The View from No 50





January 2012

K P Bonney & Co

Chartered Accountants and

Chartered Tax Advisers

50 Cleasby Road  Menston

Ilkley  LS29 6JA

Tel:  01943 870933

Fax:  01943 870925







In his autumn statement at the end of November the Chancellor announced some new tax measures the purpose of which is to stimulate investment in new businesses.


The Seed Enterprise Investment Scheme (SEIS) starts on 6 April 2012.


Individuals who invest up to £100,000 in start-up companies will qualify for 50% income tax relief on the cost of their investment.


In addition, individuals who realise gains and re-invest in a SEIS will have their original capital gains tax liability waived.  That could be a saving of 28%.


These are very generous reliefs.


Might individuals who are sitting on assets which are pregnant with gain be tempted to sell and re-invest in a start-up company?  If investment is allowed in family companies that will be a very interesting prospect.


No doubt the new reliefs will come with conditions attached.  We shall have to wait for the March budget for further details.





One of the tenets of a good tax is that the circumstances in which it is chargeable are clear.


Generally, for an individual to be liable to income tax in the UK he must be resident here.


You might be surprised to learn, given its fundamental importance to income tax, that there is no definition of residence.


The absence of a definition was described by the Income Tax Codification Committee, as long ago as 1936, as ‘intolerable’.  But nothing was ever done about it.


To its credit the Inland Revenue (now H M Revenue & Customs) tried to give taxpayers some certainty in their UK affairs by issuing guidance.  In the guidance it set out the circumstances in which it accepts an individual is not resident in the UK.  This includes a statement that an individual is normally treated as not resident if he spends no more than 90 days per annum on average in the UK.


What it doesn’t make abundantly clear is that in order to benefit from the 90 day rule you must first leave the UK on a permanent basis.


In 1976 Mr Gains-Cooper, a businessman domiciled in the UK, bought a house in the Seychelles.  He proceeded to spend most of his time there and elsewhere in the world and restricted his return visits to the UK to fewer than 90 days on average.  His wife remained in the UK where they owned two houses and had a family.


In 2005 HMRC contested Mr Gains-Cooper’s claim to be not resident in the UK.  They argued that he had never left the UK in any permanent sense therefore he had never lost his UK residence status.


Mr Gains-Cooper argued that the HMRC guidance did not make it clear he should first make a distinct break with the UK.  He claimed he had a legitimate expectation to be taxed on the basis of his, and the generally accepted, understanding of the HMRC guidance.


Despite having sympathy for the taxpayer the Supreme Court agreed with HMRC.  Mr Gains-Cooper now faces the prospect of having to pay UK income tax on his worldwide income for the years 1992/93 to2003/04.  Ouch!


How he must wish Parliament had introduced a statutory residence test in 1936.


Spurred on by the Gains-Cooper case Parliament is now introducing a statutory residence test.  It will take effect in 2011/12.  Or rather it won’t.  In December HMRC announced the change will take effect in 2012/13 instead.


Our Advice:  It is usually prudent to rely on HMRC guidance but ultimately the testing of the law takes place in the courts.  Sometimes HMRC guidance is wrong.  Sometimes that is good for the taxpayer and sometimes, as Mr Gains Cooper found, it is bad.


It is sobering to find that one’s understanding of a cornerstone of tax law has been wrong throughout one’s professional career.





All VAT registered businesses with turnover below £100,000 will have to file their VAT returns online from April 2012.


If you are registered for VAT and neither you nor your agent currently files your returns online, get your skates on and register.





Here is another interesting example of the testing of the wholly and exclusively principle.


For a business expense to be deductible for tax purposes it must be incurred wholly and exclusively for the purposes of the trade.


The taxpayer, Mr Duckmanton, ran a transport business.  In 2002 one of his lorries struck and killed a pedestrian.  The driver was convicted of manslaughter.  Mr Duckmanton was charged with manslaughter and attempting to pervert the course of justice.  He was convicted of the latter but not the manslaughter charge.


In his self-assessment tax return for 2003/04 the taxpayer included a claim for the legal fees incurred in defending himself.  He maintained the sole purpose in defending the manslaughter charge was to enable him to keep his operator’s licence, without which he could not run his business.


The tax tribunal rejected the taxpayer’s claim.  It was common sense that he wished to protect his liberty and personal reputation.  These motives meant that the expenditure was not incurred wholly and exclusively for business purposes.  


Just because an expense is incurred for genuine business reasons it does not follow that the expense is allowable for tax purposes. 


Salt in the wounds for Mr Duckmanton.





If you don’t move in the world of tax you may never have heard of list 3.  And if so, you might be missing out on a measure of tax relief.


List 3 contains the titles of all the professional bodies to which the payment of subscriptions is deductible for tax purposes.


If you (not your employer) pay any such subscription you should make sure an appropriate adjustment is made to your PAYE tax code.


If you have missed out on tax relief for the years 2007/08 to 2010/11 you should write to your tax office.


The list was last updated in October 2011.  Here is the link.





It’s the last week of January.  You know you have some tax to pay.  Perhaps you haven’t received a payslip from HMRC.   Perhaps you have lost it.


What to do?


Provided you know your self-assessment number (sometimes called unique taxpayer reference number) you can still make your payment on time.


Follow this link.





The ex-footballer was passing his retirement years working in the yard of a builders’ merchant.  After some time his conscience got the better of him and he went to the confessional.  There he owned up to stealing goods from the yard.


“What did you take?” asked the priest.


“Enough to build my house, my son’s house, houses for our two daughters and our cottage at the lake,” he replied.


“This is very serious,” said the priest.  “I shall have to think of a far-reaching penance.  Tell me son, have you ever done a retreat?”


“No, father,” he replied.  “But if you can get me the plans I can get the materials.”


Copyright:  K P Bonney & Co LLP 2012.  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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