The View from No 50





January 2007

K P Bonney & Co

Chartered Accountants and

Chartered Tax Advisers

50 Cleasby Road  Menston

Ilkley  LS29 6JA

Tel:  01943 870933

Fax:  01943 870925







This is an unusual and interesting VAT tribunal case.  On the face of it the dispute between the company and H M Revenue & Customs concerned how to round the amount of VAT on a transaction where the calculation results in a fraction of a penny.  Do you round the VAT up or down?


How, you are wondering, could it ever be worth anybody’s while bringing such a point to a tribunal?  Surely the amounts in dispute can only ever be miniscule?


The company is a retailer of tiles.  It advertises its tiles at a VAT inclusive price per individual tile.


In calculating the amount of VAT on an individual tile the company would always round down the amount of the VAT.


When making a sale it would calculate the VAT on a per tile basis rather than on the value of the whole transaction.


Now you can see how the amount of tax at stake could be so substantial as to justify a day out at the tribunal.  In fact the company’s method of calculation gave rise to reductions of VAT in the order of £200,000 per VAT return.


On the first day of the hearing, recognising the cracks in its case, the company abandoned its argument that VAT should be calculated on each individual tile.  Instead, it proposed that the VAT should be calculated on the whole value of each type of tile comprised in the sale.  Customs and the tribunal felt able to accept this revised method of calculation.  This climb down by the company meant that it had effectively lost the case because it was the per tile calculation which gave rise to the massive VAT calculation difference.


The tribunal did, however, go on to consider whether, once the unit of supply had been identified, the VAT should be rounded up or down.


Its finding was that VAT should be rounded to the nearest penny.  So you win some and you lose some.  But you never win or lose very much at all.





In my Newsletter of May 2004 I outlined how inheritance tax savings can be achieved by making gifts out of income.


For a recap, click on the link.


It is fairly common practice for an individual to make use of the exemption by taking out a whole of life or term assurance policy.  They then pay regular premiums and it is the premiums which constitute the gifts out of income.  When the individual dies the policy proceeds are paid out to the individual’s chosen beneficiaries, free of tax.


This arrangement is efficient from an inheritance tax point of view.  But in certain circumstances the arrangement can be made more efficient by adding on an income tax saving too.  Here is how.


Dad is retired and has a good income.  He can afford to give away £5,000 a year out of income without suffering any drop in his standard of living.


Daughter has a good job, a family and a mortgage.  But she doesn’t have enough money to save for a pension.


The solution might be for dad to pay £5,000 per annum into a personal pension scheme for daughter.


The result is that when dad dies none of his contributions to his daughter’s pension scheme are counted in his estate for inheritance tax purposes – even those made in the seven years before death.


The pension scheme gets topped up by basic rate tax relief, £1,410, courtesy of the government.


And here is the extra tax break.  If daughter is a higher rate taxpayer, she gets higher rate tax relief on the pension contribution.  That’s a tax refund for her of £1,153!


Our Advice: If you are keen to reduce the amount of inheritance tax payable on your estate and you like the idea of helping your children to save for a pension this could be just the plan for you.





The rules governing which expenses are deductible for tax purposes and which are not can produce unexpected outcomes from time to time.


Earlier this year I had to advise a client that money spent on training which enabled him to set up in business was not strictly tax deductible.  It came as something of a surprise and a disappointment to learn this.  But that is how it is.


The rule was tested recently in the case of a Mr Dass who set himself up as a self employed tutor in English.  He undertook a two year course which earned him an LL Dip qualification.  This put him in a position to go in to business.


He claimed the cost of the course as a business expense.  H M Revenue & Customs refused to allow the claim.


On appeal to the High Court the judge dismissed the taxpayer’s claim.  He held that for the cost of a course to be allowable for tax purposes the course must refresh or hone existing knowledge.  If the course provides new knowledge enabling the taxpayer to enter new areas of practice then the cost is not allowable.


The line between whether a course is a refresher course to brush up or hone one’s skills, or is directed at equipping one with new skills thus opening up new trading opportunities, is one which is difficult to draw in practice.


The outcome of this case is no surprise to me. It is consistent with similar cases which have gone before it.  But is it right in a modern, enterprise economy that those who show a willingness to learn and an ambition to be self sufficient should be denied tax relief for what is a genuine business expense?





The deadline for filing 2005/06 tax returns is 31 January 2007.


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.


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


Thursday 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 Friday morning.


Friday 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 2005/06 return, do it today.





Willie, the once lightening fast but long since retired winger, appears at St Peter’s gate.  St Peter starts asking him all the usual questions required to get into heaven.


Willie, it turns out, has lots of yellow and red cards to his name.  Finally, in exasperation, St Peter asks, “Well, have you ever done anything good, anything totally unselfish and altruistic in your entire life?”


“Well,” says Willie, “Once I saw this woman being beaten up by a bunch of thugs.  So I yelled, ‘Hey losers, why don’t you pick on some one your own size?’ and took off running.  They forgot about the woman for a second and she was able to get away”.


St Peter asks, “I’m looking through the book of your life and I don’t see this incident recorded.  When did it occur?”


“About five minutes ago,” replies Willie.


Copyright:  K P Bonney & Co LLP 2007.  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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