The View from No 50
K P Bonney & Co
Chartered Accountants and
Chartered Tax Advisers
Ilkley LS29 6JA
Tel: 01943 870933
Fax: 01943 870925
WORRIED ABOUT YOUR SAVINGS?
Everybody with savings in the bank has had reason to pause recently and wonder whether their money is safe. In the words of Mark Twain, investors are more concerned with the return of their money than the return on their money.
Commentators have suggested the solution is to spread savings around in order to reduce the risk or inconvenience should one bank go down.
Less obviously, a clever thing to do with your money is to use it to pay off liabilities. You might, for example, have a tax liability falling due in months to come. If you use some of the money to pay off the liability now, you don’t suffer a reduction in your wealth or inconvenience if your bank later gets into difficulties.
But paying tax goes against the grain doesn’t it? And paying tax earlier than necessary is particularly unattractive.
Is there an alternative? Yes there is. It is called a certificate of tax deposit.
This is something of a forgotten investment. It has been forgotten because it pays a relatively poor rate of interest.
The beauty of a certificate of tax deposit is you have the option of either using it to pay a later tax liability or encashing it. In the meantime your money is held by the government. Right now that is one of the safest places to keep it.
You buy certificates of tax deposit from H M Revenue & Customs. The certificates pay a rate of interest of 2% per annum if you later use them to settle a tax liability and 1% per annum if you later encash them. If you deposit more than £100,000 you qualify for higher rates.
For full details go to
Our Advice: If you are more concerned about the return of your money than the return on your money then certificates of tax deposit are well worth considering.
WORRIED ABOUT YOUR BUSINESS SAVINGS?
We have all been following the bank crisis with interest and so by now we all know that the first £50,000 of our savings is protected by the Financial Services Compensation Scheme (FSCS).
But what about business accounts? What if you have money in a limited company or partnership bank account? What, if any, protection do you get for these savings?
The answer is you enjoy pretty much the same protection as individuals.
A company, partnership or limited liability partnership (LLP) account benefits from the £50,000 protection conferred by the FSCS. But note for partnerships and LLP’s the protection is £50,000 outright, not £50,000 per partner.
In order to benefit from the protection the business must satisfy two out of three of the following conditions:
Annual turnover must not exceed £6.5m
Balance sheet total must not exceed £3.26m
Number of employees must not exceed 50.
Our Advice: Limited companies should consider spreading it around. Partners should consider withdrawing funds from their businesses and spreading it around and considering alternative safe havens. Hint – see previous article.
HMRC has made available details of further scams perpetrated by lowlifes who make it their business to relieve us of our hard earned savings.
Watch out for a contact by email inviting you to claim back income tax.
Be wary if you receive what seems to be a telephone call from HMRC demanding customs payments on impounded parcels.
HMRC emphasises it would never contact you in these ways.
For further details go to
Our Advice: Be vigilant. Refer any suspicions to us.
MORE ON THE TAXATION OF NON EXISTENT PROFITS
In the July issue of our newsletter we outlined changes in this year’s Finance Act which affect how you are taxed if you remove stock from your business and use it for private purposes.
In a nutshell you are treated as if you had sold the goods at their market value.
We speculated that the measurement of market value would be the subject of numerous disputes between taxpayers and HMRC. In rounding off our article we stated that a house builder who builds a house for his own private use would be in for the shock of his life as under the legislation he would have to compute his profits on the basis he had sold the house to himself at its market value.
Don’t ask how (and it wasn’t anything to do with us) but Philip Davies the MP for Shipley got hold of a copy of the newsletter and, thinking it was from us, wrote to Alistair Darling for an explanation!
Mr Davies has now sent us a copy of the reply he has received from the Rt. Hon. Jane Kennedy MP (Alistair must have had something more important on his plate).
In typical fashion the government cannot agree that our clients or any other taxpayers will be inconvenienced by the legislation. So there you are. It must be very easy to determine the market value of any stock you take from your business after all!
On the specific point about the house builder who builds a house for himself The Rt. Hon. Jane Kennedy makes the point that a house builder would not be caught by the law because “..the open market value only applies where a business has taken a conscious decision to appropriate goods to or from trading stock. It does not apply where the goods, such as construction materials, are purchased for a non-business purpose and never formed part of trading stock.”
I accept this point. It is just that in many cases the house builder builds a little estate or block of flats and only towards the end of the project does he decide to keep one for himself. For this builder to avoid the consequences of the legislation he must divide up all his purchases of sand and cement and other materials and only put through the business those which relate to the houses or flats he builds for resale. No inconvenience there then! It doesn’t happen like that in the real world. This builder is still in for a mighty shock when he gets his tax bill.
Our advice remains: Now would be a good time to start keeping a record of goods withdrawn from your business for private use and it would be an even better idea to record your reasons why the market value of the goods is lower than the normal selling price. Time of day, weather conditions, sell by date etc. etc..
Our supplementary advice: If you buy in a quantity of goods, some of which you know you will put to private use rather than resell, then, if it is practical to do so, you should not enter the cost of those private use goods in your business records at all. That way you ensure there is no way you will be taxed on a non existent profit when you later remove those goods from the business.
A super rich premiership footballer goes to the supermarket to do the weekly shop. His attention is caught by an attractive young woman who is waving at him.
“Hello,” she says.
He is rather taken aback because he recognises her but he can't place where he knows her from. So he asks, "Do I know you?"
To which she replies, "I think you're the father of one of my kids."
Now his mind travels back to the only time he has ever been unfaithful to his wife and he says, "My God, are you one of the strippers from that Christmas party who I had sex with on the pool table with all my team mates watching while your partner whipped my butt with wet celery?”
She looks at him sideways, "No, I'm your son's teacher."
Copyright: K P Bonney & Co LLP 2008. 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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