The View from No 50
K P Bonney & Co
Chartered Accountants and
Chartered Tax Advisers
Ilkley LS29 6JA
Tel: 01943 870933
Fax: 01943 870925
2016/17 NEW YEAR, NEW RULES
Here is an interesting if somewhat contrived scenario. George’s mum has the following income for 2016/17
Salary / pension 11,000
Interest income 6,000
Dividend income 5,000
Total income 22,000
How much tax does she have to pay?
The salary / pension is covered by her personal allowance of £11,000.
Next we have the savings nil rate band of £5,000. This operates like an extension to the personal allowance. It is only available to set against savings income falling between £11,000 and £16,000 in the income strata.
Next we have the personal savings allowance of £1,000. This is new for 2016/17. It is given automatically to those who would otherwise pay basic rate tax on their interest income. This was one of the rabbits pulled out of the hat at the March 2015 budget.
And finally we have the dividend allowance of £5,000. This was the ‘softener’ which accompanied the dividend tax bombshell in the July 2015 budget.
So £22,000 of income all covered by reliefs of one sort or another.
Contrast with George’s dad whose income is also £22,000 and is made up entirely of salary / pension. His tax bill is £2,200.
The rationale? No, I don’t get it either.
The Office for Tax Simplification, as the name suggests, is charged with the task of making the tax system simpler. Following its recent upgrade from a temporary, non-statutory body to a permanent, statutory one I suggest the above nonsense is a good place to start.
31 JANUARY 2016 TAX PAYMENTS
Self-assessment balancing payments for 2014/15 fall due for payment on 31 January 2016. If you filed your 2014/15 tax return by 31 December 2015 HMRC will send you a paper statement to remind you to pay your tax and a payslip to help you to make your payment. If you didn’t meet the 31 December deadline HMRC will send you nothing.
As HMRC charges interest at 3% pa and imposes a surcharge of 5% on any 2014/15 tax still unpaid at 28 February it is advisable to settle up whether you have the stationery or not.
You can make payment to
Sort 08 32 10
Quoting your self-assessment unique taxpayer reference number (UTR) followed by the letter K.
I look back and laugh now but on one occasion I accidently gave a client of mine the wrong reference number. The first he or I knew about it was when HMRC rang to point out that his rather large tax bill remained unpaid.
On checking my records I found I had indeed given my client the wrong reference number when advising him how to pay.
Horror! How on earth are we going to get the money back? The taxpayer whose self-assessment account has been credited might have asked HMRC for a refund and might refuse to give it back!
Relief! We don’t have to worry about getting the money back. The reference number belongs to me. A quick check of my self-assessment account on the HMRC website shows that I am overpaid by a huge amount. I can arrange for HMRC to make a transfer from my self-assessment account to my client’s. I do. Straight away.
Panic again! Is my client going to think I have just tried to swindle him out of a load of money?
Next a difficult conversation followed by huge relief when the client buys my story.
That won’t happen again.
As time moves on so do the questions I am asked. Recently I had, “What are the tax consequences of my employer providing me with a smartwatch?”
There are established rules covering situations where an employer makes an asset available to an employee without any transfer of ownership. There are particular rules to cover the provision of accommodation, vehicles and phones. Everything else gets caught by the general charging rules.
The most common types of assets falling to be charged are computers, tablets and now, it seems, smartwatches.
Where an asset is made available in these circumstances the employee is taxable on the ‘annual value’ of the asset and on any ongoing expenses borne by the employer.
Let’s suppose the asset costs the employer £500 to buy and £100 per annum to maintain.
For each full year in which the asset is made available to the employee the deemed taxable income of the employee is
Annual value £500 x 20% 100.00
Ongoing costs 100.00
Sub total 200.00
The employee pays tax at his or her marginal rate on £200.00.
If the asset is used both for the purposes of the employment and for private purposes HMRC is willing to accept a reasonable reduction in the taxable amount to reflect the employment use.
As a smartwatch is more a miniature tablet than a watch I imagine the scope for arguing significant or even total employment use must be good.
In order for expenditure to be deductible for capital gains tax purposes it must be incurred on the asset ‘for the purpose of enhancing the value of the asset, being expenditure reflected in the state or nature of the asset at the time of disposal’.
Examples of enhancement expenditure are constructing a swimming pool in the garden and adding a conservatory to a house.
In the world of stocks and shares an example would be taking up a rights issue.
Mr Blackwell reached an understanding to sell the shares in his company. Before the deal was complete he received a much better offer from another party. This placed him in a difficult position. As the later offer was so good he ended up making a payment of £17.5m to get out of the earlier agreement.
When he submitted his tax return to HMRC, Mr Blackwell claimed the £17.5m payment as a deduction from the gain on the sale of his shares on the basis it was enhancement expenditure.
HMRC considered no deduction was due.
Mr Blackwell believed the expenditure enhanced the value of his shares because it enabled him to obtain a higher price. However, the court held that is not enough. The expenditure was not incurred ‘on the asset’ and ‘reflected in the nature of the asset at the time of disposal’.
So Mr Blackwell lost and ended up being taxed on a profit that exceeded his commercial profit.
As we have seen in these columns over the years fairness and tax do not always sit easily together.
A linguistics professor was lecturing his class.
'In English', he said, 'a double negative forms a positive. In some languages, though, such as Russian, a double negative is still a negative. However, there is no language in which a double positive can form a negative.'
A loud voice from the back of the room piped up, 'Yeah, right.'
Copyright: K P Bonney & Co LLP 2016. 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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