The View from No 50

 

 

 

 

July 2010

K P Bonney & Co

Chartered Accountants and

Chartered Tax Advisers

50 Cleasby Road  Menston

Ilkley  LS29 6JA

Tel:  01943 870933

Fax:  01943 870925

Email:  keith@kpbonney.co.uk

www.kpbonney.co.uk

 

 


 

 

SIAN WILLIAMS

 

Sian is employed by the BBC where she reads the news on the BBC Breakfast programme.

 

In her 2004/05 tax return Sian claimed tax relief for

 

Hairdos and colouring                        £975

Clothing for studio                          £3,231

Laundry of clothing                            £325

 

The Revenue disallowed her claim.

 

The matter proceeded to the tax tribunal.

 

For an item of expenditure to deductible from employment income it must pass two tests.

 

First, the employee must be obliged to incur the expenditure as the holder of the employment.

 

Second, the amount must be incurred wholly, exclusively and necessarily in the performance of the duties of the employment.

 

On the first test the tribunal found no evidence of any obligation to incur the expenditure.

 

On the second test the tribunal found that the expenditure was incurred not just for the purposes of the employment but for other purposes.  Expenditure on ordinary civilian clothing which can be worn both at work and when off duty does not meet the wholly, exclusively and necessarily test and neither does a hairdo.

 

Not surprisingly the tribunal found in favour of the Revenue.

 

Our Advice:  It is notoriously difficult for employed people to get tax relief for expenditure which they themselves incur.  Sian was never going to win her case.

 

However, on a related matter, we frequently come across cases where employees are reimbursed for business mileage at less than the HMRC authorised mileage rate.  Often the employees concerned are not aware they can claim tax relief in these circumstances.  Get in touch if you think you might have a claim or if you would like further advice.

 

 

DISREGARD DOWN

 

This is one of the best changes announced in the emergency budget of 22 June yet it received little attention in the media.

 

Do you remember when tax credits were introduced there was an almighty protest from claimants who found themselves having to pay back money they should never have received in the first place?

 

The fundamental problem with tax credits system is the amount you receive is based on your income for the preceding year.  If your income for the following year goes up, you have to repay the overpaid tax credits.

 

The number of families suffering hardship as a result of having to repay overpaid tax credits reached a point at which the Labour government had to come up with a fix.  What they came up with was a fudge.  They introduced the income increase disregard.  Under their new rule you only had to pay back your overpaid tax credits if your income went up by more than £25,000 from one year to the next.

 

Job done.

 

Well, no not really.  The political pressure had been relieved but the fundamental problem with the system had not been fixed.

 

Worse, what Labour’s fudge did was introduce scope for abuse.  People who were able to control their level of income could now arrange their affairs so that they had alternate high and low income years with the high year being within £25,000 of the low year.  By doing this their tax credits award was always based on their income of the low year. 

 

The general body of taxpayers found itself financing benefits payments for which the claimants had no commensurate need.

 

On 22 June it was announced that the income increase disregard will be reduced to £5,000.

 

What will that mean?

 

It will mean a return of the clamour from families having to repay overpaid tax credits (the fundamental flaw in the system has not been fixed) but, importantly, it will also mean benefits will be more closely aligned to need.

 

Our Advice:  We don’t advise on tax credits other than to say that everybody should claim whether you think you have an entitlement or not.  This is important because awards are made on the basis of your income for the tax year and awards cannot be backdated by more than three months (to be reduced to one month).  You may be in a well paid job or have a profitable business now but it only takes an unfortunate turn of events such as redundancy or a bad debt to reduce your income substantially.  Claim now.

 

 

ADVISORY FUEL RATES

 

With fuel prices heading ever upwards HMRC has changed the advisory fuel rates again.

 

From 1 June 2010 the fuel element of the authorised mileage rate is

 

                                           Petrol         Diesel

 

1400cc or less                     12p             11p

 

1401 – 2000cc                    15p             11p

 

Over 2000cc                        21p             16p

 

VAT registered employers can reclaim VAT on these rates.  The VAT is 7/47ths.  Thus

 

                                           Petrol         Diesel

 

1400cc or less                     1.79p          1.64p

 

1401 – 2000cc                    2.23p          1.64p

 

Over 2000cc                        3.13p          2.38p

 

Remember you must hold VAT receipts which show VAT of an amount equal to or greater than the amount of VAT reclaimed on your return.

 

The rates are adjusted on 1 June and 1 December each year.  You can find the current and recent rates on our website.

 

www.kpbonney.co.uk

 

 

WISHES

 

The coach of a middling Aussie football team walks into an outback café with a full-grown emu behind him. The waitress asks them for their orders.

 

'A hamburger, chips and a coke,' says the coach.

 

She turns to the emu and he says 'I'll have the same.'

 

A short time later the waitress returns with the order. 'That will be $9.40 please.'  The coach reaches into his pocket and pulls out the exact change.

 

They return next day and he says, 'A hamburger, chips and a coke.' The emu says, 'I'll have the same.'

 

Again the coach reaches into his pocket and produces the exact change.

 

This becomes routine until one time when the waitress asks, 'The usual?'

 

'No, it's Friday night, so I'll have a steak, baked potato and a salad,' says the coach. 'Same,' says the emu.

 

A while later the waitress brings the order and says, 'That will be $32.62.'  Once again the coach pulls the exact change out of his pocket and places it on the table.

 

The waitress cannot hold back her curiosity any longer. 'Excuse me, mate.  How do you manage to come up with the exact change in your pocket every time?'

 

'Well, love' says the coach, 'a few years ago I was cleaning out the back shed and found an old lamp. When I rubbed it, a genie appeared and offered me two wishes. My first wish was that if I ever had to pay for anything, I would just put my hand in my pocket and the right amount of money would always be there.'

 

'That's brilliant!' says the waitress. 'Most people would ask for a million dollars or something, but you'll always be as rich as you want for as long as you live!'

 

'That's right. Whether it's a pint of milk or a Rolls Royce, the exact money is always there,' says the coach.

 

The waitress asks, 'What's with the emu?'

 

The coach sighs, 'My second wish was for a tall bird with a big arse and long legs, who agrees with everything I say.'

 

Copyright:  K P Bonney & Co LLP 2010.  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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