The View from No 50
K P Bonney & Co
Chartered Accountants and
Chartered Tax Advisers
Ilkley LS29 6JA
Tel: 01943 870933
Fax: 01943 870925
I obtained my practising certificate from the Institute of Chartered Accountants in England and Wales on 4 February 1987. For the last thirty years I have been inflicting my particular way of doing tax and accountancy on thousands of innocent souls.
Over the course of this time I have met some great people and established many valued friendships.
I have enjoyed being my own boss. I have probably taken fewer holidays than an employed counterpart but it is good to know I can shut the office whenever I want.
In Sue I have had the best personal assistant in the world. How lucky am I?
I have also had fantastic help from a number of brilliant book-keepers. Thank you, thank you.
I have enjoyed helping clients make sense of the baffling impositions placed on them by the state. I have enjoyed helping them to save tax – always within the letter and spirit of the law of course.
I have despaired at the lack of understanding of the lot of ordinary taxpayers by governments. Desperate to control the mischievous minority they routinely pass legislation which burdens the compliant majority.
I lament the butchering of HMRC. We have reached a point where it can barely provide a service to those in need of help.
HMRC has lost the skill of communication. Today it does ‘transmit’ but it doesn’t do ‘receive’. Today it has the gall to tell me how to run my business. Yet clearly it struggles to run its own.
To my 1987 self I would say, without hesitation, do it again.
To a practitioner starting out today I would say don’t go it alone. There’s just too much stuff out there. You need colleagues to share the load.
The fourth official has indicated there will be a minimum of one year of added time.
DO YOU REALLY NEED TO PRINT THAT DOCUMENT?
Some of us embrace the move to digital record keeping. Some of us hate the prospect.
Those of us who prefer to keep our records in electronic form do so because
· We can retrieve our information wherever we are in the world.
· We don’t waste space keeping paper records.
· We cut our printing and postage costs.
· We minimise our carbon footprint.
In my business I issue most of my invoices as PDF attachments to emails. That is how most of my suppliers send their invoices to me.
A business client got in touch recently to ask whether it is OK to keep records in electronic format only. What, he asked, was HMRC’s attitude if you don’t have a physical paper trail for your business income and expenses?
The answer is HMRC cannot prescribe how you keep your business records. You are required to keep accurate records and you are required to keep them for a period lasting until five years and ten months after the end of the relevant tax year.
HMRC can fine you up to £3,000 if you fail to maintain adequate records so it is important to set up a proper record keeping system when you start a business.
But the main point of this piece is that HMRC can’t tell you in what form you should keep your records. Paperless is perfectly acceptable.
So next time you are about to hit the print button, think carefully. Do you really need to print that document?
Sterling has been on a roller-coaster ride since June 2016. How do these fluctuations affect those who sell assets situated abroad?
Mr and Mrs Knight, who are resident in the UK, bought an apartment in Florida in 2007. They paid $500k. Having decided it no longer met their needs they sold it for $500k in 2016.
So no gain no loss.
Well it is easy and tempting to look at it like that. But is that the right way to compute gains or losses on the disposal of non-UK assets?
At the time of purchase the exchange rate was $1.98 to the £. In the intervening years sterling has fallen against the dollar. At the time of sale the exchange rate was $1.23.
The sterling equivalent of the purchase price at the time of purchase was £252,525.
The sterling equivalent of the sale price at the time of sale was £406,504.
In sterling terms Mr and Mrs Knight have made a gain of £153,979. The tax on that could be as much as £43,000.
So do they have a taxable gain or not?
Does it make a difference if they don’t repatriate the proceeds?
The answer to the second question is it does not matter whether they repatriate the proceeds or not. Individuals resident in the UK are chargeable on their worldwide gains regardless of whether the money is repatriated or not.
The answer to the first question is we fix the sterling base cost of a foreign asset using the exchange rate applicable at the date of purchase. We fix the sterling proceeds using the rate applicable at the date of sale. The difference between the two sterling amounts is our gain or loss. In this case we have a gain of £153,979.
Mr and Mrs Knight are a real couple. They reported their gain, quite innocently, on the incorrect basis. Not only did they have to pay the tax, they had to pay a penalty too.
There are important lessons here for UK residents who own non-UK assets. The recent fluctuations in sterling may give rise to unexpected tax outcomes.
TWENTY THOUSAND PERCENT TAX RATE
Paul Lewis presents the Money Box programme on BBC Radio 4. It is always worth a listen. In a broadcast in mid-January he claimed to have counted ninety-one different marginal rates of tax in the UK. Even I accept that Chancellors don’t consciously set out to make tax complicated. So I must conclude that this horrendous state of affairs is the result of them trying to make the system fair.
New for the tax year 2016/17 is the personal savings allowance. In itself this is a good thing. It removes the need for thousands of savers to submit a tax return. Basic rate taxpayers get a personal savings allowance of £1,000 and higher rate taxpayers get an allowance of £500. Fair enough.
But if an extra £1 of income converts you from a basic rate taxpayer into a higher rate taxpayer your personal savings allowance decreases from £1,000 to £500 and on that £1 of income you pay £200 of tax. That is a marginal tax rate of twenty thousand percent. Ouch!
What would a well advised taxpayer do in these circumstances?
He would make a gift aid payment of £1 and elect to carry it back to the year in question and thereby restore his position as a basic rate taxpayer.
You can’t have fairness without complexity. Based on the fact we have the longest tax code in the world perhaps we can conclude we also have the fairest.
A Yorkshire lad comes home from school and tells his mother he has been given a part in the school play.
‘Wonderful,’ she exclaims. 'What part is it?'
The boy says, 'I play the part of the Yorkshire husband.'
His mother scowls and commands 'Go back and tell your teacher you want a speaking part.'
Copyright: K P Bonney & Co LLP 2017. 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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