The View from No 50
K P Bonney & Co
Chartered Accountants and
Chartered Tax Advisers
Ilkley† LS29 6JA
Tel:† 01943 870933
Fax:† 01943 870925
PAYING TAX ON NON-EXISTENT PROFITS
Suppose you run a greengrocery business. †It is on a Saturday afternoon and the shoppers have all gone home.† That last remaining punnet of strawberries is fit to eat now but will not be fit to sell on Monday morning.† You paid £2 to your supplier for the strawberries.† Had you been able to sell them during the day you would have received £5.† You are faced with the choice of throwing the strawberries away or taking them home for tea.
Does tax play any part in your thinking?
The taking of stock for private use has long been a subject of contention between the Revenue and the tax profession.
The Revenue has always argued that goods withdrawn from a business for private use should be treated as sold at their selling price.† They won a House of Lords case on this question over 50 years ago.
The tax profession has always maintained the House of Lords got it wrong.†† Tax law states that the taxable profit of a business is the profit shown by the business accounts.† So long as the accounts are drawn up using generally accepted accounting practice then no further adjustment is required unless statute requires it.† Statute calls for no such adjustment in the case of goods taken for private use.
If the strawberries are thrown away there is no difference between the taxman and the profession.† You have made a loss of £2.
If, however, you take the strawberries home for tea, the taxman says you have made a taxable profit of £3.† The accountancy and tax professions maintain the cost of the strawberries should simply be taken out of the business accounts meaning the business makes neither a profit nor a loss.
This ongoing difference of opinion has simmered for many years.
The matter was resolved once and for all in the budget on 12 March 2008.† With effect from that date the decision of the House of Lords is placed on a statutory footing.† The professions no longer have any grounds for argument.
In bringing this law forward the government is effectively admitting the decision of the House of Lords was flawed.
The government is also laying itself open to criticisms of introducing yet more badly thought through tax law.†
The new law is unfair.† It requires traders to pay tax on profit that has not been made, will not be made and might never have been made.† It is a tax on an imaginary profit!†
The new law places an undue burden on businesses.† It requires them to account for the stock as though they had sold it for its market value.† What is the market value of a punnet of strawberries at on a Saturday afternoon?† The taxman will argue it is the normal selling price.† But surely there is a strong argument to say the market value is close to nil, in which case the result is a loss of £2.† One thing is certain and that is that this change in the law will lead to lots of disputes between taxpayers and the taxman.
Does it really matter?† Well, for your greengrocer there might be a few hundred pounds at stake every year.† But imagine what it will do to others.† The restaurateur who helps himself to an occasional bottle of wine from his cellar will not enjoy having to pay tax on the menu price.† And the house builder who builds a house for himself will be in for the shock of his life!
Our Advice:† Another example of draft, or perhaps that should be daft, legislation the consequences of which have not been properly thought through.
It is unlikely the legislation will be amended on its passage through parliament.† Now would be a good time to start keeping a record of goods withdrawn from your business and it would be an even better idea to record your reasons why the market value of the goods is lower than the normal selling price.† Time of day, weather conditions, sell by date etc. etc..
NOT JUST CHOCOLATE MARSHMALLOW TEACAKES
From its introduction in 1973 Marks and Spencer charged VAT at the standard rate on its sales of chocolate marshmallow teacakes.
In 1994 Customs accepted that M&Sís teacakes should be zero rated.
M&S sought to claim back from Customs all the VAT it had paid over on sales of teacakes between 1973 and 1994.
Customs defended the claim on several grounds, one of which was that repayment of the VAT would unjustly enrich M&S.† After all, it was not M&S who bore the VAT; it was the customers of M&S who bought the teacakes.†
Fourteen years on and all of Customsí defences have failed.
M&S will now enjoy a VAT windfall.† Apparently the tax at stake was £3.5 million.
That is good for the shareholders of M&S.† But it is not so good for the customers who paid too much for their teacakes.† But then again these were not just chocolate marshmallow teacakes.....
old Personal Equity Plans (PEPís) became Stocks and
shares ISAís on
Going forward you have an annual ISA allowance of £7,200.
All of this allowance can be invested in a Stocks and shares ISA.
Alternatively, up to £3,600 of the allowance can be invested in a Cash ISA with one ISA manager.† The remainder of the £7,200 allowance can be invested in a Stocks and shares ISA with either the same or a different manager.
The new limits are divisible by twelve to facilitate easy monthly saving.
Our Advice:† If you donít use your annual allowance you lose it.† So if you can afford to fund an ISA you should do so.† Only higher rate taxpayers obtain an income tax advantage from owning shares inside an ISA.† All taxpayers obtain a tax advantage from holding savings in a Cash ISA.††
CHECKING VAT NUMBERS
If you are in business you might occasionally need to check the VAT number of a customer or supplier.† You can check that a VAT number is valid simply visiting
Our Advice: If you enter into a transaction with a customer or supplier who provides you with invalid VAT registration details you could end up bearing the VAT on the transaction.† If you have doubts about the VAT credentials of your customer or supplier, check their number on the website.† The check isnít foolproof because it only tells you if the number is valid.† It doesnít tell you if the number belongs to the person you are dealing with.†† We understand that from 2009 the site will also give you the name and address of the trader to whom the VAT number belongs.
HARD AS NAILS CENTRE BACKS
MI5 is looking to recruit some new muscle and decides retired footballers could fit the bill nicely.
The interviewing panel has narrowed it down to two hairy, knuckle dragging centre backs formerly of the premiership.
They have passed all the tests and now await the final one.
The first is given a gun and told to go into the next room and execute the spy sitting in the chair. †He goes into the room and sees the person sitting in the chair, blindfolded. †He lifts the blindfold and sees it is his wife.† He leaves the room saying he can not shoot her.† He is told he has failed the test and can not become an MI5 agent.
After a few minutes to make the necessary rearrangements, the second centre back is given a gun and is told to execute the spy. †He goes in to the room.† The agents outside the room hear a gun shot. After this they hear shouting and crashing and banging.
Finally, the centre back comes out and says, "someone put blanks in the gun so I had to choke her to death."
Copyright:† K P Bonney & Co LLP 2008.† 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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