Issue 43

Apparently before the 16th Century autumn was usually known as “harvest”. Hence the German word “herbst” and the Scots word “hairst”.  Only more recently has it become known as autumn (from the old French word “autompne”).  On the other side of the Atlantic they like to be different and call it “fall”.

Fascinating stuff.  We hope you‘ll find this issue of the Square Circular even more fascinating.  There’s quite a variety of different topics in it.

If you want more details about any of the matters we’ve mentioned in this Issue, or indeed, about any of the matters we haven’t mentioned please do contact us 0161 832 4841.

WHAT’S NEWS?

The Autumn Statement is scheduled for the 5 December.  The pattern in previous years has been that the Autumn Statement contains some details of technical tax amendments likely to be made in next year’s Finance Bill and is followed by draft legislation for the Finance Bill.

As you can probably imagine, we fast-living accountants are getting really really excited.

SOME MORE NEWS

Can we bring to your attention the article posted on our website about the new HMRC campaign which targets landlords.  Although posted relatively recently we’ve already had telephone enquiries about it.

Don’t confuse it with the HMRC Property Sales Campaign that was mentioned on our website last March.  The new one targets landlords who are evading tax on rental income or who owe tax because they don’t quite understand their income reporting obligations.  We’re not going to regurgitate here what it says on our website.  But if you or someone you know has undeclared rental income we’d point you in the direction of www.alexander.co.uk or else either phone 0161 832 4841 or email simont@alexander.co.uk

TAX FRAUD

On the subject of property we recently heard that a former solicitor who had conned clients into entering a Stamp Duty Land Tax (SDLT) avoidance scheme has been given a suspended sentence.  He charged clients for a SDLT reduction which he achieved by manipulation of transactions and tax returns.  This included the alteration of advice from a barrister, who told him that the scheme would not work, in order to attract clients.

Apparently, the former solicitor placed adverts in such august publications as the Sunday Times and Daily Telegraph.  Please, please, please, if you’re tempted into any tax mitigation scheme run it by us first.  We’ll tell you what has a chance of working and what has as much chance as an ice cream in hell.

By now, you’ll know our attitude to tax evasion and tax avoidance.  Evasion is illegal, avoid it like the plague.  Avoidance is the art of arranging your affairs in a legally compliant manner but which produces the minimum tax liability.  But even for avoidance only think reasonable and commercial.  Don’t think artificial, aggressive, abusive, egregious.

As you know we don’t promote tax avoidance schemes but we are well aware of a number of different solutions to mitigate Inheritance tax and Capital Gains Tax or to extract profits or assets from companies at minimal tax cost.  It often comes down to weighing the risks against the rewards and that’s exactly where we can help you.

A FREQUENTLY ASKED QUESTION

We’re now a good few weeks into the new university term.  It’s around this time that we’re often asked a question about property purchase.  A parent is thinking about buying a property for a child to live in while they’re at university in a different town.

Should they buy the property in their own name (parent ownership) or should they gift the property to their child or gift sufficient cash to enable the child to buy the property in their name (child ownership).

What can make the decision difficult is that what’s best for tax isn’t always best in – let’s call it – real life.  Whilst, from a tax perspective, we might plump for child ownership, many might baulk at that prospect.  So, here’s a third option.  How about holding the property through a trust?

If you want a chat about the pros and cons of parental, child or trust ownership, call us on 0161 832 4841.

BANGING ON ABOUT OVERDRAWN LOAN ACCOUNTS

Sorry to raise this subject again.  You own shares in your private family company and you “borrow” mainly from the company by using company money for your own private purposes.  That gives you an overdrawn loan account.  In recent Square Circulars we’ve told you about the new rules to do with overdrawn loan accounts such as borrowing through an intermediary or paying back your loan and borrowing again straight after.  Been there, done that, got the T-Shirt.  Why can’t we leave it alone?

Because HMRC won’t. That’s why not.  And because so many company shareholder directors do insist on treating the company money as their own personal pocket.  And there’s the difference.  HMRC see it as a form of tax avoidance which they have to deter.  You see money in your company so it must be your money so why not spend it without giving a second thought to tax implications.

So, what’s the latest?  HMRC issued a consultation document for proposed legislation in the Finance Bill 2014.   HMRC put forward the following options:

•   leave things exactly as they are i.e. your company pays 25% tax when you take out the loan and gets it back when you repay it

•   leave things as they are but pay a higher rate of tax.  40% was suggested

•   have a lower rate of charge based on the amount overdrawn at the end of each accounting period or on average amounts overdrawn during the period but make that charge permanent

Perhaps we’ll find out which option on 5th December.

WHAT HAPPENED IN AUGUST 2013?

Apart from it being warm and dry, in fact the warmest since 2004.

Since August 2013 you’ve been able to apply for Fixed Protection 2014.  This rescues you from the lifetime allowance tax charge if your pension pot is affected by the reduction in lifetime allowance from £1.5 million to £1.25 million which kicks in from 5 April 2014. But, maybe you’d forgotten all about this anyway because the reduction was announced quite a while ago.

If you think you may be affected call one of our partners on 0161 832 4841 or else speak to Paul Stones, our Pareto Alexander financial adviser.  Don’t forget and don’t leave it until the last minute.

PLEASE WILL YOU SPONSOR ME

We’re not talking about the little kid from next door who expects 50p for swimming the whole length of a pool.  We’re talking big time.  Well, not quite AON on the United shirts or Etihad Airways on the City shirts but that kind of thing.  Sponsorship deals especially in the sports world can be used to raise the profile of your company.  So let’s tell you about a company called Interfish Limited and its sponsorship of Plymouth Albion rugby club.

Well, actually no, we’re not going to go into all the details now.  Suffice to say that Interfish tried to get a Corporation Tax deduction for various types of advertising and marketing expenditure including advertising on the players’ shirts.  There was no doubt that the advertising raised the company’s profile in the local community but the question that the Tax Tribunal had to decide was whether Interfish spent its money solely for its own benefit or whether there was the dual purpose of benefitting the rugby club as well as the company.  The judge held the latter and there was no tax deduction because it was not exclusively for the benefit of the company.

So next time you’re asked to be a sponsor, even if it’s the Yellow Jersey in the Tour de France, by all means be generous but don’t expect your generosity to be appreciated by the Taxman.

DID YOU KNOW?

Here’s an interesting statistic.  Did you know that the Inheritance Tax nil rate band is frozen until 2017/18?  Probably.

Did you know that if you have a chargeable Inheritance Tax estate of £1,000,000 and a growth rate of 3% apparently the value of the estate will increase by approximately £159,000 over the next five years and tax at 40% will amount to over £63,000?  Probably not.

Costs quite a bit to do nothing, doesn’t it?

AND FINALLY

This is nothing to do with tax.  Apparently a memorable church notice read…………

“Low Self Esteem Support Group will meet Thursday at 7pm.  Please use the back door.”