Summertime, and the livin’ is easy. Well, that depends. If you’ve got an offshore bank account that yields interest which should have been declared, but hasn’t then the livin’ ain’t so easy. On the other hand, if you thought, after Gordon Brown’s last Budget speech, that you were going to have to revise your will but now that he’s back-tracked you reckon you won’t have to change it after all perhaps the livin’ is a bit easier.
This season’s Square Circular mentions these points plus one or two other matters which we hope will be of interest. If you want any further details about any of the tax or financial matters we’ve mentioned in this issue, or indeed, about any matters we haven’t mentioned please do contact us.
The practice has a new partner, Simon Topperman, specialising in all areas of tax. Some of you may already know Simon as he’s been with us 6 years already.
On the athletic front John Rowlands from our audit department ran in (and completed!) the London Marathon raising over £2,300 for Diabetes UK. We reckon we’re pretty good at raising finance but John’s achievement puts a rather different gloss on things.
And still on a sporting theme do you remember Roy Keane’s testimonial match, United v Celtic. The young girl who won the competition to lead out the teams was none other than the daughter of Gary Kramrisch, one of our audit partners. So young, and she’s got nearer to the hallowed turf (well, Gary thinks it’s hallowed) than Gary ever has done.
OFFSHORE BANK ACCOUNTS
At the beginning of May the Special Commissioners published a decision enabling HMRC to force disclosure by a bank (named as Barclays) of details of its offshore subsidiary’s account holders. HMRC believe it will uncover details of UK taxpayers who are not declaring interest on offshore accounts.
We certainly know of people who are UK resident taxpayers who don’t declare interest on offshore accounts. Shock? Horror? Well, no actually, because they’re not UK domiciled and the interest is not remitted to them. But if you know of anyone who might need to make a disclosure before HMRC turn the spotlight on them and isn’t sure of the most appropriate way to make such a disclosure we would be happy to help.
AND TALKING ABOUT DOMICILE
It’s a funny thing, is domicile. Sometimes people are able to legitimately demonstrate that they are not domiciled in the UK even though they have been resident here for many years and assume that they are UK domiciled because they don’t appreciate the difference between residence and domicile.
There are advantages to being a “non-dom”. They are only liable to UK tax on foreign income and gains to the extent that the income or gains are remitted to the UK. We have clients with family origins in the Middle East, Far East, USA, Australia, Republic of Ireland (yes, Ireland!) and if there is a realistic connection with the country of origin which could lead to you being regarded as a “non-dom” it could be worth your while having a word with us about it.
SPREADING THE BURDEN
Are you a lawyer? Or a joiner or plumber? Or a property agent? Or an accountant? It’s getting serious now! Or, for that matter, any service provider. What d’you reckon to the work of the Accounting Standards Board and UITF 40 “Revenue recognition and service contracts”.
Probably not very much, given that it may well cost you money. UITF 40 is all to do with the point at which you account for income on contracts in progress at the balance sheet date. It applies to accounting periods ended after 22 June 2005 although some entities may have adopted the UITF 40 treatment at an earlier date. Quite often the result will be to create what accounting people delicately describe as “adjustment income” and what tax people indelicately describe as a “one off tax hit” in that period.
To avoid the whole of this adjustment income being taxed in one year HMRC have agreed to spread the burden over between 3 and 6 years depending upon how the figures work out. Let’s not go into details at this stage. Suffice to say that the rules are complicated probably more so for individuals and partnerships than for companies because of the effect on the timing of tax payments and on tax payments on account.
A MATTER OF TRUST
You may recall the outcry a couple of months ago following the proposed Budget, now infamous, Schedule 20 changes in the rules applying to Trusts. We took more than a few “how will this affect my family Trust?” and “what should I do now?” calls. Our advice at the time was to wait and see if the proposals were changed on the way from the Finance Bill becoming the Finance Act.
There have indeed been some changes as Parliament got to that stage of the Finance Bill around the second week in June. The main change is with regard to Interest in Possession Trusts which people often set up in their will if they want to provide their spouse with an income but make sure their capital passes to their children. Following the Budget, assets above the nil rate band (currently £285,000) could have been subject to a 40% Ih. T. charge when they passed into trust. There appears to have been a U-turn on this.
However, there still remain some unsavoury proposed changes which should not be overlooked. If you are the trustee or settlor of an existing Trust make a diary note to contact us after the summer holidays by which time the Finance Bill proposals will be law so that we can review the position. And if you’re in the process of setting up a new Trust, don’t even wait that long!
DISCRETIONARY WILL TRUSTS
Incidentally, the popular nil rate band discretionary will trust emerged unscathed from the Budget. You can save tax of up to £114,000 using one of these “animals”. Let us know if you want to know how it’s done.
IT COULD PAY TO KEEP IN TOUCH
Do you know what “file building” is? Let’s explain.
Quite often, there can be grey areas in questions of fact which will affect the application of tax law. For example:
– Has a property been bought as stock for resale or as an investment?
– Has a property been genuinely occupied as a main residence?
– Does a company holding large cash deposits hold them for a trading or an investment purpose.
What you do today for genuine commercial reasons may, one day in the future, be open to a different interpretation by HMRC and there could be far-reaching and perhaps adverse tax implications. In, say, 5 years time you may have an uphill struggle convincing HMRC about the genuine nature of transactions taking place today or of a pattern of behaviour in the past. Contemporaneous notes on our files as to what happened and why could be important in winning an argument in the future with the Taxman.
But we don’t know what you’re up to unless you tell us. We’re always pleased to hear from you especially when you’ve got an important piece of information for our file.
Apparently a letter from a taxpayer to a tax inspector read:
“I have to inform you that my mother-in-law passed away after
receiving your form on 22 November. Thank you.”