The View from No 50
K P Bonney & Co
Chartered Accountants and
Chartered Tax Advisers
Ilkley LS29 6JA
Tel: 01943 870933
Fax: 01943 870925
WHEN DREAMS COME TRUE
I had a dream the other night. In a moment of madness I volunteered to accompany Sue, my wife, on the weekly supermarket shop. OK, it wasn’t a dream it was a nightmare.
At the checkout Sue handed over a voucher which she had received in the post from the supermarket. The face value of the voucher was duly deducted from the bill. Happy days.
That evening there was a knock on the door. It was a security guard from the supermarket.
After the introductions he proceeded to explain that he had come to collect from me, not Sue, money equal to the value of the voucher.
A little nonplussed, I asked a few questions of my own.
“So let me get this right. Your people at head office sent my wife a voucher. The voucher was used in part payment of our shopping bill earlier today. And now you are here to ask for the money back but you insist on collecting the money from me and not from my wife.”
“Has it not occurred to you that you might be running an inefficient business model here? After all, you are employing a bunch of guys to print and distribute the vouchers and you are employing another bunch of guys to recover the value of the voucher. What’s more you are collecting the money from somebody other than the original shopper.”
“Even our wonderful government couldn’t dream up such a wasteful system!”
Then I woke up.
Was it a dream or was it real?
In the UK we have an army of civil servants dispensing child benefit to eligible parents. We have another army dispensing child tax credits, a means tested child benefit, to eligible parents.
As part of the government’s money saving measures, from January next year, we shall have another army of civil servants deployed to identify, track down and collect an income tax charge from certain members of ‘high income’ families in receipt of child benefit.
Two armies giving money out. One army trying to get some of it back.
We all accept measures have to be taken to improve the country’s finances. But if ministers and HMRC had a foot in the real world they would devise a system fit for purpose.
Why not abolish child benefit and beef up child tax credits and forget about the targeted income tax charge? If they were to do that they would not be handing money out with two hands and taking it back with another. They would also be able to cut the size of the HMRC payroll in the process. Win, win.
Alas the government has opted for the stuff of nightmares – the supermarket model. One arm of HMRC will dispense child benefit to all and sundry. Another arm of HMRC will try to collect an appropriate income tax charge from a family member having income of more than £50,000.
You couldn’t make it up could you?
Is it any wonder we have more tax legislation than any other country in the world?
Our Advice: If you want to hang on to your child benefit (or more accurately avoid the targeted income tax charge) you need to think about ways in which you can reduce your income for tax purposes. Consider deferring or advancing income and / or expenses around 5 April, transferring savings into tax shelters like ISA’s, transferring savings to other family members and making pension contributions.
SMART WITH SMARTPHONES
Each year I remind my corporate clients to make sure their mobile and smartphone contracts are made between their companies and their service providers. Here is why.
Carlo and Roberto each set up new companies. They each need a smartphone in order to run their businesses efficiently. Carlo enters into a contract with his service provider. Roberto arranges for his company to contract with his service provider. In each case the company pays the monthly tariff and usage charges.
Who is the cleverer?
Each month Carlo’s company must treat the VAT inclusive amount of Carlo’s telephone bill as extra salary. Or more precisely it must record these amounts as salary for the purposes of computing employer’s and employee’s national insurance contributions. It must not, however, record the payments as his salary for income tax purposes.
At the end of the tax year Carlo’s company must record the VAT inclusive total of the payments on Carlo’s P11D. At this stage the payments effectively become Carlo’s income for tax purposes.
Carlo too must enter the payments as income on his tax return. He may claim a deduction to the extent he uses the phone for business purposes. In order to work out how much he can claim by way of deduction Carlo has to trawl through his itemised bills to work out what costs are business costs and what costs are private. When he has reckoned up the business cost he can enter that amount as a deduction on his tax return.
Long before they have reached this stage most subscribers decide they have better things to do and agree to bear the telephone costs privately.
As for Roberto he doesn’t have any compliance routines to worry about. Neither he nor his company has any tax or national insurance to pay. Indeed his company gets corporation tax relief for all the charges made by the service provider including the cost of the private use.
Our Advice: It’s a no brainer. Enter into your phone contracts through your company, not personally.
We are all customers of rubbish banks, rubbish phone companies and rubbish suppliers of gas and electricity. But the one thing we do have is the power to take our custom elsewhere. Which is something we would do if we could be bothered and if we could find a supplier who isn’t rubbish.
As a tax agent I enjoy a privilege. When I ring HMRC I know the phone will be picked up within a few minutes. The other day I had to ring HMRC on a matter falling outside the scope of the agent dedicated line. It was then I got a taste of the real customer experience.
During my 30 minute wait for a human voice, while I unwillingly enriched BT, while I was urged to search the wonderful HMRC website for an answer to my question, while I was ground down by repetitive muzak, I wondered whether I should hang on or hang up.
During my wait I was given no indication of my position in the queue or how long it might take to receive attention.
Afterwards I raised this point with my agent account manager. If people knew when their call was going to be answered, I explained, they could decide whether to hold on or hang up.
It transpires it is just too hard for HMRC to introduce these features to their telephone system. They have no plans to change.
And there’s the rub. If we really were customers we could respond by taking our tax pounds elsewhere. But we aren’t are we? There is only one supplier and that is HMRC.
I can’t advise you to ditch this rubbish supplier but I invite you to join me in asking HMRC to stop referring to us as customers.
If enough of us sign HMRC might just listen.
A starving tramp called at the door of a wealthy football agent and begged for food. The agent asked him if he would like some cold rice pudding.
“Yes please, guv. I’ll be glad of anything,” said the tramp.
“Well,” said the agent, “come back tomorrow. It’s hot at the moment.”
Copyright: K P Bonney & Co LLP 2012. 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.
Back to the home page