You really must be a pensioner if you can remember Martha and the Vandellas and their 1963 song “Heatwave”. Just right for the summer. According to the song “love is burning in my heart, I can’t keep from crying (it’s like a heatwave)”.
We do appreciate that reading about tax can give you heartburn and make you cry. Hopefully our Square Circular won’t have that effect on you and that you’ll “love” reading 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 on 0161 832 4841.
You probably know already that we have a second tax partner since John McCaffery joined us at the beginning of July. If you’ve met John or seen his photograph you’ll have been struck by the fact that Alexander & Co now have two bearded tax partners. 100% of our tax partners have beards. Is this a record for an accountancy practice?
We’ll let you know if one of them shaves.
We’re also welcoming two graduate trainees in the accounts and audit department, Christopher and Rachel. Christopher comes with a law degree from Liverpool and Rachel with a chemistry and maths degree from Leeds.
NUDGE NUDGE, WINK WINK
Do you know what a “nudge letter” is? No it’s nothing to do with Monty Python’s Flying Circus. It’s what HMRC do. Not quite as funny. Know what I mean?
A couple of months ago they sent out a letter to certain selected taxpayers saying that their effective rate of income tax is lower than average for taxpayers with similar levels of income and suggested that this means that there is something wrong with their self assessment tax return.
The letter suggests that they check their return for that year and contact HMRC if there’s anything wrong. No mention of the fact that there might be a whole host of reasons, such as EIS investments, gift aid donations or pension contributions, which would account for a lower than average rate of tax.
You probably didn’t and won’t receive such a letter because it was sent to just 1000 select high net worth individuals and we understand that HMRC now intend to drop such “fishing expedition” letters.
Really a case of say no more, nudge nudge.
MAGNA CARTA AND DRD
Next year is the 800th anniversary of the Magna Carta. Sorry, but we have to quote Tony Hancock’s immortal line “Does Magna Carta mean nothing to you? Did she die in vain? Brave Hungarian peasant girl who forced King John to sign the pledge at Runnymede and close the boozers at half past ten”.
There, that clarifies what Magna Carta is. But what’s DRD. You may have heard of proposals, and that’s all they are at the minute, to let HMRC collect tax directly from a debtor’s bank account without the independent oversight of a Court. The proposals have been described as being contrary to Magna Carta.
We’ve no objection to getting “won’t pay” tax debtors to cough up but the thought of allowing an organisation as prone to mistakes as HMRC, to raid bank accounts without judicial process or review is a little disturbing.
Coupled with other measures already introduced such as Accelerated Payment Notices (APNs) the trend is a bit more than just a little disturbing.
RECORDS, RECORDS, RECORDS
This isn’t the first time that the Square Circular has told you how important it is to keep records. You possibly think we’re just referring to accounting records and things like mileage records. Here’s an interesting story about records and about how, as we said before, HMRC does sometimes make mistakes.
A case came before the First Tier Tax Tribunal a few months ago. It was about whether there was a reasonable excuse for the late submission of the Employer’s Annual PAYE return for 2012/13. There appears to have been a bit of a muddle about receipt of the return but amongst other things the taxpayer argued that he’d had many telephone conversations with HMRC who agreed that the error had arisen in their department.
HMRC said that the taxpayer had made only one telephone call. Fortunately, the taxpayer had the presence of mind to produce telephone records showing ten calls from a business landline lasting 142 minutes plus calls from personal numbers. Not surprisingly, in the face of these records, HMRC’s arguments didn’t go down too well.
Records, records, records.
From time to time we’re asked what’s the best way of claiming travel expenses incurred for your business, whether it be a trading business or a property rental business. The answer is – you’ve guessed right, it depends.
If you’re a sole trader or partner in a partnership, you have a choice. You can put all the costs through your business and claim capital allowances on the car but then you have to estimate the extent of private use of the vehicle and disallow that proportion. Of course, estimates can always be challenged by HMRC. Or else you can pay all the costs privately, but keep a mileage record of your travel and then charge the mileage at the approved HMRC rate to the business.
A company is slightly more complicated. Either you have a company car and suffer a benefit in kind or own the car yourself and charge expenses. And then there’s the in-between situation where you have a company and suffer car benefit but the company doesn’t pay for any of your fuel so as to avoid the fuel benefit and you charge expenses for business mileage. And just to complicate the company situation it depends on what kind of car you have. The “greener” the car, the lower the tax for the company and the employee. The more gas that’s guzzled, the higher the tax.
Which is better? The way we’ve explained it is an over-simplification and there are many factors to consider. Feel free to chat to any of our tax team, Anne, Linda, John or Simon if you need to. It really is a matter of horses for courses.
Come to think of it, given traffic congestion a horse may be more useful than a car.
TAX ADVANTAGED VENTURE CAPITAL SCHEMES
Just in case you’re wondering what these are, they’re the things with impressive sounding names like EIS and VCTs and SEIS.
Seriously though, as you probably know, these magic initials do offer valuable tax reliefs. A joint consultation was launched recently by HMRC and H M Treasury asking whether the existing schemes work and whether they can be improved.
We find that whilst the concept of something like EIS, to give you tax relief for investing in the right way, is in itself attractive there is too much red tape designed to prevent the abuse and misuse of the tax rules. However, if you are thinking of funding a company with which you’re not too connected and would like tax relief into the bargain its worth talking to us about it.
In the Budget a few months ago George Osborne called it “the most far-reaching reform to the taxation of pensions since 1921”.
So, what’s changed. The rules for tax relief when you put money in your pension pot are still the same. The 25% tax free lump sum hasn’t changed although there is talk that if the Labour Party win the General Election next year the 25% tax free lump sum will either be abolished or will be reduced. All that’s really changed is that you don’t have to buy an annuity with your pension pot although, if you have a particular fondness for annuities even that hasn’t changed.
Perhaps what really has changed is that given the new rules for drawdown as a possible replacement for an annuity, your pension doesn’t have to be a pension any more. It can be a tax exempt savings vehicle but for a possible variety of purposes. And with that goes – yes, you’ve guessed right – tax. If you draw down at the right time you can save tax. At the wrong time, it can cost you.
Getting it right means combining the expertise of a financial adviser with that of a tax adviser. We did that by forming a partnership, Pareto Alexander, long before pension reform was even a twinkle in the Chancellor’s eye. Please feel free to draw down on our expertise as you draw down on your pension.
Another favourite topic of conversation is rental properties, whether it be residential or commercial property and whether it be just one or two properties or a substantial property portfolio.
One of the most frequently asked questions is whether you can get a tax allowance for capital expenditure. The general rule for residential properties is that you can’t although for furnished let properties you do get a wear and tear allowance. And furnished holiday lets are different again.
With commercial properties it depends what kind of expenditure it is. You can lose a lot in tax allowances by not making claims on expenditure which is eligible for allowances.
Maybe we’ll deal with some of these points in future issues of the Square Circular. In the meantime, if you have any queries that you just can’t wait to have answered, contact one of our tax team on 0161 832 4841
Sports news always comes at the end. It was Earl Warren who said that he always turned to the sports section of a newspaper first because the sports section records people’s accomplishments, the front page nothing but man’s failures.
Anyway, the accomplishment of Glasgow Rangers is to have scored two goals against HMRC at tax tribunals without falling into HMRC’s offside trap. A tax avoidance case to do with an EBT (Employment Benefit Trust) appealed by HMRC has been decided by an Upper Court in Ranger’s favour.
We’ve commented before on sleight of hand tax avoidance schemes, obviously as laymen and not scheme promoters. But we can still discern a pattern. If you do things for commercial reasons, which the law says you’re perfectly entitled to do and your documentation is all in order you have a fighting chance of success. Those cases which HMRC are deservedly winning are the ones which are non-commercial, abusive and aggressive.
Church notice board
“For those of you who have children and don’t know it, we have a nursery downstairs.”