The View from No 50





March 2003

K P Bonney & Co 

Chartered Accountants and

Chartered Tax Advisers

50 Cleasby Road  Menston 

Ilkley LS29 6JA

Tel: 01943 870933 

Fax:  01943 870925







Despite the fact that ISA’s have been around for nearly four years, I still find many people are confused about their entitlements.  With the end of the tax year approaching, this is a good time to brush up on the rules and to consider whether you should use your current year entitlements.


The absolute maximum amount of money you can invest in ISA’s in a tax year is £7,000.  You can invest up to £7,000 in a ‘Maxi ISA’ or you can invest up to £7,000 in a series of three ‘Mini ISA’s’.




If you select a Maxi ISA you can invest up to £7,000 with one ISA provider (such as a stockbroker or investment house).  All your money is invested in stocks and shares and corporate bonds.  You have some control over how your money is divided between stocks and shares and corporate bonds.


You do not have to invest as much as £7,000.


If you invest in a Maxi ISA you cannot later invest in any other ISA in the same tax year, even if you do not take up your full entitlement of £7,000.


You do not have to invest with the same provider each year.




There are three types of Mini ISA’s.  These are


·          Insurance

·          Stocks and shares and corporate bonds

·          Cash


The maximum amount you can invest in an insurance ISA is £1,000.  The maximum amount you can invest in each of the other types of ISA is £3,000.


You do not have to invest with the same provider for each type of Mini ISA.


You do not have to invest as much as the £1,000 and £3,000 limits mentioned above.


If you invest in a Mini ISA you cannot later invest in a Maxi ISA in the same tax year.


You do not have to invest with the same provider each year.



ISA’s offer potential income tax and capital gains savings.  This makes them attractive to basic rate and higher rate taxpayers.  Cash ISA’s offer competitive rates of interest.  This makes them attractive to everybody.


My advice:  You might be able to get a better return from your savings if you hold them in an ISA.  If you have not yet made use of your ISA allowances for 2002/03 think seriously about doing so before 6 April.





‘In this Schedule “trading company” means a company carrying on trading activities whose activities do not include to a substantial extent activities other than trading activities.’ Para 22A Sch A1 TCGA 1992.


This is a fine example of the style of language used by our parliamentary draftsmen.  It features in the Taxation of Chargeable Gains Act 1992 and concerns taper relief.  The point is that shares in a trading company are business assets for the purposes of capital gains tax taper relief.  Business assets qualify for a more generous rate of taper relief than do non business assets.


In years to come the Inland Revenue will challenge shareholders over the interpretation of paragraph 22A.  The sums of money at stake will be large.


These days, everyone disposing of shares in their family company expects to pay capital gains tax at an effective rate of only 10%.  If you meet certain conditions and if your company is a ‘trading company’ you should enjoy this relatively low rate of tax.  However, if your company turns out not to be a trading company, your tax rate could be as high as 40%.  This makes a massive difference to your outcome.


So is your company a trading company?  Can you tell from the above definition?  Probably not.


Most of us recognise a trade when we see one.  Manufacturing is a trading activity.  Conducting a profession is a trading activity.


Most of us recognise an investment type activity when we see one.  A company which invests in assets such as land or stocks and shares with the objective of profiting from holding the assets is not carrying on a trading activity; it is carrying on an investment activity.


Where trading ends and investment begins is not always clear.  If your company operates a caravan park is it carrying on a trading activity or an investment activity?


And what is meant by ‘substantial extent’?  If your company derives 80% of its income from trading activities and 20% from investment activities does that mean it is a trading company or not?  What if 50% of its assets are trading assets and 50% are investment assets?


In a bulletin published in June 2001 the Revenue expressed its view that substantial means more than 20%.  The measure of 20% will vary according to the facts of each case but could include


·                 turnover received from non-trading activities

·                 asset base of the company

·                 time spent by officers of the company

·                 expenses incurred in undertaking activities


My advice: This is a new and developing area of tax law.  At the moment there are many uncertainties.  In general terms investment activities can be conducted within companies which are essentially trading companies so long as those investment activities are not allowed to exceed any of the 20% criteria.  If you are concerned that your company’s non trading activities exceed one or more of the limits, you should contact me for further advice.





This year’s Budget takes place on 9 April.  Here are my predictions.


1.      Employee share options – legislation will be introduced to overturn the decision (in favour of the taxpayer) in Mansworth v Jelley.  This decision has enabled thousands of employees who have exercised certain share options to claim capital losses to which nobody previously believed they were entitled.


2.      Capital gains tax annual exemption – the exemption will be increased by the rate of inflation to £7,900.


3.      Inheritance tax nil rate band – the nil rate band will be increased by the rate of inflation to £256,000.


4.      Self employed – the Chancellor will extend to the self employed, the generous tax breaks he has introduced in recent years for small companies.


5.      Personal equity plans – the recovery of tax credits on dividends is due to end on 6 April 2004.  This time limit will be extended or abolished.


6.      Capital allowances – the 100% rate of first year allowance for expenditure on computer equipment reverts to 40% on 1 April 2003.  The period for which the 100% rate applies will be extended and the change will be effective from 31 March 2003.


In my Fantasy Budget I would


·                 maintain existing tax rates for those aged 65 and over,

·                 abolish all forms of compulsory national insurance contributions,

·                 increase the rates of income tax paid by individuals under 65 and corporation tax paid by companies to compensate the Treasury for the loss of national insurance contributions

·                 introduce a voluntary, nominal national insurance contribution for those who want benefits from the state.


How much easier it would be to run a business with only one tax to operate on payroll and benefits!  Just think of the number of civil servants and professionals currently working and advising on national insurance who would be freed up to do something which actually contributes to the wealth of the UK!


Will it happen?  Dream on.









Straight down the middle?






Did I switch the gas off?

Oooops – I wish I’d concentrated on that one!!



Copyright  Ó  K P Bonney & Co LLP 2003.  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 publishers.

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