The View from No 50

 

 

 

 

March 2016

 

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

 


 

 

DON’T LET THE FACTS GET IN THE WAY OF A GOOD STORY

 

As long ago as the 1952, it was clear to government that it needed to introduce legislation to prevent UK residents avoiding tax by transferring their assets to non-residents whilst continuing to enjoy the benefit of those assets.  So that is what it did.

 

The legislation, which goes under the moniker ‘transfer of assets abroad’, is drawn extremely widely so it is only genuine commercial arrangements which escape its reach.  In a nutshell, if your arrangements are not bona fide commercial, you are taxed in the UK on the income of the non-resident person to whom you have transferred your assets.

 

Why is this news?

 

In a recent Channel 4, Dispatches programme about tax avoidance, a reporter looked into the possibility of the businesses of a village in south Wales moving their profits offshore, a la Starbucks.  The plan involved transferring the intangible assets of the businesses to the Isle of Man after which the businesses would pay royalties to the Isle of Man for the use of those assets.  The royalty payments would reduce the profits chargeable to tax in the UK.

 

It made for a very entertaining programme.  The business owners of Crickhowell, Powys got very excited.  No doubt a lot of viewers got straight on the phone to their accountants to ask why this ruse had not been suggested to them.

 

The media loves a story about tax avoidance.  They know it winds up their public. 

 

Hang on!  What about ‘Transfer of assets abroad’?   Well, yes indeed.    Of course if this had been mentioned there would have been no programme at all.  The legislation kills the scheme.

 

This is one of those occasions when the media’s motto ‘Don’t let the facts get in the way of a good story’ won the day and the viewing public was misled.

 

At least the viewers who were led to believe their accountants were missing a trick can now rest assured.  Their accountants knew the score all along and were simply exercising masterly inaction.

 

So how do Google, Starbucks and the like get round it?   Well, their intangible assets were developed and always have been located and owned outside the UK.   There is no transfer of assets abroad.  So long as the amount the UK businesses pay to use these assets is reasonable, it is right that a deduction is allowed in computing their profits.

 

 

SO WHAT ABOUT THE GOOGLE SETTLEMENT?

 

Initially spun as a great deal for the UK taxpayer the Google settlement came to be derided as a shameful defeat.

 

But the truth is nobody outside of Google and HMRC really knows.

 

As stated recently by the editor of Taxation magazine, “The UK has a long tradition of freedom from political interference in the operation of the tax system.  Politicians and ministers have no rights to see the files of taxpayers: quite rightly so.  That independence (of HMRC) is critical to the system.

 

What we have seen over the past few days is politicians of all stripes coming perilously close to undermining the independence of HMRC by substituting their own judgements as to what tax Google should have been paying.

 

If a policy produces a result to which politicians object, they are perfectly entitled to make political capital out of it by proposing a change in the law.  That, though, is very different from suggesting that HMRC should have assessed a particular taxpayer in a different figure.  This is extremely dangerous.”

 

Hear, hear to that. 

 

Along with my fellow taxpayers, however, I just hope HMRC has negotiators as well-resourced and experienced as those of Google and the like.

 

WEAR AND TEAR ALLOWANCE

 

Are you a landlord of a furnished property?  If so you know that you do not claim for the cost of furnishings and fittings.  But you are also aware that you can claim an arbitrary allowance for your deemed expenditure on such things.  The allowance, called a wear and tear allowance, is set at 10% of your rental income.

 

This is a long-standing yet bizarre arrangement which favours those landlords who don’t care for their tenants’ welfare over those who do.

 

With effect from 6 April 2016 the wear and tear allowance is consigned to history.  From then on you can claim for what you actually spend on replacement furnishings and fittings.  So you get no relief for your original outlay but you get full relief for the cost of replacements.

 

The owners of unfurnished property were never entitled to the wear and tear allowance and, because their properties were ‘unfurnished’, they were not allowed relief for any expenditure on furnishings like carpets, curtains or white goods.

 

In a welcome move this anomaly is being abolished from 6 April 2016 too.  From then on the owners of these properties will be able to claim tax relief for expenditure on replacement furnishings and fittings.

 

The short term tax planning ruse for all landlords is, of course, to put off until 6 April any planned replacements of beds, sofas, tables, carpets and curtains.

 

 

INHERITANCE TAX

 

March is a good time to remind you that gifts of up to £3,000 per donor per tax year are exempt from inheritance tax.  If you didn’t use your 2014/15 exemption you can give away £6,000 before 6 April 2016 and use that year’s exemption.   But it’s last in first out so if you only give away £3,000 you lose your 2014/15 exemption.

 

 

YEAR END PLANNING

 

Income management during March can reap very worthwhile rewards.  That advice, given in my March 2015 newsletter, applies equally now.

 

Here is the link:

 

http://www.kpbonney.co.uk/NEWSLETTERMAR15.htm

 

 

 

 

 

 

HOW TIMES CHANGE

 

Go back fifteen years or so and the old Inland Revenue used to send out prepaid envelopes willy-nilly.  They reckoned paying for taxpayers’ postage meant more people paid their tax on time.

 

As an agent I accumulated hundreds of these envelopes.  I still have them.  I don’t use them myself as, like most taxpayers, I pay my tax electronically.

 

But if you are an old-school taxpayer who still prefers to send a cheque through the post, do pop in.  I should be pleased to give you a supply of prepaid envelopes.

 

I tested one recently and can confirm they still work.

 

 

SCOTTISH SNOWBALLS

 

On 15 December 2015 HMRC confirmed that the marshmallow confectionery called Scottish Snowballs is food and as such is zero rated for VAT.

 

They’ll be dancing in the streets of Hawick tonight.

 

 

MEANWHILE AT THE AIRPORT…

 

Paula was waiting for her daughter Janet in the arrivals hall.  Janet had been away exploring the world during her gap year.

 

When she came into view Paula noticed her daughter was accompanied by a man with exotic markings all over his body, dressed in feathers and carrying a shrunken head on a stick.

 

Janet introduced this man as her new husband.

 

Paula gasped out loud then screamed “I said to find yourself a rich doctor.  A rich doctor!”

 

Copyright:  K P Bonney & Co LLP 2016.  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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