The View from No 50





July 2005

K P Bonney & Co

Chartered Accountants and

Chartered Tax Advisers

50 Cleasby Road  Menston

Ilkley  LS29 6JA

Tel:  01943 870933

Fax:  01943 870925






At the time of writing, a quick look at the tables published by MoneyFacts reveals that the best rate of interest on Individual Savings Accounts (ISA’s) right now is 5.4%.  Interest earned on ISA’s is tax free.  ISA interest rates have always been good and competition for your money amongst the banks and building societies is keen.


If you want to be tax efficient with your savings you should ensure you take up your cash ISA allowance every year.  The trouble with ISA’s is that they are rationed to just £3,000 per annum.


A further quick search of MoneyFacts shows that the best instant access accounts (usually Internet based these days) pay up to 5.25%.  If you are a basic rate taxpayer you receive 4.5% after tax.  If you are a higher rate taxpayer you keep just 3.5%.  Not great.


So can you get a better return on your money?


A few years ago the government introduced something called the Community Investment Tax Relief (CITR) scheme.  It hasn’t received much press so few people are aware of its existence.  The scheme offers savers a rate of interest of 5% tax free.  If you are a basic rate taxpayer that is equivalent to a gross rate of interest of 6.25% and if you are a higher rate taxpayer that is equivalent to 8.33% gross.  The slightly unusual feature is that the 5% reward does not take the form of a payment of interest.  It takes the form of a reduction in your tax bill.


The organisation in which you invest your money is called a Community Development Finance Institution (CDFI).


Under the provisions of the scheme you receive a reduction in your tax bill equal to 5% of the amount you invest.  The first reduction is given in the tax year of investment and this is followed by equal deductions in the next four years.


So if you invest £10,000 in a CDFI in July 2005, you get a reduction of £500 in your tax bill for the year 2005/06 and for the years 2006/07 to 2009/10 as well.


What are the downsides?


First, your money is locked in for five years.  There is a facility to make limited withdrawals in years 3 to 5.


Second, the CDFI uses your money to invest in enterprises in disadvantaged areas.  You might consider this to be a little too risky for your liking.


Third, your circumstances might change.  You might have a year in which you are a non taxpayer.  This might be because you sustain a loss in a business or because you are unable to work.  If your tax bill is less than the CITR then the CITR is wasted to the extent it cannot be used.


Our Advice:  This isn’t going to appeal to everybody but some will like the tax break and some will like the idea of supporting businesses in disadvantaged areas.  To find out more visit


We do not advise upon or recommend savings or investment products and this must not be taken as advice or a recommendation but you might like to visit the site of the Charity Bank to see an example of a CITR offering.





We reported the sad defeat of the taxpayer in the High Court in the May issue of our newsletter.  We are now pleased to report that the taxpayer and his team have decided to appeal.  The case will go before the Court of Appeal later this year.  We trust the outcome will be a victory for the taxpayer this time.  Whatever the outcome, it is unlikely we shall have certainty in the taxation of husband and wife businesses soon.  So long as the uncertainty lasts it is doubtful the Revenue will start a large scale attack on husband and wife businesses.


The more time slips by, the more years slip out of the Revenue’s reach.  This is so for taxpayers who have made an appropriate disclosure in their tax returns.


For those who haven’t made appropriate disclosure, the risk remains for up to six years.  With tax at stake of up to £7,000 for each year, that makes up to £42,000.  Then there’s the interest and possibly penalties as well.


Our Advice:  Sit tight and hope the Court of Appeal finds for the taxpayer.  In the meantime,

do what you can to balance up the contributions you and your spouse make to the business.  If possible, diversify the business to enable the ‘non working’ spouse to become a worker in the business.  Transfer assets into the business to give the business substance.


Leave the tax return disclosure to us.  We believe the disclosure policy we have adopted so far provides our clients with absolute protection.





If you own shares in quoted companies you will be aware of Dividend Reinvestment Plans or DRIPs as they are sometimes called.  The idea is you don’t take your dividends as cash.  Instead you leave your cash in the DRIP and the money is used to buy new shares in the company.  The big attraction is you avoid all the costs which are normally associated with buying shares.


You don’t achieve any income tax saving by participating in the DRIP.  You are treated as having received broadly the same amount of dividend as the shareholders who take the cash.


One thing you might not have realised is how participating in the DRIP affects your capital gains tax situation.


Each acquisition of shares is treated as a free standing acquisition.  It is not pooled with earlier acquisitions.  This means you, or more likely your accountant, has to prepare and maintain records of the number of shares acquired with each DRIP purchase and the cost of these shares and the date of their acquisition.


The reason these records have to be maintained is because if you sell some of your shares your poor accountant has to match the shares you sell with the shares you have previously bought using the rules laid down for this purpose.


It is not the most interesting work in the world.  It is time consuming.  Inevitably there is an ongoing cost associated with the work.


Our Advice:  On behalf of accountants all over the UK we ask you to think twice before entering into DRIPs.






Holidays are coming.


So is the taxman’s request for your second instalment of tax for 2004/05.


If you are a self assessment taxpayer and you pay tax twice a year you will have to pay this tax soon.  If your income is lower in 2004/05 than it was in 2003/04 you may be able to claim to reduce your 31 July payment.


Our Advice:  Make a start on your 2004/05 tax return.  If your tax liability is lower this year you can pay less at the end of the month.


More money left over for holiday spending.




On the subject of which, holidays that is, our last day in the office is 8 July.  We shall be back, refreshed and raring to go, on 25 July.





Wayne and his hangers on arrived at the training ground one day.  They parked the car and got out.  Then Wayne realised the keys were still in the car and the doors were locked.


“What are we going to do?” asked Wayne.


“Well, we could get one of the coat hangers and try to unlock the door” suggested one of the hangers on.


“We could try to prize the door open” offered another.


Wayne replied, “Well, whatever you do you had better hurry up.  There is a storm coming and the top is still down.”



Copyright:  K P Bonney & Co LLP 2005.  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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