The View from No 50

 

 

 

 

January 2006

K P Bonney & Co

Chartered Accountants and

Chartered Tax Advisers

50 Cleasby Road  Menston

Ilkley  LS29 6JA

Tel:  01943 870933

Fax:  01943 870925

Email:  keith@kpbonney.co.uk

www.kpbonney.co.uk

 

 


 

HUSBAND AND WIFE BUSINESSES

 

The Court of Appeal delivered an early Christmas present to husband and wife businesses in December.  It held, in the case of Geoff and Diana Jones who run a company called Arctic Systems Limited, that Mr Jones should only be charged to tax on the dividends paid to him by the company and that Mrs Jones should only be charged to tax on the dividends paid to her by the company.  That sounds like plain common sense but the Revenue had tried to argue that the dividends paid to Mrs Jones should be taxed as though they were the income of Mr Jones.  They reasoned that as Mr Jones generated all the company’s fee income he should be taxed on all the dividends paid out by the company to its shareholders.  Had Mrs Jones’s dividends been taxable on Mr Jones the family tax bill would have been about £6,000 per annum higher.

 

To paraphrase Lord Justice Carnwath, the Taxes Acts do not bear the interpretation placed on them by the Revenue.  If Parliament wants to tax husband and wife businesses in the way advocated by the Revenue, it must introduce new law.

 

This is a very welcome decision.

 

We now wait to learn whether the Revenue can persuade the House of Lords to hear a further appeal.

 

 

CAR FUEL AND VAT

 

If you are an employer and you pay your employees a mileage rate or you reimburse them for the cost of fuel used on business journeys then you need to be aware of a change in the law which takes effect takes effect on 1 January 2006.

 

From 1 January you must hold a VAT invoice or a less detailed VAT invoice for the fuel supplied to your employees before you can reclaim the VAT on the cost of the business fuel.

 

If you pay yourself and / or your employees a fixed mileage rate, the calculation of the recoverable VAT remains exactly as before.  The only change is that you must now make sure you and your employees produce VAT invoices as evidence of the purchase of fuel.

 

Customs accepts the amount of VAT shown on the invoices will often not match the amount of VAT which you reclaim on your return.  What is important in these cases is that the former amount is greater than the latter.  Also the date of the invoice(s) must not be later than the date of the relevant business journey for which the claim is made.

 

We can’t blame Customs for this.  They fought hard on our behalf to maintain the status quo but the European Court insisted upon the change.

 

Our Advice:  Note the change and adjust your practices as necessary from 1 January.

 

 

CHILD AND WORKING TAX CREDITS

 

In a Pre Budget Report Press notice dated 5 December 2005 the Government congratulated itself on having attained an 80% take up rate for the means tested benefits Child Tax Credit and Working Tax Credit.  This compares with take up rates of 65% and 57% for the predecessor benefits of Working Families’ Tax Credit and Family Credit.

 

Later in December news emerged that thousands of online applications had been made by fraudsters using stolen identities.  Quite incredibly, it transpired that tax credits could be paid into any bank account so long as the applicant (fraudster) could provide a (stolen) name, address, national insurance number and date of birth.

 

No wonder the take up rate seems to be so high! 

 

 

SIPPs

 

In the same press notice of 5 December it was announced

 

“To prevent potential abuse of the new regime, the Government has today announced that Self Invested Personal Pensions (SIPPs) and all other forms of self directed pensions will be prohibited from obtaining tax advantages when investing in residential property…from 6 April 2006.”

 

In short, SIPPs will not be able to invest their funds in residential property (from 6 April 2006 as was originally intended).

 

Several years ago the Treasury decided people would be more inclined to save for their retirement if they could invest their pension funds in a broader range of assets.  Under the new pension proposals, individuals would be able to use their pension funds to buy, amongst other new asset classes, residential properties.  What is significant here is this was a Treasury inspired initiative.  It was not something for which the pensions industry had campaigned.

 

As the time for implementation of the new regime drew near, it became clear the policy would have a significant impact on the housing market.  Particularly embarrassing was the fact that, under the new regime, rich people buying second homes through their pension schemes would get a 40% subsidy.  In contrast, ordinary house-buyers would get no help whatsoever to buy their main homes.  The impact would be felt particularly hard by those living in rural communities.

 

Looked at in this light the decision to reverse the policy seems sensible.

 

But we, the voters, are not intelligent enough to understand this, so the Treasury’s u-turn must be presented in some other way.  Ah yes, the tax avoider.  Blame it on him.  This change of policy is introduced “to prevent potential abuse”.  There.  That’s fixed it.  Joe Public will understand that!

 

 

ELDERLY AND DANGEROUS

 

The introduction of the Money Laundering and Proceeds of Crime legislation was supposed to make it harder for criminals to enjoy the proceeds of their crimes.

 

We have seen from the piece above (Child and Working Tax Credits) that the legislation does not seem to have prevented fraudsters from hijacking the identities of innocent people and pocketing millions of pounds of taxpayers’ money.

 

Yet the legislation bears down heavily on the innocent.  At a recent tax conference, delegates were told of a case of a 77 year old woman who sought to deposit a sum of cash with a bank.  She had decided she would not be travelling abroad any longer so she had let her passport lapse.  She also did not drive.  This meant she had no acceptable forms of photo identification.  One might have expected at least one bank to take a pragmatic approach to her lack of identification and open an account for her based on other documents.  Sadly this was not the case.

 

Following on from this one delegate cited a case in which he had tried to help an 85 year old woman to obtain a new passport so that she could deposit a substantial sum of money with a bank following the sale of her flat.

 

One wonders just whose interests are being served by this legislation.

 

 

TAX RETURN DEADLINE

 

The deadline for filing 2004/05 tax returns is 31 January 2006.

 

Returns can be filed online up to and including 31 January.  After that date the online filing facility is withdrawn.

 

Returns can be filed by post or by handing them in at any HM Revenue and Customs office.

 

Tuesday 31 January   Returns received up to midnight are on time.  This includes returns received in office letter boxes that are opened first thing on Wednesday morning.

 

Wednesday 1 February   Returns received up to midnight are late but incur no late-filing penalty.  This includes returns received in office letter boxes that are opened first thing on Thursday morning.

 

Thursday 2 February   Returns received from the morning post and onwards are late and incur a late-filing penalty.

 

Our Advice:  If you have not yet filed your 2004/05 return, do it today.

 

 

THE CHAIRMAN AND THE COACH

 

The coach lies dying.  The chairman sits by his bedside.  The coach says, “Jack, I’ve got to make a confession.  I have been sleeping with your wife for 10 years and I am the father of your daughter.  On top of that I have been stealing money from the club.”

 

“Relax,” says the chairman, “and don’t think another thing about it.  I’m the one who put arsenic in your tea.”

 

 

Copyright:  K P Bonney & Co LLP 2006.  All rights reserved.  No part of this publication may be produced, stored in a retrieval system, or transmitted in any form or by any means, electronic mechanical, photocopying, recording or otherwise without prior written permission of the publishers.  Disclaimer:  The publishers have taken all due care in the preparation of this publication.  No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the authors or the publisher.

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