The View from No 50





January 2015

K P Bonney & Co

Chartered Accountants and

Chartered Tax Advisers

50 Cleasby Road  Menston

Ilkley  LS29 6JA

Tel:  01943 870933

Fax:  01943 870925






Here is an interesting case involving the sale, for development, of a house and adjacent land.  The proceeds of sale amounted to £725,000.   The taxpayer contended that £325,000 was attributable to the house and £400,000 to the land.  HMRC contended £170,000 was attributable to the house and £555,000 to the land.


Why was the split important?  Because the gain arising on the disposal of the house was exempt from capital gains tax under the main residence relieving rules and the gain arising on the disposal of the land was fully taxable.


What does the law say?  The law provides that in the absence of specific legislation (of which there was none here) the apportionment should be made on a just and reasonable basis.


The taxpayer, who did not appear at the tribunal, had previously submitted a brief estate agent’s report.  He also pointed out that the agreement between himself and the developer provided for a split of £325,000 / £400,000.


HMRC fielded a Senior Valuer from the Valuation Office Agency as their expert valuation witness.  He put forward three possible apportionment methods.  Of those, the one which produced the highest value for the house (£170,000) involved looking at how much sales of similar houses in the same street achieved in recent years, considering the relative age, condition and proximity of the properties and determining a value from these criteria.


The tribunal chairman kicked off by dismissing the taxpayer’s valuation report as lacking in the necessary content, evidence and methodology.


But the chairman also dismissed the evidence of HMRC’s expert witness.  His approach involved simply identifying the value of one part, the house, and attributing the balance of the proceeds to the other.  That approach flew in the face of existing case law and the guidance in the Valuation Office Agency’s own manual.


The chairman considered the correct methodology was to apportion the proceeds on the basis of the existing use value of the respective parts.  He accepted the house had an existing use value of £170,000.


In order to apportion proceeds of £400,000 to the land, as proposed by the taxpayer, it would be necessary to allocate to it an existing use value of at least £209,210 viz


Existing use value

House £170,000 = 44.8%

Land £209,210 = 55.2%



House £325,000 = 44.8%

Land £400,000 = 55.2%


Neither party had put forward any evidence to support an existing use value for the land but the chairman felt satisfied that in all the circumstances such value was at least £209,210.   


He therefore found for the taxpayer.


One would not normally expect an unrepresented, absent taxpayer to win out against the HMRC Goliath supported by an expert witness.  But that is what happened here.  One is also left wondering what possessed a senior valuer to ignore case precedent and his own agency’s manual.


It is also worth taking away the point that an apportionment agreed between buyer and seller can be challenged and, if it is not just and reasonable, overturned.





In 2013 I welcomed the Chancellor’s introduction of the £2,000 Employment Allowance.  This was just the stimulus employers, particularly small ones, and job seekers needed.  Eligible employers can deduct up to £2,000 per annum from their employer’s national insurance bill.


Almost without exception, employers use specially written payroll software to compute employees’ wages and deductions.  It follows that the writers of this software make sure it does what it has to do.  And that includes working out how much Employment Allowance to claim.   Indeed any software provider who failed to build in new features like this would quickly lose its customers.  Even HMRC’s own payroll software has this covered!


So the likelihood is the government faces a greater threat from ineligible employers making a claim than from eligible employers failing to claim.


Why then is HMRC conducting a media campaign to remind employers to claim their £2,000 Employment Allowance? 


Where is the dividing line between political propaganda and public information?


What a waste of money.  This cost should be borne by the parties not by the public!





From 6 April 2015 the starting rate of tax for savings income such as bank or building society interest will be reduced from 10% to 0% and the maximum amount of taxable savings income that can benefit from the starting rate will be increased from £2,880 to £5,000.


Taken together with the new personal allowance of £10,600 this means that most savers will not be liable to pay tax on savings income until their total taxable income exceeds £15,600 (£10,000 – 2014/15).


An individual’s income sources are taxed in the order (1) non-savings income (2) savings income (3) dividend income.


Generally, savings income is taxed at source at the rate of 20%.  If the account holder is a non-taxpayer they either have to reclaim the tax overpaid or register for gross interest.  They can register for gross interest by completing a form R85 and giving it to the relevant bank.


As a result of the changes many more people will be able to register for gross interest.


Our Advice: If you are eligible to do so, register for gross interest on your savings income.





In order to achieve its target of £24.5 billion of additional tax yield and to catch the tax dodgers, HMRC has brought together a team of operational research officers, data specialists and tax experts.   Data mining is the future.


What does this mean for our clients?


We believe our clients give us full and accurate information in order to enable us to submit error-free tax returns.  So, in theory at least, our clients should have nothing to fear from this development.  But even if the outcome of an enquiry reveals no error, the client is left to pick up the costs of professional representation.


Well, no actually they are not.  We provide all our clients with professional fee protection.  If HMRC opens an enquiry into their affairs the costs of professional representation are covered by an insurance policy of ours.


What is more, business clients have free unlimited access to a business legal helpline for help on a diverse range of subjects.


Worth knowing.  Worth remembering.





Tired with all the lame excuses trotted out by clients who bring me their tax returns to do at the last minute I decided that I would spend the whole of the month of January 2015 in Chamonix learning to ski.


Keith, did you tell your clients about your plans before you left?




Weren’t you concerned you would lose these lovely people as clients?




Did Sue go with you?


Yes, Sue is a highly accomplished skier.


So, Keith, is it true you decided to take a holiday for the whole of January 2015 without telling your clients?







Three old-timers were watching the match.


The first one said “Windy, isn’t it?”


The second one said “It’s Thursday.”


The third one said “So am I.  Let’s get a drink.”

Copyright:  K P Bonney & Co LLP 2014.  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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