re robbing public services of much-needed funding”. In a line reminiscent of a gangster movie, Mr Hartnett adds that the possibility of jail for those who do not declare their income “is not a hollow threat”.

Accountants say that HMRC has become more hardline about chasing tax payments as the income from tax has dwindled during the recession. Angela Beech, tax partner at Blick Rothenberg, the accountant, said: “The Revenue are getting more threatening as they have a huge black hole to fill because of plummeting tax receipts.”

In May it emerged that HMRC would use debt collectors to chase individuals and businesses who have failed to settle their tax bills.

Times Online

Unsurprisingly, young people are the least likely to have made a will, with 88% of people in their 20s failing to write one.

But one in four people in their 60s has also failed to set out who they want their money and belongings to go to, rising to 41% among those aged between 50 and 59.

If people die without making a will their assets are classed as being intestate and are divided up according to set guidelines.

Under these guidelines, married couples automatically inherit only £250,000 of their partner’s estate.

In the past, this has led to a mother having to sue her young children to access money that has been passed on to them when there was no will.

The main reason people gave for not having a will was that they had not got around to writing one yet, cited by 43pc, while 24pc said they had nothing of any value to leave behind.

Around 14pc of people admitted it had never occurred to them to write a will, while 13pc said they could not afford the cost of setting one up and 11pc said they had not yet decided who they wanted to leave money to.

Just under one in 10 people admitted they had not written a will because they did not know how to go about it.

Karen Barrett, chief executive of Unbiased.co.uk, said: ”By having a will in place families can avoid worry and stress at an already difficult time.”

Telegraph Online

If you need help writing a will, please get in touch with Redego Financials

New guidance from HM Revenue and Customs now defines tax avoiders as those seeking to pay less tax than “if Parliament turned its mind to the specific issue in question”.

The rules are likely to lead to tens of thousands of people who arrange their financial affairs in perfectly legal ways being investigated by tax inspectors.

Last night, accountants and lawyers described the rules as a “wholly unwarranted extension” of HMRC’s powers which threatened to undermine the democratic right of Parliament to set the law.

The new “code of practice” for tax inspectors was reissued last month without public announcement.

In the key passage defining tax avoidance – and therefore which practices may be pursued – it now states: “Avoidance is not defined in the Taxation Acts…One definition is ‘a situation where less tax is paid than Parliament intended, or more tax would have been paid, if Parliament turned its mind to the specific issue in question’. At a practical level the problem is then essentially one of deciding what Parliament would have intended and identifying who should be asked to decide this.”

“Inspectors need to have in simple terms a working concept of ‘avoidance’ in order to properly identify cases which can be worked…The starting point should be that one would normally expect taxpayers to pay tax on their income or profits…It is reasonable to assume that where a commercial transaction is carried out in a particularly convoluted way, then avoidance is afoot.”

It is understood that leading accountants and tax lawyers have met to discuss the potentially sweeping nature of the new guidance. The legality of the rules may be challenged in court if a taxpayer is pursued for breaking a law which does not yet exist.

HMRC has already faced criticism for applying new tax laws retrospectively. Thousands of families who had established trusts were recently hit by retrospective rules.

Last night, Mike Warburton, an accountant at Grant Thornton, said: “We live in a democracy where the law is supposed to be set by our elected representatives.

“In disputes, the courts are entitled to consider what Parliament intended but it is a wholly unwarranted extension of this principle for HMRC to decide what Parliament would have intended if they had bothered to think about it. It is the start of a slippery slope towards a police state.”

However, a spokesman for HMRC defended the advice. “There has been no change in what HMRC sees as avoidance,” he said. “The updated guidance explicitly states that there is no definition of avoidance but offers a short and simple starting point for staff.”

Telegraph Online

The FSA announced this week that they are likely to pull the plug on Self-Cert Mortgages

In a controversial announcement the financial services regulator revealed that they are looking to introducecompulsory verification of borrowers income which will effectively kill the self-cert mortgage market. This comes as no surprise following recent developments in the industry which has seen Nationwide, one of the last remaining lenders, pulling all of their self cert products from the market.

Contractors and the Self Employed seem to have been caught in the cross fire as the FSA has been keen to appear to be clamping down on the unruly banking sector. Just when the country needs Entrepenuers the most, the net result of the move could be to force them back in to permanent employment in order to obtain a mortgage.

As far as Redego clients are concerned, the death of the self-cert mortgage may come as alarming news but it is certainly not the end of your home ownership dreams. ContractorFinancials are specialist mortgage advisers  who work on behalf of our clients and have negotiated contract based underwriting with lenders that can help ensure you can borrow the same, if not a higher amount, as when you were a permi. Their contract based income verification allows you to borrow without the high interest rates and fees that were often associated with Self Cert mortgages and could offer a life line to those Contractors who are coming to the end of a discounted or fixed term or are looking to purchase a house in the future.

Going directly to a lender and asking for a mortgage based on your contract rate would almost certainly end in failure as they will probably look at your short term contract and assume that you cannot afford the repayments. However, ContractorFinancials are able to secure your mortgage based on a multiple of your annualised contract rate alone which means you don’t have to worry.

With schemes available for Freelancers who are even within the first week of starting your first contract, there is a solution to fit almost all needs and the advisers charge Redego clients none of the usual brokers fees.

Contact Simon Foster on 0845 062 8888 , email simon@contractorfinancials.com or get in touch with Redego.

As a Contractor, you may not have replaced your lost ‘death in service’ benefits that you used to benefit from as a ‘permi’. But when you become a parent the safety net that this cover provides becomes vital to protect your children if the worst should happen.

With this in mind, we can now offer life cover worth £10,000 absolutely free to new parents.

The joy of becoming a parent is often accompanied by an overwhelming feeling of responsibility for your new born. You begin to consider how you will create a safe home environment for your baby and how you will protect it if anything should happen to you. It’s easy to forget the importance of life cover when you get caught up in the excitement of a new baby, but with free cover for new parents it need not be a financial burden. Redego Financials can help you to arrange the cover without any hassle so you have more time to enjoy the important things.

How does the cover work?

Life cover offers an essential safety net to Contractors because if you die then it will pay out a lump sum or an agreed income to cover your families expenses and pay off any debts. At an already traumatic time, life cover offers the peace of mind for your dependents that they are protected financially and prevents them from being liable for any debts you leave behind.

You can insure yourself for a certain period in your life, for example until your children leave home, or you can choose a whole of life policy that will pay out no matter how old you are when you die. The insurance can be inflation proofed to ensure that the amount paid out upon death will be worth the same amount in spending terms as when you decided to take out the policy. This is particularly important for a whole of life policy as £100,000 now would hold a very different value in 30 years time.

The offer of £10,000 free life cover applies to new parents and as such you need to register for the cover before your baby is six months old. The offer applies to both parents and is per child so when you and your partner have a baby you can claim £20,000. If you are lucky enough to have twins then you can claim £40,000 free life cover and so on.

It is possible to take out excess cover on top of your free cover which you will need to pay monthly premiums on. We would advise Contractors to have enough cover in place to pay off any outstanding debts and also provide a safety net for your family to fall back on if the worst should happen. The free cover will end on the child’s first birthday by which time you should be back on your feet financially and able to take on the repayments which will be relatively low on this level of cover. Our advisers will be on hand to help you arrange an affordable cover to suit your individual needs.

In last week’s Money Section of The Sunday Times the focus was very much on what all the main parties may take away in terms of ‘tax breaks’ if they form the next government.  One of the eight key areas that the various tax luminaries interviewed thought would be on the political agenda was Setting up Companies because of the more favourable tax rates where profits are less than £300,000.

It is true that with previous recessions people have been forced out of careers and into freelancing, nevertheless it is difficult to agree with The Sunday Times view that to take advantage of lower tax rates we will “see a rush of high income earners to incorporate”, because as was pointed out in the article, one will need to be able to demonstrate that one is self employed.

However, it was interesting that one expert specifically referred to the Government potentially looking to tighten up the distinction between self employment and employment.  The recent “False Self Employment in the Construction Industry” consultation paper which would spell the end of the labour-only subbie suggests that this is more than speculation.  Can we therefore expect HMRC to try to reverse its poor yield from IR35 enquiries and start a new campaign against the freelancer?  Or should we anticipate that Labour, or indeed whoever wins next year’s election, has something even more draconian in mind?

Also of concern was a reference to the Arctic Systems case being revived by Labour.  Does this mean we will see Income Shifting make a return in the Chancellor’s autumn Pre-Budget Statement?  The Government would love to stop small businesses distributing profits between husband & wife in favour of the spouse with the lower tax band, but can it come up with any legislation that is more workable than the 2008 draft which was dropped allegedly because of the recession?

What is evident from this line of thinking is that the second decade since the introduction of IR35 is likely to start off just as taxing for the freelancer.  And as ever, it is important that contractors continue to take sound advice and be vigilant about how they protect their livelihood from an unhealthy interest by the taxman.

Abbey Tax Protection

HM Revenue & Customs (HMRC) have been exasperated for many years by the way the construction industry behave as if the rules on paying workers gross don’t apply to them.

They published a new consultation (July 2009) that has the look and feel of the finished article, so its more than likely to become legislation before the end of 2010.

Reading between the lines, HMRC see this as the final attempt to align the construction industry with other sectors and get 300,000 ‘false’ self-employed subbies on to PAYE. Genuine self-employed workers will be able to continue trading by passing a simple 3 criteria test.  To qualify, sub-contractors would have to either:

• provide their own plant & equipment (normal tools of the trade do not count!)
• provide all the materials for a contract OR
• provide other workers

So, how will the construction industry respond?  To be fair to the industry, they have always had to balance between being ‘compliant’ with competing with other contractors who pay workers on a ’self-employed’ basis.  To make matters worse, the test for employment status has always been complex, based on case law and constantly changing, so they could genuinely say they didn’t know whether a worker was self-employed or not.

Now there is a workable status test, and the Treasury’s intention has been clearly stated, most contractors will probably decide that the risk of non-compliance is too great and make arrangements to pay their workers through PAYE.  They can do this through their own payroll or outsource to a compliant PAYE umbrella company, which will give workers the opportunity to claim legitimate expenses