The View from No 50

 

 

 

 

March 2006

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

 

 


OFFSHORE STASH

THE GAME IS OVER

 

It is, we understand, common practice for tax evaders to have their illicit income paid into offshore bank accounts in certain havens where it is outside the reach and information gathering powers of the UK authorities.  The problem for the tax evader is that if he wants to enjoy his money he must either visit the country where it is stashed and have a spending spree there or transfer it elsewhere.  If he transfers the money to the UK, or indeed to any other country with which the UK has information sharing arrangements, he risks creating an incriminating link between himself and the money.  The banks have, perhaps unwittingly, solved the problem for the evaders by making available cash cards and credit cards linked to the offshore accounts.  This has enabled the evaders to draw cash and buy goods in the UK without creating a trail.

 

The Revenue, late in the day, is catching up with the villains.

 

In December the Revenue was successful in obtaining consent to serve a notice on an unnamed high street bank requiring the bank to provide information about credit card customers with UK addresses who have cards associated with offshore bank accounts.

 

The bank contested the Revenue’s application for the notice but each of its arguments was rejected by the special commissioner.

 

The bank must now provide details of all these customers and their accounts.

 

Once in receipt of this information the Revenue will establish how much interest has been added to the offshore accounts.  It will crosscheck this information with any amounts declared by the account holders on their tax returns.  Where there is a discrepancy it will seek to tax the undeclared interest.  But that is only the beginning.  There could well be penalties and interest to pay on the undeclared interest.  More significantly, the Revenue will want to know the source of the money paid into the offshore account.  That could lead to a rich seam of undeclared income.  The tax, penalties and interest on that will almost certainly equal the amount of the undeclared income.  In other words the evader will be worse off than if he had declared his income in the first place.

 

Based on the authority of this case the Revenue will now be requesting information from banks and other financial institutions in the UK.  It is only a matter of time before they catch up with the account holders.

 

 

Our Advice – Anyone who has evaded tax by diverting income offshore or by failing to report interest earned on offshore accounts will probably be feeling worried right now.  The best advice is to come clean.  This is not painless.  It does, however, enable the taxpayer rather than the Revenue to take the initiative and it strengthens the negotiating position.  Who knows, there might even be some money left over after the settlement which can be invested tax efficiently?

 

 

ARCTIC SYSTEMS UPDATE

 

The Revenue is trying to persuade the House of Lords to hear an appeal against the decision of the Court of Appeal.

 

Most of our clients who are potentially affected by the outcome of this case have made suitable protective disclosures in their self assessment tax returns.  It follows that, regardless of the outcome of Arctic Systems case, the Revenue cannot enquire into this aspect of their returns for all years up to and including 2003/04.  If we get to 31 January 2007 without receiving an enquiry notice then the year 2004/05 will slip beyond the Revenue’s reach as well.

 

We hope the House of Lords will refuse to hear the appeal or, failing that, will agree with the decision of the Court of Appeal.

 

If the government wants to raise taxes it should have the decency to do so through proper parliamentary process and not through placing a new interpretation on existing legislation.

 

 

Our Advice - If you haven’t already made a protective disclosure on your tax returns, sit tight and keep your fingers crossed. 

 

MORE ON PENSIONS

 

If you are not aware that the world of pensions is about to change fundamentally, you are probably not bothered anyway so you can skip this.

 

One of the good features of the current (pre 6 April 2006) regime is that you can pay a premium in year two and elect to carry it back and have it treated for tax purposes as though you had paid it in year one.

 

This can be useful if you pay tax at a higher rate in year one than in year two.

 

After 5 April 2006 it will only be possible to have tax relief on pension premiums in the year in which they are paid.

 

Our Advice – If you like the idea of saving for your retirement through pension schemes and if you expect your marginal tax rate to be higher in 2005/06 than in 2006/07 you should consider paying extra contributions to your pension scheme now.  Remember, there are limits to the amount you can contribute to your pension scheme.  If you need advice about contribution limits in 2005/06 please get in touch.

 

 

CODE NUMBERS 2006/07

 

In the last week or so we have received dozens of copies of clients’ notices of coding for 2006/07.

 

If you are in the self assessment club it doesn’t really matter whether the Revenue gets your code number right or wrong.  You know that when you send in your tax return at the end of the year an accurate calculation is prepared and you will either pay the amount owing or receive a refund.

 

In recent years we have noticed the Revenue trying to collect higher rate tax on investment income through the tax codes of higher rate taxpayers.  They have no right to do this.  They do it because it speeds up the collection of tax.  Cheeky.

 

If you are not in the self assessment club your notice of coding is very important indeed.  If your code number isn’t right the chances are you won’t pay the right amount of tax in the year.  That could mean you pay too much tax.

 

Our Advice – If you are a higher rate taxpayer, resist any attempt by the Revenue to collect tax on your investment income through your tax code.  Telephone your HM Revenue and Customs office now and ask for a change to be made to your code number.  Revenue officials are under instructions to comply with the requests of taxpayers who ask for their code numbers to be changed for this reason.

 

If you are not in the self assessment system, check your code number carefully.  Ask the Revenue to explain any adjustments which you do not understand.  If you think you will pay too much tax make a repayment claim at the end of the tax year.

 

INHERITANCE TAX

SOMETHING TO DO BEFORE 6 APRIL

 

Is your estate going to bear inheritance tax?  If so, you should consider asking us to carry out an inheritance tax planning exercise.  But one simple measure you can take each year is to give away £3,000.  That is the amount you are allowed to give away with the assurance that, no matter how long you survive, it will never be treated as part of your estate.  It is known as the annual exemption.

 

The annual exemption works on a curious last in first out basis.  If you have never made any gifts then you can still make use of your annual exemption for the year 2004/05.  But in order to do so you must make gifts of £6,000 before 6 April 2006.  That is because the exemption of the current year i.e. 2005/06 is allocated to the first £3,000 given away and the exemption for 2004/05 is allocated against the next £3,000 given away.

 

So if you cannot afford to give away more than £3,000 before 6 April 2006 you lose the opportunity to use your 2004/05 exemption.

 

Our Advice – Think about it.  Use it or lose it.

 

 

THE CHAIRMAN AND THE NEW COACH

 

The old pro embarks on his coaching career by accepting the job of manager at his local non league club.  Unsure about his ability to cope with the demands of the job, he agrees to a very modest salary.

 

After a long run of victories he is so pleased with himself he approaches the chairman in the hope of getting an extended contract and a pay rise, only to be told that he has played no part in the club’s success.  Taken aback, he points out that he is the one who has coached the team and devised the tactics.  “All very well,” replies the chairman, “but I’m the one who has been bribing the opposition.”

 

 

Copyright:  K P Bonney & Co LLP 2006.  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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