The View from No 50

 

 

 

 

May 2011

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

 

 


 

TAX FREEDOM DAY

 

Tax Freedom Day, the day which marks the day when we stop working for the government and start working for ourselves, falls on 30 May this year.  That is three days later than in 2010.  The main reason we shall spend three extra days working to pay our taxes is the increase in the rate of VAT.

 

Roll on 30 May!

 

 

MILEAGE

 

After 10 years at 40p the authorised mileage rate has been increased.  With effect from 6 April 2011 the authorised mileage rate is 45p per mile.

 

Step forward the person who thinks motoring costs have increased by no more than 12.5% in the last ten years!

 

The authorised mileage rate applies to payments made by employers to employees who use their own cars for business motoring.  It also applies to small unincorporated businesses in certain circumstances.

 

 

MEDICAL EXPENSES AND THE SELF EMPLOYED

 

I am often asked by self employed clients if they can claim for medical expenses such as osteopathy and physiotherapy as a deduction from their business profits.

 

The answer is – it depends.  It depends on the reason why you incur the expense.

 

I have a dodgy back.  When my back fails I resign myself to a few weeks of feeling pretty uncomfortable and walking around like Quasimodo.  On the basis that prevention is better than cure I visit an osteopath every six months and he gives me a workout.

 

My reason for incurring the expense is to, hopefully, lessen the chance of a recurrence.  I suppose I could argue that I incur the expense in order to be better able to concentrate on my work.  But the fact is that one of my purposes is to simply relieve the pain or the possibility of pain.  Accordingly my purpose is not wholly and exclusively a business purpose.  For this reason I cannot claim the expense.

 

Contrast with my drummer client.  My drummer client spends hours practising and performing.  He explains to me that he cannot filfil his work commitments unless he has regular physiotherapy.  His only purpose in incurring the physiotherapy expense is to enable him to work.  For him there is no other purpose.  Accordingly he can claim his expense.

 

So it all comes down to purpose.  So long as your only purpose in incurring the expenditure is to enable you to work, the expense is allowable.  Other purposes are fatal.   Other effects are inconsequential.

 

 

TAX CODE PUZZLE

 

In a state of concern, my high income high spending pensioner client (HIHSPC) phoned me the other day to inform me his pension had gone down by £200 in April.  The cause was an extra PAYE deduction of £200.  How could this have happened?

 

At first I thought HMRC had given him a wrong tax code for 2011/12.  Since HMRC stopped sending copy notices of coding to agents the onus rests with clients like HIHSPC to send these notices to me for checking.

 

When I received his coding I found it was actually right.  In fact it was not a lot different to the code for the previous year.  So there was no obvious reason why HIHSPC’s PAYE had increased so much.

 

Further enquiries revealed HIHSPC’s pension provider had operated an entirely spurious tax code for 2010/11.  Certainly HMRC had not issued the code number which the pension provider had operated.

 

The upshot is that HIHSPC has not paid enough tax on his pension for 2010/11.  Sadly the underpayment is more than £2,000 so he doesn’t have the option of paying the tax through PAYE in 2012/13.  All the tax falls due for payment in January 2012.

 

HIHSPC has had a few choice words with his pension provider but ultimately the liability rests with him.

 

An unusual set of circumstances.

 

Our Advice:  Not only should you check your tax code and send a copy to your agent you should also check your payslips to make sure your employer or pension provider is operating the right code.

 

   

A GOOD HEADLINE BUT..

 

If you work for an employer who operates a company-wide child care policy you can receive up to £55 per week in child care vouchers completely tax free.

 

The tax break has proved popular.  Too popular, in fact, for a cash strapped Treasury.

 

From 6 April 2011 the tax free entitlement of new joiners is restricted to

 

Basic rate taxpayers          £55 per week

Higher rate taxpayers        £28 per week

Additional rate taxpayers   £22 per week

 

And here’s the rub.  How, as an employer, are you supposed to know whether your employee is a basic, higher or additional rate taxpayer?  Of course you can’t and that is where the Treasury’s plan largely falls down.

 

In order to make the restriction workable it has been agreed that the employer need only take in to account salary and benefits arising from the particular employment.

 

So an employee could have a modest salary, substantial dividend or other investment income and pay tax at a marginal rate of 50% and still get £55 per week of tax free child care vouchers.

 

Just about every mother and father owner of a limited company can still therefore enjoy the maximum tax free entitlement.

 

Like so many government ideas.  Good headline.  Ineffective in practice.

 

 

WE’RE ALL PLUMBERS NOW

 

Imagine you head up HMRC and you are under pressure from the chiefs at the Treasury to crank up tax receipts.  You have sacked all your experienced staff because they were expensive.  What do you do?

 

You go all DFS and offer a tax amnesty at bargain prices but only while stocks last.

 

In recent years we have had an amnesty for people with money stashed offshore and another for doctors and dentists.  Now we have the amnesty for plumbers.  But in reality the amnesty is open to anyone who wants to fess up.

 

The offer opened on 1 March and lasts until 31 May.  All disclosures and payments of tax interest and penalties must be made by 31 August.

 

Under this amnesty the penalty charged is 10% for careless behaviour and 20% for deliberate behaviour.  Under normal circumstances the penalties would be higher, particularly if the behaviour were discovered, unprompted, by HMRC.

 

So hurry down to Local Compliance in Chelmsford and pick up your amnesty papers.

 

Remember.  There won’t be another amnesty until the next one.

 

Seriously though, if you have done any tax naughties this is a good opportunity to come clean.

 

 

CHEW IN

Two old men were holding up the queue outside the turnstile before the game as one of them hunted for his ticket. He looked in his coat pockets, his waistcoat pockets and his trouser pockets, all to no avail. 'Hang on a minute,' said the gateman, 'What's that in your mouth?' It was the missing ticket!

As they moved inside his mate said, 'Crikey, Cyril! You must be getting senile in your old age. Fancy having your ticket in your mouth and forgetting about it!'

'I'm not that stupid,' said Cyril. 'I was chewing last week's date off it.'

 

Copyright:  K P Bonney & Co LLP 2011.  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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