The View from No 50





May 2013

K P Bonney & Co

Chartered Accountants and

Chartered Tax Advisers

50 Cleasby RoadMenston

IlkleyLS29 6JA

Tel:01943 870933

Fax:01943 870925






Yes, you can correct errors through your VAT return.There are financial and time limits but generally you can correct errors in this way.


When Hung On Chan submitted his VAT returns he deliberately over-declared his liability. He did this because he experienced peaks and troughs in his business. By over-declaring in the good times he reckoned he could claw back the tax by making corresponding under-declarations in the bad times.In this way he was able to manage his cash-flow successfully. By 1 March 2006 he had over-declared £5,648 of VAT.


HMRC discovered what was going on during a compliance visit.They claimed the corrections (under-declarations) were not in fact corrections and that only over or underpayments that were Ďdiscoveredí by the taxpayer could be corrected

through the VAT return.A deliberate error could not be discovered.


The tribunal agreed with HMRC.Manipulating the VAT figures to manage cash flow has no basis in law and deliberate errors cannot be corrected via the VAT return.


Our Advice:We all know that deliberately under-declaring is a serious matter but deliberately over-declaring is fraught with problems too.


There is a lesson here for business owners who through laziness or lack of time do not claim the input tax to which they are entitled in one return, thinking they will claim it in a later one.Get it right first time.






Over the years the investment bond has been the stock answer of the financial adviser to the question about where to invest a lump sum.


The taxation of the profits arising on investment bonds is complicated to say the leastA certain Mr Lobler discovered this to his cost at a tax tribunal recently.In 2005 he invested $1,440,000 in an offshore bond.In 2006 he bought a house.In order to finance the purchase of the house he withdrew $1,390,000 from the bond.†† He finally surrendered the bond in July 2008 for $35,000.


Doing the simple maths, Mr Lobler lost $15,000 on the bond.


What do you suppose was the consequence of that?


Like Mr Lobler you might be surprised to learn HMRC charged him to tax on the basis he had made a profit of $1,295,000.


His appeal to the tax tribunal failed because the charge was correct.


The tribunal chairman expressed sympathy for the taxpayer and a review of the taxation of investment bonds is now underway.


Too late for Mr Lobler.


Our Advice: There is more than one way to skin a cat.Unbeknown to Mr Lobler the tax could have been avoided if he had arranged his withdrawal in a different way.Had he taken and followed advice he would have had no tax liability at all.


It is interesting to reflect on how quickly HMRC challenges taxpayers who, in order to gain a tax advantage, make arrangements which put form over substance.Here we have a situation where the law effectively prescribes form over substance.This case shows HMRC is happy to argue for form over substance if it results in a higher tax yield.






When I was a lad I grew up in a terrace house built before the age of the car.There was no such thing as off street parking.On a plot of land about 100 yards away there stood a dozen or so ramshackle garages.My dad bought one and kept his Morris Minor there.


Curtilage is a word uttered occasionally by tax practitioners but is otherwise pretty much redundant.†† It is defined as Ďa small courtyard or piece of ground attached to a dwelling house and forming one enclosure with ití.The concept is used to determine the extent of a dwelling house for the purposes of the capital gains tax only or main residence exemption.Where dispersed buildings have a clear relationship with each other they fall within a single curtilage.So the stable block of the stately home falls within the curtilage of the main house and benefits from the main residence exemption.


But what about my dadís garage separated from the house by a street and a snicket?Surely that canít be said to be in the same curtilage?Surely on a sale of the garage there would be a taxable gain?


Well thankfully no.HMRC takes a sensible view in these circumstances.Substance over form indeed!They accept that a garage separated from the house by land owned by others is part of the dwelling house.†† But the distances involved must be reasonable.Living in a house in Ilkley you would struggle to get the exemption for a garage in Otley.






William went in to a shop to buy some IT equipment for his VAT registered business.He looked at the till receipt given to him by the shop assistant.It didnít show the VAT number of the shop.


William asked for a proper VAT receipt.


The shop assistant said that in order to prepare a VAT receipt she would need a note of Williamís name and address.


Not willing to give private information to the shop William walked out, resigned to the fact he would have to bear the VAT himself.


Just what information must a till receipt contain in order for it to be used as evidence of input tax by the buyer?


Was the shop right to insist it must have a name and address before issuing a VAT invoice?


In order for a shop till receipt to serve as evidence of input tax it must contain the retailerís name, address and VAT registration number, the time of supply, a description sufficient to identify the goods or services supplied, the total amount payable including VAT and, for each rate of VAT chargeable, the gross amount payable including VAT and the VAT rate applicable.


As it didnít show the retailerís VAT registration number Williamís till receipt was not sufficient to enable him to reclaim the VAT.In the circumstances he was perfectly within his rights to ask for and receive a VAT receipt.


So the shop was wrong to insist on obtaining Williamís name and address before issuing a VAT invoice?


Well, actually no.


The rules outlined above apply only to purchases up to a value of £250 including VAT.


William was buying goods of a value greater than this.


Where this is the case the invoice must show further information including the name and address of the person to whom the supply of goods or services is made.


So next time William goes shopping for equipment he will have to decide which is more important Ė reclaiming the input tax or retaining his privacy.





Sarah was reading a newspaper while her husband was engrossed in a magazine. Suddenly, she burst out laughing. "Listen to this," she said. "There's a classified ad here where a guy is offering to swap his wife for a Chelsea season ticket."

"Hmmm," said her husband, not looking up from his magazine.

Teasing him, Sarah said, "Would you swap me for a season ticket?"

"Absolutely not," he said.

"How sweet," Sarah said. "Tell me why not."

"Season's more than half over,Ē he answered.


Copyright:K P Bonney & Co LLP 2013.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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