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Saturday, Jun 15, 2002

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More in the higher bracket

THE failure of successive chancellors to increase the basic rate tax band in line with earnings is forcing more and more taxpayers into the 40 per cent bracket, with record numbers set to pay higher rate tax in 2002-2003, according to the latest Inland Revenue estimates.

Up to 2.8 million will pay income-tax at 40 per cent this year, which is over a third more than when Mr Gordon Brown was appointed Chancellor in 1997. There is also expected to be a record 28.3 million people paying either basic or starting rate income-tax this year. The combined receipts to the Treasury from income-tax will be a record 108.9 billion in 2002-2003. Adding in other taxes will bring the Treasury a whopping 155.7 billion in total this year.

A greater number of taxpayers paying any sort of income-tax is indicative of a buoyant economy, though the growth in higher rate taxpayers is also partly due to the fact that governments have not allowed the basic rate tax band to increase in line with earnings.

Hard on Harrods

FOLLOWING last week's judgment in the Scottish courts that the secret deal between the Revenue and Mohamed al-Fayed to keep the Egyptian out of the tax system was unlawful, the Harrods boss could now be facing a massive tax bill.

The Sunday Times claims Al Fayed's business associates believe the court ruling may even affect the future of Harrods itself.

A Scottish Court ruled Al Fayed's 10-year deal with the Revenue should not have been done. Instead of the Egyptian only paying 240,000 per annum in tax (in return for not having to disclose his true earnings), he may now have to pay as much as 20 times more in future, at a time when the profits from the Harrods shop have fallen from over 30 million in 2000 to less than 6 million in 2001 — a drop in American visitors being the main cause.

According to the Sunday Times, Al Fayed recently re-mortgaged the Harrods building in London and spent tens of millions of pounds on Fulham football club. He also recently closed down the loss-making Punch magazine. Fayed is not UK-domiciled for tax purposes and holds most of his wealth in offshore trusts.

The paper claims that following the Scottish court ruling the Revenue is now reviewing the tax affairs of Fayed and may send him a tax bill dating back to 1997 of around 20 million. It cites a former aide of Al Fayed's as claiming the Egyptian remits 6 million of cash from his offshore trusts into the UK annually — which is now subject to tax at 40 per cent.

In addition, Al Fayed may owe more tax on benefits in kind from the use of his homes, domestic staff and security guards.

Fayed has disputed the size of his tax bill and denied there were any plans for him to move abroad to avoid a Revenue onslaught.

(Source: AccountingWEB.)

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